Readjusted budgeting and analysis

Despite the growing sophistication of financial software at all levels, organizations continue to be leery of changing their old habits. Those medium-sized organizations that have initiated change are anticipating great opportunities for their organizations from better budgeting and forecasting support systems

By Robert Colman

There has been a lot of talk over the past few years about the problems associated with spreadsheet-based budgeting and forecasting. Despite general concern about the issue, however, many companies still aren’t acting on this concern. The current business environment could change that, as companies try to react nimbly to cost fluctuations and higher fuel prices. However, as it stands right now, many players, particularly small and medium-sized enterprises (SMEs) still aren’t taking the opportunities presented to them by less expensive software investment options and the time this can free up for more strategic financial management. 

In the July 2003 Business Finance/ALG Software Budget Reforecasting Survey, 73% of the respondents indicated that they were using Excel spreadsheets. Two years later, 69% of survey participants were still saying that they use the same software. Bruno Caravaggio, director of business development at Prophix Software, says the situation in Canada isn’t much different.

“At a recent user conference, someone said to me, ‘I spend 90% of my time collecting data, and maybe 10% analyzing that data,’” he explains. “This isn’t uncommon. In fact, it’s really the norm.”

Caravaggio’s comments seem to be born out in a recent IBM survey of CFOs internationally. The recently released study of 900 senior finance executives worldwide revealed that only a third of respondents rate themselves highly effective in supporting their CEO’s efforts to grow the company.

The study, developed in co-operation with The Economist Intelligence Unit, noted that almost 50% of executives report finance staff are tied up in transactional activities such as processing accounts and tax transactions; only a quarter are focused on decision support. (For more information on the study, see this month’s News and Views section.)

“One of the problems is that people are trying to make Excel do what it was never meant to do — act as a multi-user system,” says Caravaggio. “As the complexity of a business expands, the room available in such a system can’t meet a company’s needs.”

This needn’t be the case, however. Software companies are now creating solutions that suit the reporting and analysis requirements of SMEs, at a comparatively reasonable price point and with fairly short implementation timelines. The organizations that are taking up the switch to more focused bud-geting and forecasting systems do see the potential.

Re-educating a college

Peter Fraser, CMA, director of finance for the Ontario College of Art & Design (OCAD), recently introduced a new budgeting and forecasting software system to support changes at the college. OCAD has been sharing a finance and student information system with Brock University for many years but, as Fraser explains, “it was missing a budget forecasting model.”

OCAD is in the midst of impressive growth, having jumped from 2,000 students to 3,500 in two years. “Our new building (designed by innovative British architect Will Alsop) has helped to attract students, and our international enrollments are up,” Fraser notes. “We’re also developing graduate study programs. With all of this activity, we had to update our financial planning practices.”

Fraser is trying to establish a decentralization of the budget process. “Other universities, like York and University of Toronto, have a similar decentralized system. With OCAD growing substantially, we want the faculties to manage their own budget planning. Therefore, we will be teaching the faculties to use this new software. We can load 5 years of historical information and trends into the system to do projections for future needs — staffing, supplies, etc.”

The technology isn’t really the biggest challenge, course. “It’s the users,” says Fraser. “It’s quite a leap to make users in faculty offices upgrade systems skills and financial skills in this way. But faculty need to be able to use those skills if we hope to build strategically and use our accounting department in the most effective way to add value to the organization.” Having an intuitive technology to support that learning, of course, can only help.

Early in 2006, Fraser received budgets and forecasts for 2006/07 from each department for the first time, to be used with the new software. Implementation and training with the new system was all done in March 2005, a process that Fraser said was effective and efficient.

Reconsidering controls

Mark Cross, CMA, planning manager at Union Energy, originally purchased a software system for much the same reason that Fraser did — he hoped to improve the budgeting and forecasting process with a new tool.

Union Energy was created in 1998 with the deregulation of the gas industry. It originally was an operating subsidiary of Union Gas, providing service to 1 million hot water heater rentals in Ontario. It has since been turned into a publicly traded home comfort company and is in the midst of changing its brand name to Reliance Home Comfort.

“We had always worked in Excel, which couldn’t facilitate wide ownership of the process,” Cross says. “It couldn’t adapt to the bottom up approach that we wanted to adopt. Budgets had always seen as strictly an accounting exercise. We wanted to change that by getting rid of all of our spreadsheets and really engaging the rest of the organization in the planning process.”

Once Cross had purchased his new budgeting and analysis system, he realized that it could really help him do more than expected.

“With Excel, the process was something that the finance department had to control,” Cross notes. “Now, the way the system is designed, it’s easier for us to use it as an internal management reporting tool. Field personnel can use it for reporting their needs, and it can help everyone report on their key performance indicators (KPIs).”

Cross is finding that not only is his finance group gaining from this, but value is being added in the field. “Before, one person was working full time creating reports for different parts of the company,” he says. “Now, the head count is the same but we’re adding more value in the field. The tools necessary to do this work are becoming more robust and user friendly, businesses are going to benefit.”

Bruno Caravaggio insists that a change of approach for many companies is becoming essential.

“Given the price of oil, raw materials output, and other concerns, companies have to understand the impacts of their actions,” he stresses. “For long-term contracts, you have to understand the cost of inputs — if oil goes up to $70, how can a company measure that to make itself more proactive? Intelligent technology can make a difference.”

Robert Colman is editor-in-chief of CMA Management.

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