Making Planning Continuous

META: New apps help companies move beyond annual budgeting processes

Tempe, AZ  July 3, 2002  The accelerating pace of business is prompting many corporations to turn from annual to semi-annual, monthly or even shorter budgeting cycles, and new software tools are helping companies move beyond cumbersome spreadsheet-based planning to leaner budgeting processes, according to a new report from technology consultancy META Group.

The humble spreadsheet has proved useful for helping management roll up financial data from throughout their corporation and perform basic analysis of their company's performance, but spreadsheets are not up to the task of providing executives with a "real-time view" of an enterprise's operations. Moreover, reliance on spreadsheets as the primary planning tool is hampering many companies' attempts to shorten their planning cycles, said META Group analyst Val Sribar. "Spreadsheets are an excellent hammer," Sribar said, "but not everything in your business is a nail."

"The huge effort involved in rolling up hundreds (or thousands) of spreadsheets is only part of the problem," META writes in its report, titled "Business Planning Should Be a Continuous Process That Exploits Flexible Tools." The typical spreadsheet-based planning process  with business units sending their numbers up the ladder to be wrapped into increasingly higher-level spreadsheets  means that top-level plans are far removed from operational realities. "The massive nature of the effort creates a ponderous process that cannot be done as frequently as business conditions dictate," META asserted, "preventing the company from reacting to changes in the economy, market conditions or competitive conditions."

Long budgeting processes therefore can turn into a liability. "Suppose that, in July, the company learns a competitor is bringing out a new product and, to compete, the company needs to move research scheduled for completion in six months forward to create a new product in three months," said META Group analyst John Van Decker. "With an annual budget process, the company may have great difficulty allocating funds to accelerate that research."

And because the budget that results from the annual budgeting process frequently is divorced from operational realities, operational-level managers often pay little attention to the budget as they go about their daily work.

Organizations evolving toward what Van Decker called "the real-time enterprise" are seeking new, more flexible tools to support the constant, integrated planning and budgeting that aspects of their business demand to react quickly to changes in the business environment, according to META.

The new planning tools becoming available have added functionality that is more relevant to operational managers, they are more flexible in responding to ongoing changes, and they are better integrated with financial consolidation/reporting applications. "These enhancements (along with current market pressures, increased complexity of business models, etc.) will have a positive impact on the penetration of these types of tools, because they respond to companies' crucial needs for increased visibility into and control over business operations," said META Group analyst Jean-Luc Alarcon.

The available options include so-called "best-of-breed" business performance management applications from such companies as Hyperion, Comshare, Cognos and Longview, as well as integrated modules from enterprise resource planning (ERP) suppliers and point solutions from providers such as Adaytum.

According to META, the choice of which type of solution to use frequently depends on the corporation's larger IT strategy, that is, whether the company prefers to extend the functionality of its ERP suite or stick with point solutions.

"For many companies that are just starting out in this process," said Van Decker, "the module from their ERP or other enterprise system supplier may be just as good as a best-of-breed solution. The reality is that it takes time to implement these functions. By the time these organizations are ready to move to the more advanced functionality, their supplier may have incorporated that into the latest product upgrade."

At the same time, companies may want to consider a point solution if they are trying to move toward a more transparent, integrated planning approach and require the type of advanced functionality an ERP solution can't provide.

Regardless of which type of tool a company opts for, META warned the software isn't going to bring results in and of itself. "Installing the tool is the easy part of the transformation process," META wrote. "The hard part is making the major changes to business processes that go with those tools, particularly because many managers may require training in financial management and often may not welcome the visibility provided into their organization."