Many successful companies now recognize the limitations that come with an Excel-based Annual Budget process. They realize that Excel does what it was intended to do extremely well – work flexibly with different forecasting methods – but with that comes the overhead of diagnosing and correcting errors that are often hard to catch. In Excel you must wrestle with tracking changes, version control, as well as keeping track of who performs the changes. Even with solid budgets created, accounting must contend with consolidating those budgets across the company.
As a principal consultant for ISI, I have worked with many companies to help automate the budgeting process. In that process, we have developed purpose-built software and data models as part of a methodology that encapsulates the following:
So how do you do all of this without Excel? I mentioned that we create purpose-built software and data models – which means going beyond just a few tables in a database and a couple of user interfaces. Purpose-built means keeping the system flexible for key aspects of the budgeting process while remaining easy to use. Questions we answer before we build include:
By now you probably already recognize the potential that this approach can bring to your budgeting process. That change is always positive and dramatic, yet in my experience the benefits always arise in different areas for different companies. To illustrate this concept, I wanted to wrap up by discussing some of the bigger gains we typically see.
As I mentioned above, a big win with this approach lies in the ability to control formulas and algorithms in one central location in the system. Formulas might include a factor times last year’s budget or perhaps last year’s actuals. Something like taxes or interest expense can be much more complicated and defined by a series of other accounts that result in the account being forecasted. All of this can be defined in one place, or distributed among key users of the system, who establish the methods available and then create the “meta data” required to define each method. Once this is established, the methods can be made available to individual accounts or groups of accounts.
Once you have established a system to support the budget process, it is a fairly simple extension to provide workflow within the system. This functionality will provide the ability to track and control the budget process and also establish the ability to provide versioning. Workflow can mean emails or texts sent to appropriate owners and roles in the system, locking down data as appropriate or any combination of notification and security that makes sense.
Another big payoff comes from consolidating the various entities involved in the budget process. Each budget unit uses the same structure and rolling up the budgets is no different than rolling up actual data each month. The big gain here lies in the fact that, once formulas are established, you will never find errors introduced by bad formulas created by individual budgeters.
One final benefit: a logical connection between budgets and forecasts. I have used the terms “forecast” and “budget” somewhat interchangeably. Many companies create their annual budget and then do a reforecast each month throughout the year. The above forecasting method is very conducive to creating ongoing forecasts. We often include forecasting methods that do things like keep the annual budget fixed and reforecast the remainder of the year based on year to date results or perhaps apply the same rate of change to the remaining months as experienced so far. The beauty of this is it establishes one system and one forecasting process that can be used year round that has all of the controls you wish you had in Excel.
Sound interesting? We would be happy to meet with you off the clock to demonstrate the process, discuss how to tailor this approach your company, and help you take advantage of this kind of budgeting process.