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It is easy to predict the future when it is business as usual. However, if your business environment is suddenly impacted by something like the coronavirus, a delayed product launch or an unplanned acquisition, your corporate budget may become obsolete very quickly.

How Do I Know it is Time To Replace the Budget with a Forecast?

Sometimes unexpected events happen and it is clear the company’s actual performance is moving so far above or below the annual budget that it no longer provides value in the following ways: 

  • A cost control tool
  • A target for employee compensation plans
  • A detailed financial break-down of corporate strategic goals
  • A financial plan for various corporate initiatives

There are many signs that your budget is becoming obsolete due to unexpected events, such as:

  • Management comments why a revenue or expense budget variance is occurring
  • Complaints from sales teams that their targets are too high due to XYZ event
  • Lack of budget ownership from department heads

In addition, you will start hearing from executives that the budget column in the financial statements is “useless” or that the budget target figure in a Key Performance Indicator (KPI) is no longer valuable. 

Some organizations have a predefined monthly, quarterly or semi-annual forecasting process, and when the unexpected happens, they simply take this into account next time they reforecast. These companies often have budgeting and forecasting software such as Solver, Adaptive Insight or Planful to speed up and automate the time and effort it takes to create budgets and forecasts.

Other organizations’ forecasting techniques only include a single annual budget version as a baseline, and for these companies a “forced” reforecast due to unexpected events might involve a lot more arms and legs and interruptions to people’s work schedules.  

What to do When the Corporate Budget Becomes Obsolete?

Companies generally do one of the following when their budgets become obsolete: 

  1. Do nothing and live with the undocumented comments and questions until next year’s budget is launched
  2. Leave the budget as is and use report comments to explain big budget variances (see sample screenshot below).
  3. Reforecast the rest of the year and replace the now defunct budget with the new forecast

Most companies enter their corporate forecasts at a higher level than the annual budget, and often it is only done at the Profit & Loss account level and sometimes also for Balance Sheet and Cash Flow.

In most cases, smaller organizations with well organized, home-grown Excel models can forecast in their spreadsheet and then re-import the forecast into their ERP system or third-party reporting tool. In mid-sized and larger organizations even forecasts at the GL account level may require a lot of work due to requirements to do this by division or department. These companies either have more human resources available to perform the work or they use a budgeting tool to automate it.

Picture1

How to Reforecast Your Budget?

Whether your forecasting requirements are simple enough to be handled in Excel or your company is using a modern budgeting tool, there are ways to avoid the painfully slow bottom-up data entry process. The problem with the latter is that the new forecast may already be old by the time you are done. In these cases, the unexpected event that led to the reforecast could have changed again, leading you to start all over.

Budgeting and  forecasting software automation typically means that your input model is highly formula driven. For example, your forecast model can rapidly calculate all the required entries automatically such as % Revenue Increase, Target Net Income, Reduction/Increase in Headcount, etc. This functionality has many names such as:

  • Top-down planning
  • Driver-based modelling
  • Break-back modelling (see sample screenshot below)
  • What-if analysis

Picture2

Regardless of what you call it and the type of planning tool you use, an automated reforecasting model can create an entire forecast in minutes or hours versus days or weeks with manual methods. 

 An automated model also allows you to create multiple scenarios. For example, armed with a “Best Case”, “Worst Case” or “Likely” forecast scenarios, you can be prepared for unexpected events without rushing to reforecast. Instead, you replace the “Likely” budget version with the already created “Best Case” or “Worst Case” scenario and you are done. 

If the situation calls for a brand new scenario, you adjust the drivers in the automated model and it will recalculate and store the underlying account-level forecast transactions.  

When your company has the right tools and plans ready for a budget reforecast they will be prepared for a virus outbreak, stock market crash or exciting acquisition of a competitor. Planning ahead will reduce stress and blood pressure for the organization’s finance team.

sage-intacct

If you have surveyed an audience of mid-market accounting and finance professionals, you almost always find that 90-95% primarily rely on manual budget models in Excel. How is this possible when most enterprise resource planning (ERP) systems, including Sage Intacct, have both basic native ERP budget functionalities? In some cases, they also have specialized add-on modules. For example, the Microsoft Dynamics on-premise ERPs had the now “retired” Forecaster product and for Sage, it is the Sage Budgeting and Planning. Other ERP systems have built various Excel export and import mechanisms to make it easier for users to budget in Excel. Then, re-import the GL portion of the budget.

While most ERP vendor’s budget add-ons do the job better then entering budgets directly into the ERP system, there still seems to be a large group of companies that simply need a full-featured budgeting and forecasting solution to get the workflow, formula and layout flexibility they need. These solutions are typically referred to as Corporate Performance Management (CPM) tools. They also include a reporting and consolidation functionality.

How do I know if my planning process is NOT streamlined?

Typically, there are a number of key motivators when an organization begins to look for a CPM solution to improve its planning process:

  • Effort spent exporting and importing data from Sage Intacct to home grown Excel budgets
  • Current process is error-prone and a resource strain on the finance team
  • Lack of time and resources to quickly re-forecast (for example if a virus hits the economy!)
  • Lack of automation to create many budget versions
  • Current tool too complex for staff to learn so ended up back with a manual Excel model
  • Find that the ROI of automation with a CPM tool is higher than the cost of manual processes

Which benefits should I expect from modern CPM Planning tool?

Because Sage Intacct is a cloud-based ERP system, pretty much all customers looking for a full featured CPM solution like Solver, Adaptive Insight or Anaplan, will also expect a high degree of functionality, including:

  • Cloud-based platform
  • Pre-integration to Sage Intacct and Sage Intacct approval as a certified add-on vendor
  • Complete workflow functionality to manage submissions, reviews and approvals of the budget
  • Highly flexibly budget form design to completely replace the company’s manual Excel models
  • Strong native report writer for variance reporting and budget consolidations
  • User administration and security that allow for any person to participate in the budget regardless if they are users of Sage Intacct or not
  • Usability features like spreading, break-back, lien items with comments, and more.

I am planning to implement Sage Intacct. What is the best timing for budgeting tool?

Accounting teams always have a lot on their plate. Therefore, it never seems to be a great time to implement another software. However, the best time seems to be in the 2-3 months after the most recent budget cycle. Not only will issues and needs be fresh in mind, but it also allows for plenty of time to select, implement and test a new planning solution before the next budget cycle starts. Some organizations even do a “dry run” of their new budget solution during the year for one of their forecasts.

Carefully selecting a CPM vendor is important

Turbulent Mergers & Acquisition (M&A) market

For example, when a vendor gets acquired, it usually ends less than good for customers. The most typical reason that issues arise is that acquiring companies are much larger than the target company. Therefore, politics and other internal priorities at the parent company tend to drive employees away, disturb the focus of product development, increase prices and more.

Eventually, many acquired products die slowly, and customers end up switching products and vendors. Comshare, Adaytum, SRC Software and Clarity are a few vendors that suffered this during the M&A spree that took place in the CPM space about 15-20 years ago. Over the past 3 years, another wave of M&A has happened, including Workday acquiring Adaptive Insight, a PE firm acquiring Host Analytics from its old investor, Wolters Kluwer acquired Tagetik, and PE-owned Insight Software acquiring Jet Global, Atlas, BizNet and other players in the game.

Protecting the significant financial investment

There are more CPM solutions that are cloud-based. Customers can sign up for one or more years of subscription versus having to purchase the software upfront. However, even if a subscription is reasonable, the amount of time and effort from the internal staff (often with the help of costly consultants) has to be put in to get a CPM solution fully up and running. Also the reports, budget model and dashboards that management need are very significant. You can expect anywhere from twenty thousand dollars and to several hundred and thousands of dollars in direct and indirect costs for full blown implementations. In other words, picking the right vendor and the right product carries a much larger costs than simply a year’s worth of subscription.

Protecting your job

While a good vendor selection and successful implementation can be a significant boon to the careers of project management, it can be the opposite if it all does not work out well. Let alone the stress and long hours that often come from enterprise software implementations,  should it not end well,  can be a scar that follows you for a long time in your career.

Be Strategic

Whether there is too much pain from spreadsheet budgeting or a tactical hint for competitive advantages with faster and better decision-making that drives your search for a CPM solution, a final piece of advice is to be strategic about it. Don’t look at a CPM solution as a temporary band-aid, but view this technology for what it can be when properly chosen and implemented with care. One of your most important decision-making tools that can help drive growth and success for your organization in the 2020s.

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