Managing the budgeting process in accordance with industry best practices
If you are frustrated with your organization’s budgeting process then rest assured, you are not alone! For the past 20 years, studies and surveys have systematically revealed a widespread dissatisfaction with the process of establishing a budget. Those same studies show that, of all the activities performed by the finance department, budgeting generates the most dissatisfaction, for financial and non-financial managers alike.
Numerous studies, conducted as recently as 2012, have shown that over 60% of organizations use spreadsheet programs such as Excel as a basis for their budgeting process. This despite the fact that, while excellent analytical tools, spreadsheets were never designed to support a budgeting process.
Because the Decimal Suite was designed by budget preparation experts, our budgeting solution leads its users to adopt budgeting best practices. In fact, every single one of our clients has succeeded in significantly reducing the time spent preparing a budget, while simultaneously improving the quality of the final product. You can do likewise! Contact us today, and we will be happy to explain how we can help improve your budget performance.
The following table lists a number of problems caused by using spreadsheets in a budgeting context, and explains how those problems are resolved by the Decimal Suite:
|Problem||Explanation||DECIMAL best practice|
|Duplicate entries||A non-integrated system means duplicate entries must often be made in multiple places.||The centralized information database renders it unnecessary to make duplicate entries.|
|High risk of error||Numerous studies show that almost all spreadsheets contain logical errors.||DECIMAL’s budgeting system is expert-designed and has been constantly evolving for over 20 years. Our budgeting solution, its business rules and logic, have been rigorously tried and tested.|
|Lack of security||It is easy to overwrite existing formulae or to corrupt a file. Users can accidentally break the links between different files by moving a file, for example, or by renaming a directory.||The system prevents users from performing actions that could compromise database completeness. They can also be prevented from changing certain records.|
|Unprotected files||It is impossible to ensure the confidentiality of data in a spreadsheet. Password protected spreadsheets can easily be unprotected using tools that are readily available online.||Our user security makes it easy to restrict access to data. For example, managers can be given access to only a single budget responsibility centre.|
|Unauthorized changes||Anyone who opens the file can make unauthorized changes.||Thanks to our user security rules, only authorized users can make changes to files.|
|Strict version control||There may be multiple versions of the file, making it difficult to track and explain the changes between the different versions.||The Finance department controls the versions. It can create a copy of each version and compare the differences between each one by responsibility centre or by account.|
|Collaborative problems||The existence of multiple iterations and multiple versions of files makes it difficult to acquire a comprehensive overview and to share the most recent information.||The centralized database makes it easy for authorized users to access up to date information.|
|Items cannot be justified||Spreadsheets make it difficult to document working assumptions.||Managers can go into greater detail than the level required by Finance, so it is easier for them to justify items such as “Other expenses”. Managers can also attach notes or even files to certain accounts.|
|Limited report options||Significantly reduces the possibility of generating customized dynamic analysis reports.||The Decimal Suite enables users to create ad hoc customized reports that are similar to pivot tables.|
|Cumbersome processes||Files must be consolidated, and then the overall results must be validated to ensure they are error-free. This work must frequently be redone, if the analyst did not have had the latest version of the file or if a mistake was found.||Processes are accelerated by automatic data consolidation in a centralized database that provides simultaneous access to multiple users.|
|Outdated information||The budget quickly becomes outdated and it is not updated because the process is too time-consuming.||As soon as in item is entered into the system, it is immediately available and automatically consolidated. This instantaneous, effortless process encourages managers to perform updates as required.|
|Poor decision-making||They cannot accurately calculate the impact of various scenarios, so managers have trouble making good decisions.||Managers can change budget assumptions and rapidly ascertain their impact on results in a snap.|
|Flawed forecasts||The cost impact of projected changes in demand is difficult to predict.||The cost impact of projected changes in demand is automatically calculated.|
|Unsustainable processes||Certain processes rely on a few high-level employees to understand and use spreadsheets. It could be problematic to understand or even retrieve certain files if these key people leave the organization.||The Decimal Suite structures your data in a logical and organized way and stores it in a centralized database, which makes knowledge transfer a lot easier.|
In addition to having an efficient, integrated system, organizations with an effective budgeting process have adopted the following best practices:
|Best practices||Explanation||DECIMAL approach|
|Combining Top-Down and Bottom-Up||Top-down approach: Upper management issues guidelines concerning goals and targets.
Bottom-up approach: Managers produce a budget that will meet those targets. Management participation promotes budget buy-in.
|Upper management can submit a proposed budget to managers, who make adjustments based on their knowledge and submit it to management. This iterative process continues until management is comfortable with the budget and approves it, at which point the budget is finalized. Thereafter, managers can consult it, but can no longer make changes to it.|
|Promoting collaboration between functional units||A smoothly running organization ensures that its functional units produce their budgets collaboratively rather than in isolation. Managers must be informed of what other managers are planning, and realize the impact of their operations.||It is possible to automatically adjust expenses based on business volume. For example, managers could enter anticipated sales and automatically calculate the impact on production costs. The Decimal Suite makes it easy to share information and make it available to all relevant actors, depending on their access rights.|
|Focussing efforts on what matters||Efforts should be focussed on budgeting the more fluid accounts (labour, for example) rather than the more stable ones (amortization or financing costs).||Finance can centralize the budget data for certain stable accounts and then lock them, preventing further changes. The process of entering data for more fluid accounts can be decentralized.|
|Automated and more frequent processes||Shorter intervals mean that everyone has faster access to information, thereby reducing risks and increasing the speed and accuracy of decisions.||The Decimal Suite automates and compresses the budget cycle by the following means:
Eliminates manual intervention, such as duplicate data entry, thereby reducing the time spent on collecting, processing and consolidating information.
Standardizes data collection interfaces to make the process more user-friendly for managers.
Uses calculation rules for certain costs (for example, directors receive $60 / month for cell phone expenses), thereby eliminating potential mistakes.