All posts by Alan Hart

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.

Vow to Make Business Budgeting Reasonable

business budgeting

It’s time we take a serious look at this process and vow to make a positive change

I was just reading a discussion on titled “Vow to Make Budgeting Reasonable,” initiated by Proformative member Mary Driscoll, a senior research fellow at the American Productivity and Quality Center. This post and its various member responses (including my own, encouraging more people to participate) touch on a critical subject: The corporate budget process and how convoluted and unreasonable it can be.

My contribution to this discussion was that no matter how reasonable or unreasonable the business budgeting and planning process may seem to some of its participants, and however companies arrive at their budgets, there has to be a way to turn the budget into something much more meaningful and useful for company managements to rely on in making timely and informed decisions.

I pointed out that budgets must be able to automatically generate a complete set of financial statements, and not just the commonly produced income statement, which is simply a list of revenues, their associated costs, and other income and expense items, plus a provision for income tax expense.

However, many organizations, regardless of the software they use to generate the budget, stop at just the income statement. Whether they monitor actual results against this forecast, their process is never going to be complete.

I could argue that any reasonable person managing the process, or any member of senior management should know that a forecasted P&L does not tell the whole story.  What is really missing is a forecasted balance sheet, one that many companies ignore altogether, or at best think of as nice to have, but technically unattainable due to the limits of their budgeting software, or use of only spreadsheets.

The few that do produce a calculated forecasted balance sheet, and maybe also a statement of cash flows, do it using high-level formulas and assumptions, since they can’t rely on every single budget line entry to individually contribute to the automatic generation of the forecasted balance sheet and its companion statement of cash flows. We can think of a forecasted balance sheet as a set of beginning (and known) account balances, plus all changes to these account balances resulting from future accounting transactions, derived from all budget lines and their attributes.

Is there a way to make the budget process and its outcome more reasonable?

That depends on the individual company’s financial leadership and management mindset, and how open they are to investigating and implementing more current methods and technologies – and whether they realize that traditional methods not only are unreasonable, but also can be dangerous, as we explored in recent blog posts: Planning, Budgeting and Forecasting: Why Tradition May be Dangerous – Part 1 and Part 2.

What I do know is that the planning, budgeting and analysis processes must have defined and clear benefits to the company, and simply following tradition can be a waste of time and resources. There is no reason to do something you are not going to benefit from.

As a finance manager, do you truly believe that the data available from your company’s budget is the best it can be and that senior management can reliably use it to make important decisions? Can your existing budget give you meaningful insight into the future financial health of the company? Wouldn’t a forecasted balance sheet that is always synchronized in real time to its underlying budget (and the P&L) be much more useful – and let you explore critical financial aspects of the organization that a P&L simply can’t reveal?

My personal experience working with Budget Maestro from Centage Corporation, shows that the budget process and its outcome can be reasonable to its users, and can afford significant benefits to companies and their managements, even for smaller and medium-size companies.  This is exactly what I discovered long ago when I vowed to make my company’s budgeting process reasonable.

Another Year: Time for a Budgeting Software Resolution?

Daily planner with the entry New Years Resolutions

Have you made the commitment to move to a dedicated, more automated business budgeting process?

I’m writing for this blog just before the end of another year and with a new year right around the corner. As we transition into the winter months in the Northern Hemisphere, those of us who are on a calendar year no doubt have just finished another annual budget cycle, hopefully less stressful than last year’s and with less iterations and a smoother review and approval process.

Those who are on a fiscal year, fast forward or rewind a number of months, but the annual budget process and the benefits it promises to bring are exactly the same.

Have you finally made the transition from a spreadsheet-based process to a dedicated budgeting software solution?

Have you implemented an analytics process whereby you are able to accurately monitor your actual results against your approved budget?  Are you able to set up any reporting format and automatically display the financial data specifically intended for certain managers’ reviews, in exactly the way that makes sense for your business?

Are you able to automatically connect with your ERP or accounting software GL and quickly and accurately retrieve the needed GL data (e.g., trial balance) immediately after an accounting period (e.g., month, quarter) is closed?

Those of you who have taken this major leap from manual processes, which are always riddled with errors, require a lot of manual data input and updates, and have significant limitations in producing accurate and timely reporting, undoubtedly realize how smart that move was.  I’m sure there was a certain learning curve, like with any implementation of new technology, maybe unfamiliar territory at first, but as you’ve become comfortable with your new setup, the new process became second nature, and you stopped looking back.

With each accounting period close, you became more familiar with your new CPM (corporate performance management) solution and found ways to improve the reporting presentation and the interpretation of the data the system provides.

The second annual budget you prepare with your new software will be much smoother. You’ll discover more ways to collect budget data from operational units. You’ll learn to better use the system’s built-in logic to create forecasts driven by data and applied logic to perfectly match your business model, and you’ll appreciate the software’s built-in accounting rules, which immediately result in more meaningful reports. And you’ll realize how simple it is to obtain a full set of forecasted financial statements, including forecasted income statements, balance sheets and statements of cash flows to match your actual financial statements.

If you have not yet made the transition to a dedicated budgeting software solution, it could be a perfect New Year’s resolution. It may be a little late to implement it for the new, 2017 calendar year but certainly not too early for the next year, whether calendar or fiscal.

For SMBs (small and medium-size businesses) I would highly recommend the solution I use: Budget Maestro from Centage Corporation. It does everything I mentioned above (and actually a lot more) and will become your CPM solution year round and not just for a couple of stressful months just before the beginning of a new year.

Let your Auditors Catch you Doing Something Good

Midsection of male auditor scrutinizing financial documents at table in office

If you’ve been through a financial audit, either an integrated audit required for filing an SEC annual report Form-10K or one done voluntarily per the direction of the board of directors and endorsed by the shareholders, you know how stressful this can be. Like many, you probably feel you are not ready, and the interaction with the auditors can be awkward at times. They ask questions and look for information that you simply don’t know how to respond to; the data is there, of course, but how to convey it to them in a meaningful way is another matter.

Then, there are these junior auditors, who due to lack of experience seem to have a hard time understanding your business – their questions appear to be irrelevant or insignificant, in short – it feels like a total waste of time, especially when you get approached by them with the same question more than once.

I’ve been through many types of audits and the financial statements audit seems to be the one I was having the most challenge with. Through experience as an audit client and as a consultant to our clients I gained the knowledge and insight I think is necessary to survive an audit and most importantly be prepared for one.

Auditors are people too

One of the most important aspects of the audit is building a rapport with the auditor. Your main goal is to convey to them that you run the accounting department with confidence and control over the processes. A good way to accomplish that is to have a candid discussion with them prior to the audit where you will convey to them the department culture, the internal control environment and the level of automation used in the processing of transactions.

I like to have simple and clear narratives explaining the basic processes, accompanied by flow charts. These documents should be reviewed at least annually and updated as needed. There should be evidence of the review and update. A collection of guidelines in each area is also going to be very useful

The importance of clear communication with your auditors

When you forward these documents to your external auditor you are communicating to them that you have clear and defined internal control over financial reporting. Although the external auditor cannot tell you how to run the accounting department or how to perform the various tasks, they can certainly tell you that you are on the right track and that the audit will be conducted taking into consideration some of these processes and guidelines.


Many of the management estimates, such as reserves, cannot properly be audited unless the auditor has some reference to the processes surrounding the review and calculation of such reserve balances.  Your narrative or guidelines describing an inventory reserve for obsolescence will clearly convey to the auditor how you perform the analysis and how you determine that updates to the reserve are required.

If they agree with your methodology, all they have to do is audit the accuracy of the calculations.

Having clearly defined processes and knowing how to convey them to the auditors will make the entire audit experience less taxing on the company and its accounting and finance staff.  The external auditors will repeatedly “catch” you doing good things, rather than point out flaws in the process, which are normally a major contributor to accounting errors.


When your external auditors are confident that you have a reasonably complete and accurate internal control environment, they will be able to proceed with the actual audit and usually this will result in them spending less time in your office, and doing less work in their office. Both of these will translate into lower audit fees. This will be evident in subsequent years’ audits, especially if your auditor can maintain the same audit team.

Although there are no perfect audits, by following these pieces of advice you will experience a much more pleasant external audit engagement, often with only minor exceptions discovered, some of which will not require any audit adjustments.  You will also realize how good it feels when your auditors catch you doing something good.

Should I Forecast my Inventory Requirements?

Why having the ability to plan inventory needs is important.

Inventory is one of those things that you never seem to have the right quantity of.  You either have too many of certain items in stock, or you constantly get caught not having sufficient quantities of other items that for unknown reasons generate customer demand in inverse proportion to the stocking levels of these items. What to do…

Play it safe and keep higher stocking levels, usually done with increasing the minimum stock quantities or establishing safety levels for certain items, and you are unnecessarily tying up cash in inventory and using additional storage space that could be put to better use, both of which having a negative impact on finances and operations.

Only purchase minimum inventory levels that you know will be in demand and you will get caught in shortages of material, parts and other finished goods your customers may be looking for, often not accepting your proposed long lead times. The result is frequently losing sales to competitors who have a better optimized inventory system or perhaps more sophisticated purchasing rules and policies.

It’s been said by many people that maintaining the right inventory levels is more of an art than science. At a minimum it requires experience and tremendous discipline in managing, tracking and re-ordering inventory items. This is also true for in-house manufactured items.

Whether inventory control is an art or a science, it still requires a well designed and implemented inventory control system, usually incorporated into the company’s ERP software solution. A warehouse management software application can also be employed and be part of an integrated enterprise software.

MRP (Manufacturing Requirements Planning) is a very popular software application, also part of an ERP implementation, which looks at customer demand (as evidenced by entered sales orders) and recommends, using business rules and other system settings, when to replenish certain inventory items, how many to purchase; suggests vendors to purchase from and more. It can also suggest processing quantities of in-house made items, when to start production and what materials must be purchased for these proposed production work orders.

MRP alone cannot be the only tool to forecast inventory needs, as it only takes into consideration existing customer demand. With the assumption that an annual budget and periodic reforecasting of sales and expenses exists, the budgeted sales imply that certain inventory items, either purchased or manufactured, will be needed in certain periods of the budget year. These will require procurement of materials and finished goods as well as scheduling labor and work centers in order to meet the sales forecasts. The output of this budget and reforecasts can be an additional input to the MRP system where in-house sales orders can drive MRP to perform as if customer demand already existed. In this setup, products shown in the budget will drive the “make to stock” process, anticipating customer orders.

For those who use Budget Maestro published by Centage Corporation, and for anyone in SMB (Small and Medium size Business) who is looking to implement an all-encompassing budgeting and planning solution, the sales module provides a powerful inventory option where inventory needed to fulfill sales can be planned using revenue item forecasts.

If Inventory is enabled in the revenue line properties, one can enter the beginning unit quantity, indicate whether or not Budget Maestro will replenish the inventory required by the sales forecast and if so the Min / Max replenishment levels as well as the order quantity multiples. Another nice feature is the Lead Time attribute that can be set specific to each inventory item and will assist the system to automatically calculate when these items must be ordered.

Although this is not a true and complete extension of the MRP software into the budget periods, Budget Maestro allows its users to forecast their inventory needs based on forecasted revenue in the sales module. As these revenue forecasts are updated, the inventory requirements will follow these revenue forecast changes.

As is always the case in Budget Maestro, every change you make in the model will cause all system generated forecasted financial statements to change accordingly. For example, as revenue line amounts or spreads are adjusted, inventory valuations of all affected items will change on the balance sheet (i.e., total inventory valuation will reflect the specific changes in individual inventory items affected by the budget update). Of course, specific reports pertaining to revenue forecasts can be produced independently from financial statements and greater detail of revenue items can be displayed.

Inventory forecasting is hard to do but given the tools we have at our disposal I think it would be wise for every Budget Maestro user to take advantage of these features (available in the advanced version) and put them to good use. It will certainly take some of the guesswork out of the “art” part of inventory forecasting.

Businesses of every description rely on the Budget Maestro™ family of software solutions by Centage Corporation to improve the efficiency and effectiveness of their business budgeting and planningfinancial forecastingfinancial consolidation and reporting processes. For more information, take a tour of Budget Maestrocontact Centage, or call 800-366-5111 now.


Sales Fix Everything

A common cure to an age-old ailment

If you spend enough time at a company, or if you’ve worked for several companies during your career, you’ll inevitably encounter slow periods, and financial hardship, and even occasionally company reorganization, liquidation, a buyout or simply shutting down operations altogether.

There are many reasons why companies fail or temporarily underperform. Among them are bad management decisions, lack of planning, lack of leadership in certain areas, diminishing customer demand, inventory or technology obsolescence, focus on the wrong product lines or service offerings, and more.

I’ve seen all of these occur at several organizations I was involved with or consulted to, and concluded that company failure was usually attributed to a combination of some of the reasons listed above.

There is, however, one common contributor to company failure or temporary hardship: Lower than expected or declining sales.

In recent years we’ve seen examples of companies that had bad or inexperienced management and lack of proper planning and other reasons that would normally cause a company to fail, or at least experience either a temporary or prolonged financial hardship, yet these companies seemed to thrive and grow rapidly despite many of the errors that good management skills should’ve prevented.

These companies had one thing in common: Sales. Customer demand was strong and increasing, and these companies, despite high inefficiencies and unnecessarily high operating expenses, were able to finance their growth simply through these sales.

This phenomenon is more common in the hi-tech industry, or in any business that lends itself to higher-than-normal gross margins. Operational efficiencies and tight management don’t seem to play as important a role as in other industries or in businesses with thinner gross margins, or companies where product or service demand is not as strong or requires higher-than-usual business development effort and expense.

Regardless of product demand, strong management and leadership and good planning, assisted by automation of the planning and budgeting process, and frequent analysis of actual results against the plan must exist in all organizations in all industries. Rapid sales growth and growing customer demand is all the more reason why you should carefully implement an effective business planning and budgeting system, one that can keep up with the growth. This blog is focused on the topic, and many of the articles here are meant to encourage financial managers and CFOs to embrace the next generation technology powering such systems.

However, no matter how great management is, insufficient sales cannot be mitigated through just maintaining or improving operations management, which your financial statements will clearly show. So, my priority in any struggling company is to first focus on sales while re-building the entire organization’s operations and other management functions.

There may be exceptions, but I’ve never seen a company that failed due to excessive sales or unusually high customer demand, which is why the common cure for many business failures and struggles is sales.

Business Logic and Accounting Rules Built into the Budget

If you’ve spent more than a few years preparing and presenting annual budgets, and perhaps participated in the periodic reviews and updates (re-forecasts) of these budgets you have certainly come to the realization that the budget outputs (e.g., forecasted financial statements and other reports) must be a result of your implemented model and a consolidation of inputs from several budget participants, such as departments or cost centers, and some logic built into this whole thing that takes into consideration the use of drivers, prior actual results and many more factors that contribute to what the budget is going to look like.

If your company uses spreadsheets to prepare its annual budget and do its re-forecasting work, you appreciate how much work went into the setup of these spreadsheets, the enormous complexity of the formulas, functions and links used, and the tedious maintenance required to keep the model up-to-date and relatively free from material errors, which is all you can usually hope for.

If your company has upgraded the process to a dedicated software solution for corporate budgeting, modeling and analytics, then many of the formulas used in the spreadsheet version must be programmed into this budgeting software and periodically reviewed and updated as the model changes.  Many additional links and other application-specific programming must also be performed before you can actually use the application.  This is not much different than using spreadsheets.

Neither of the above two approaches is ideal, because of the complexity of the model setup and the continual maintenance required to keep the plan and model functioning correctly and delivering the desired results.  Neither approach can ever deliver complete and accurate financial statements (with the exception of a forecasted income statement), due to their inherent limitations, the most obvious of which is not having a built-in general ledger (a G/L that operates like the actual accounting software or ERP G/L).  After a great deal of programming, you may be able to obtain a balance sheet and statement of cash flows, but these will be approximate and incomplete, at best.  Many forego these statements altogether.

To make a budget useful, you need to incorporate some business logic into it.  This is where the myriad of formulas and links among the many spreadsheets come into play.  They must represent the particular conditions that drive your business, and the many nuances unique to each of its operations.  You can’t just use a generic spreadsheet model or any of the various dedicated budgeting software solutions, right out of the box, and hope to be able to deliver a meaningful and useful annual budget.  Much preparation, and often expensive consulting and internal labor, must be employed first.

What you really need is a dedicated software solution that has business logic already built into it, a menu-driven environment with drop-down lists and tables that you select from within each budget area, for each budget line item, either globally or individually, plus the ability to select unique defaults, drivers and other logic.  The end result is a modular budget (revenue, expenses, assets, liabilities, etc.) with input from all business units.

You also need the system to have accounting rules built in.  This will ensure that every budget line will cause the values representing G/L account balances (ideally identical to your actual accounting G/L accounts) to update in every budget period, and then contribute to the generation of the forecasted financial statements and other operational reports.

Unfortunately, using the spreadsheet approach and most of the dedicated planning, budgeting and analysis software solutions, due to their inherent design, no accounting rules can reasonably be established, thus the lack of ability to create a reliable balance sheet and its companion statement of cash flows. It seems that the more work and money you invest in these approaches, the less productive you become, and the more ambiguous some of the results.

There is only one practical solution to this dilemma: Implementing a software application that has both business logic and accounting rules built right into the application itself.  So far, I have found only one such application – Budget Maestro from Centage Corporation.  Budget Maestro is designed to allow its users to tailor their plan and budget using built-in business logic, where they need only select items from drop-down menus and lists, and from either built-in or user-created defaults, none of which require formulas, links, or any other type of programming.  To complement that, the system automatically provides accounting rules used in viewing output, reports and financial statements.

I have covered these concepts in great detail in many of the blog posts on this site, for example: Budget Maestro’s Future Journal Entries, Two Key Principles in the Budget and Forecast Process, Why You Must Forecast Your Balance Sheet – Part 1 and Part 2.

In summary, built-in business logic is needed to allow building the plan or model which becomes the budget. Built-in accounting rules are needed to allow the system to automatically use the budget to generate forecasted financial statements and other reports, always synchronized to the plan and budget itself, and behaving like an actual accounting system.

Think of this as financial statements generated from accounting events that have not yet occurred, but are projected to occur based on the budget.  As the budget is updated, so are these projected accounting events.  The system automatically makes sure, using its built-in accounting rules, that the financial statements are delivered in the same format and fashion as their actual accounting system counterparts.

I think this is a brilliant approach, and expect more software applications to adopt these principles in the near future.

Planning, Budgeting, & Forecasting: Why Tradition May be Dangerous – Part 2

Be open minded and explore opportunities for change

In the first part of this blog article we looked at the traditional approach to planning and budgeting and recognized a number of flaws, regardless of how sophisticated some of the modeling capabilities of several of the leading solutions were.

This raises a fundamental question:

Is having an infinitely complex model with unlimited reporting capabilities but with high maintenance costs and dependence on outside consultants and with no ability to really gain insight into the future financial health of the organization superior to having a somewhat less capable modeling solution but one that is user maintained and with no modeling formulas, functions and links, one that automatically provides management with a Balance Sheet and Statement of Cash Flows that are always  synchronized in real time to the P&L and its underlying budget?

This is a very long question but in reality it is a very simple one.

  • What are management’s priorities?  
  • What is really important (or should be) to them?  

As the title of this article implies, relying on older, traditional methods can actually be dangerous to the company and its management since it can mislead them to make incorrect decisions when there is no real visibility into the company’s financial future.

Furthermore, the few applications that claim a forecasted Balance Sheet can be programmed may mislead users who desire such a report and perhaps even rely on it. As has already been discussed in this blog, in order to be able to deliver a complete and accurate Balance Sheet for all budgeted periods, the planning and budgeting software must have a built-in GL, just like its accounting software counterpart, Why have a General Ledger in a Budgeting Software?  To this date, I have not seen a planning / budgeting software solution that has such a GL by design, except for one application, Budget Maestro  from Centage Corporation.

System Generated Balance Sheets & Statement of Cash Flow

I cover a lot of my experiences with Budget Maestro in this blog. I feel very fortunate to have found a solution that is 100% user maintained, free from the worry of programming and managing endless sets of formulas and links, yet a solution able to reasonably model any type of business with very few exceptions. The real bonus I get with this software is the system generated Balance Sheet and Statement of Cash Flows that are automatically updated in real time with every change in the budget. With these capabilities come many additional noteworthy benefits as you can read in this blog, such as:

Forecast and Monitor your Key Financial RatiosForecast and Monitor your Loan Covenants ComplianceHow much of your credit line can you tap? and Generate Accurate Forecasted Financial Statements

Budget Maestro may not be the best fit for a Fortune 100 company, but it is certainly perfect for the many SMBs (small and medium businesses) in search for a way to better manage their organizations with greater insight into their financial future. I urge you to be open-minded and see how a traditional budget and analytics process can be transformed with this unique solution.

Planning, Budgeting, & Forecasting: Why Tradition May be Dangerous – Part 1

Be open minded and explore opportunities for change

Being part of a consulting firm in the area of accounting and finance I frequently get solicitations by phone and e-mail from vendors of accounting and finance software applications. These are vendors of accounting software, ERP applications, fixed assets management software, manufacturing MRP and other solutions, and of course vendors of corporate budgeting, planning and data analysis software, a category I like to associate with CPM (Corporate Performance Management) or EPM (Enterprise Performance Management) software, both of which generally used by the finance function working with company existing (actual) data and with forecasted or budgeted information in an attempt to arrive at an understanding of enterprise performance as measured against exiting goals and plans.

Planning, Budgeting, & Forecasting With CRM Software

Recently I had numerous contacts, both by phone and e-mail, with sales and sales support representatives from several well-known vendors of CRM software, specifically as pertaining to the functions of planning, budgeting, forecasting and analyzing data. I was intent on understanding why their solutions were beneficial to their customers and the real strengths of their product offerings in providing those benefits. I was also interested in learning how their approach allowed organizations to gain insight into their financial position, past, present and future and especially on how they were able to deliver future period forecasted financial statements and whether all statements were fully synchronized with each other and with the underlying budget.

As I expected, all of these applications were quite capable of setting up a corporate budget by importing static data from numerous reporting entities and by constructing a financial model that relied on historic data plus assumptions and application of a variety of formulas and functions, linking different worksheets, performing allocations and using drivers to arrive at a consolidated corporate budget.

A few of these applications were featured a large number of dimensions in modeling the business and its data, allowing a seemingly endless number of analysis options.

All of these software solutions either had a direct interface to the actual accounting GL (requiring custom programming) or indirectly via a two-step export-import process of actual accounting results, such as GL account balances and even detail transaction data.

CRM Systems Come Up Short on Planning, Budgeting, & Forecasting Tasks

All the presentations I watched and the marketing and technical material I received were very impressive and highly polished, but on further inquiry it was disclosed to me that each implementation required a varying amount of setup work, usually performed by vendor trained personnel or outside, independent consultants.

This implies additional, perhaps significant, costs and also longer implementation timelines. Changes to the model or any part of the implementation often requires contracting the original vendor or an authorized third party. Since very little can be done in-house, I imagine only a few changes and improvements to the implementation are actually done beyond the original setup. This does not encourage users to keep up with the ever-changing market and economic conditions. High costs may be another deterrent.

What struck me most was the fact that none of these software vendors provided complete and accurate financial statements beyond the traditional Income Statement. They all claimed they could program a forecasted Balance Sheet and a Statement of Cash Flows, but these statements were always going to be modeled, using high level formulas and assumptions and always requiring maintenance with every small change in the budget.

None of these statements are synchronized to the income statement and to the underlying budget for the simple reason that none of these software solutions have an integrated GL where budgeted transaction data can be processed in a manner similar to how an actual accounting GL operates.

In the second installment of this article we will explore this fundamental flaw and see a better approach to this challenge.

Do We Need Industry Specific CPM Applications?

Wouldn’t an already proven software solution in many industries be a better choice? Are “Vertical Market” budgeting software applications justified?

I recently attended the annual NAB convention in Las Vegas where we had three client companies exhibiting. This convention is geared toward broadcast professionals, in radio, TV and all other media production marketed to consumers and business organizations.

In passing by the many industry specific hardware and software companies, I came across a surprisingly large booth where a software publisher displayed budgeting and scheduling software, specifically designed for media producers and other companies in the industry.

The featured budgeting solution allowed its users to enter and consolidate multiple budget worksheets arranged by project or media production activity (or by business entity) and then consolidate them in various useful ways to arrive at the company’s annual budget, project budget or any other required set of outputs. The software package also included several other functions specific to the industry. It is only the financial application component I am writing about here.

There were two distinct issues with the budgeting component that I noticed:

  1. The software did not automatically provide the user with a set of forecasted standard financial statements beyond the Income Statement.
  2. There was nothing unique about this software that you could not get from a variety of corporate planning, budgeting and analysis software solutions.

The makers of this software claimed that it was designed specifically for the broadcast and media production industry and that it had all the features needed and used in that industry, including the budgeting piece I am referring to here. However, in using such a vertical application with a relatively low installed base and a small developer behind it with limited resources, I can’t see how users can properly benefit from it.

I’m not sure what the price point is but I can’t imagine this being less expensive per user than a broad market application that is designed essentially to do the same thing, is more robust and provides management with critical information they need for sound decision making. Of course, the user (and the vendor) can justify this by saying that for the price of the integrated package they are also getting a budgeting piece which they would have to license separately if it did not exist in this package. Is that a valid argument? I don’t think so.  Do you use a product just because it is “free” or comes bundled with something else you must have?

A question that immediately comes to mind is whether there is a need for an industry specific solution vs. implementing an already established and tested application, one already used in a variety of industries.

I’m sure that other vertical markets have their own “fine-tuned” set of software applications marketed specifically to those markets. But in a finance related software, is this a better approach than an application built on a solid foundation where any industry business model can be created and reports and financial statements can be generated and delivered to users and managers who will use it to make informed decisions? Is an industry specific program going to do a better job? It may have the industry specific terminology already set up and the default work flow may be more in line with what these industries’ finance departments are accustomed to, but is that enough reason to consider such a solution?

The planning, budgeting and analytics software category (I sometimes like to refer to this category as CPM – Corporate Performance Management) seems to be quite fragmented, although only several vendors stand out from the crowd. I respect the desire of software developers to market unique solutions to their target markets and of course their entrepreneurial spirit, but do we really need such a large variety of products?

I guess this product category is no different than the ERP software category, or any other consumer or business product for that matter.  In fact, it is not much different than in any industry with a new product category. The automobile industry was like that in the first 30-40 years of its existence and evolved from dozens or more manufacturers to a consolidated field of only a few.

If there isn’t going to be a major consolidation of products and vendors in the CPM software category, at a minimum I see only several leading vendors remaining, perhaps one dominant in each customer category, such as SMB, enterprise, etc.