Budgeting process case studies demonstrate how to keep it simple

Barry Wilderman analyzes two budgeting case studies and breaks down their differences and similarities.

As companies outgrow Microsoft Excel for their budgeting process requirements, they must consider other software packages to meet their needs. These companies tend to have similar profiles.

Many are mid-market companies (less than $500 million in revenue); most large companies have already taken the plunge.

Complexity is often the key driver for seeking specialized budgeting software. Units with a budgeting process, such as products or divisions, may need to be consolidated. And, inevitably, the greater the number of business units, the greater the complexity of the underlying budgeting formulas.

Many of these companies do not have business intelligence solutions, and must rely on the report writer that comes with the budgeting software. Simple modeling and what-if analysis is what they usually want. They typically want to budget over a 12-month period and only need simple planning capabilities beyond the first year.

Likewise, these companies also have similar requirements for their budgeting software. Essentially, they expect low total cost of ownership, or TCO, and a short time to benefit:

  • The cost per user and maintenance charges must be low.
  • The system must be quick to install and installation charges modest. Cloud-based software often has advantages here.
  • Time to benefit must be short, which means all business units can be initialized quickly and the business model (which may be complex) created efficiently.
  • The system must be quickly usable by financial staff and require little or no training. Users must be able to make changes, analyze their impact and rebuild output reports. The report writer should be easy to use.
  • The system must easily collect and aggregate budget results across business units, and budget review and rework must be easily visible to management.
  • The system should be able to move data from the budgeting system to accounting or enterprise resource planning (ERP) packages and back.

Budgeting process case studies

To illustrate, here are two budgeting process case studies from the website of Centage, a vendor that addresses the budgeting needs of midmarket companies and beyond. They discuss two customers' experiences, both the mechanics of working with the software and an explanation of the relevant business issues.

Hames Corp. operates out of Sitka and Ketchikan in Alaska, and owns a number of grocery stores, liquor stores and convenience marts. Each retail outlet operates as a separate business unit. Its current general ledger system is Microsoft Great Plains, but even with that and Excel, Hames found that its budgeting, financial reporting and forecasting requirements were not being met, so it added Centage's Budget Maestro.

Hames is able to import actuals from Microsoft Great Plains and, with the actuals as a starting point, it can now do budgets across business units, as well as create cash-flow statements and cash forecasts. It can also use Budget Maestro to manage personnel costs by analyzing costs down to the staff-member level.

To my mind, the ability to budget across multiple units -- aggregate the results, manage rework and do financial reporting -- is merely what CFOs should expect in any decent budgeting package.

For Hames, the budgeting system is rapidly becoming the system of record for financial analysis. Excel has mostly been dropped, actuals are moved into the budgeting system, and new budgets and financial forecasts are being created in it.

Personnel-wise, one of the issues in budgeting is deciding on the level of granularity. Budgeting by individual staff members is extremely detailed perhaps too much so for budgets in general. However, a budgeting application might be the best, most detailed tool a company has available for analyzing its personnel needs. Ideally, budgeting software will support any level of detail that the user wants.

The second case involves Wagner Asia Group, which consists of five companies that sell, rent and service automotive and heavy-duty equipment. With approximately 50 people involved in the budgeting process, it had outgrown Excel and decided to use Budget Maestro. Wagner had five companies up and running on the new tool -- including 13 business units and 131 entities -- in eight weeks.

Now Wagner is also able to import data easily from its ERP system to Budget Maestro. And, as in the Hames case, the ability to disaggregate data in great detail is a major plus. Wagner is a Six Sigma company and believes that Budget Maestro is helping it maintain its rigorous standards.

While eight weeks is an impressively short time in which to be up and running, Wagner and businesses in general need to consider some questions: Were the eight weeks just for the central team? How was that team able to train the different units at Wagner? When were all groups up and running?

Being a Six Sigma company requires deep financial analysis, which in turn calls for a good report writer. The quality of the report writer can determine whether real financial analysis is possible, which means that IT and the CFO's team both must do some serious analysis of any prospective budgeting package’s reporting capabilities.

This was first published in December 2013

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