Monthly Archives: March 2017

Why Enter Notes in a Budgeting and Planning Software Application?

Business lady feels pressure working under control of her boss

The little time you spend entering notes and comments will pay generous dividends when you need to refer to these notes

I spent many years in the software industry.  I was not a programmer or software architect but was very close to many of the technical aspects of the business and got to observe some of the good and bad practices used.

One of the worst practices I recall was not entering comments next to program code lines, or not writing clear and sufficient notes to allow both the original developers and other people to fully understand the original code.

This became evident when we lost one of our best programmers, who left for another opportunity.  Although we owned the copyright to the code, every programmer who looked at it could not make sense out of it and although the code was near completion with initial testing of functionality underway, we had to scrap it and start from scratch.  We learned a very expensive lesson:  Enforce the practice of documenting all programming work and minimize the risk of losing your own intellectual property due to negligence and bad work habits.

Computer programming, design and engineering are good examples why notes must be kept, however, many other activities, both business and personal, can use this discipline.

As I gained experience in corporate accounting and finance I started to adopt this concept in my work and introduced a policy that all accounting transactions (e.g., journal entries into the GL) must be accompanied by notes or comments explaining the rationale behind them and anything that would help a reader understand the underlying events that required the entry.  Automated entries from sub-systems are pre-defined and repetitive with built-in comment codes and other data that explain the transactions, but manually entered transactions such as journal entries are not.

I often see journal entries made by clients without any explanations; not even the journal header notes or the one-line text per GL line, let alone the memo field where one can enter a free form text memo, add simple tables explaining the entry, etc.  This feature is available in all ERP and accounting software nowadays and the excuse that they only give you eight characters to record a comment (or file name) does not work anymore.

When you make such journal entries or other financial related data entry such as in putting together a corporate budget you have to ask yourself:  Will I be able to remember what I just did six months from now?  Will I be able to explain my work to managers, co-workers, or auditors?  Will I look at the transaction in a totally different way and maybe even suspect there are flaws in it?  Simple documentation, right next to the transaction will solve all that.  The common excuse that documenting your work will add extra work with no real benefits is not valid.

The real benefits are significant:  For a little extra work you gain confidence that the logic used during the transaction entry will still hold at any time in the future; that other employees and managers will be able to understand your work; that any internal or external auditor will have complete information on the audited transaction; and that your financial statements and internal control over financial reporting will be more robust due to this practice.

In Budget Maestro by Centage Corporation, every area of the software has a notes section, accessible through the Notes Tab on the upper right side of the screen.  Users can enter an unlimited number of individual notes for every budget line in every module (Revenue, OpExp, Personnel, Debt, etc.).  These notes can be filtered by user, date entered or description.

The notes can even contain copied and pasted simple Excel or Word tables.  Files that back up the logic or data used in establishing budget lines can be attached to each note within each budget line.  These files (e.g., Excel, Word) can be directly opened from the notes’ associated files area.  With very little effort you can reveal the data and logic used to create the budget line.

Since Budget Maestro allows users to create complex models using built in business logic, Business logic and accounting rules built into the budget, it is imperative, in my opinion, that these budget lines, many dependent on other data sources, with increases or decreases during the budget year plus other logic applied (e.g., Drivers, Based Upon) be clearly documented.  It will make your work easier and more productive.  You will be able to clearly explain the rationale behind choosing the various logic elements that Budget Maestro offers.  It will make the budget review a lot easier and you won’t get caught trying to figure out what you were thinking at the time these particular budget lines were created.

While it may seem an extra amount of time and effort to enter notes (in Budget Maestro or in any other software application), the benefits are going to be evident the first time you need to refer to one or more of these notes.  Budget Maestro makes it easy to enter notes and associated files everywhere in the application, so use this feature liberally.

Should Financial Planning and Analysis Functions Be Outsourced?

Close-up of businessman explaining a financial plan to colleagues at meeting

See how, with the right tools and control over the process, most organizations don’t have to outsource their FP&A functions

 

A number of years ago Deloitte UK released a white paper titled “Financial Planning & Analysis – The Next Frontier of Business Process Outsourcing?”

In the paper the authors explore outsourcing critical finance functions, such as planning, budgeting and analysis – functions usually synonymous with FP&A (Financial Planning and Analysis) activities.

The authors state that transactional functions have already been outsourced by large organizations to certain service vendors and that the same organizations are currently contemplating transitioning certain FP&A functions to these and other specialized vendors.

According to Deloitte, the argument in favor of outsourcing is gaining popularity among the largest organizations for a number of reasons:

  1. Potential substantial labor cost savings in the finance organization, where financial planning and analysis functions are usually performed by experienced, highly paid employees.
  2. Opportunities to centralize FP&A functions by delegating them to specialized outside vendors.
  3. The ability to streamline processes and leverage the outsourcing vendors’ specialized talents.

Deloitte realizes that not all FP&A functions can reasonably be outsourced.  Among those functions that large finance organizations are likely to keep in-house are:  strategic planning, policies (accounting, tax, etc.) and acquisitions and divestitures.

Although there are many arguments in favor of this newly developed practice, Deloitte admits that the hardest part is the transition of financial planning and analysis functions to the outsourcing vendor.  This is particularly true for organizations that have complex structures, span large geographical areas and that have fragmented information technology systems.  Another concern for the CFO is the project’s complexity, the initial high cost and the time required to make the transition. Another factor is the uncertainty of success, always a factor at the time the decision is contemplated.

In an actual case study in the white paper, certain benefits were identified:

  • Turnaround time was reduced for a significant number of management reports.
  • Higher-level analytics than was possible before the transition.
  • More accurate reports.

What about SMBs (Small and Medium-size Businesses)?

The white paper references only large organizations, not mentioning smaller companies, and probably for a number of good reasons.

From my experience working with such organizations, I believe that outsourcing financial planning and analysis functions is not applicable for SMBs due to complexities in the transition, high up-front cost and on-going expenses that cannot be justified in smaller companies, especially those that employ a small or no finance organization (where finance functions are performed by accounting personnel or solely by the controller).

Fortunately, SMBs have excellent options to maintain FP&A in-house, and even make the process more robust and streamlined, with meaningful insight into the company’s financial health, present-day and future.

A great example is a financial planning and analysis software solution developed and published by Centage Corporation of Natick, Mass.  The application includes Budget Maestro, Link Maestro and Analytics Maestro, which together provide an all-encompassing solution, from planning, budgeting, forecasting to analytics.

The software’s real-time and tightly integrated approach to linking to closed accounting periods and treating budget output as an extension of the actual accounting into future periods allows managements to gain insight into the financial health of their companies, identify potential rough spots and additional opportunities, well ahead of time, and support critical decisions.

I have covered many aspects of the Budget Maestro suite in this blog as a user of the application since it was first released and know with confidence that an SMB organization employing Budget Maestro will never have to resort to outsourcing critical financial planning and analysis functions.