By John Stokdyk
Five years ago, I wrote, "In recent years, budgeting has been getting a bad press." Not much has changed on that front. Budgeting remains an entrenched habit - and some would argue a weak spot - in financial management.
Even when companies do embrace the concept of business performance management, suppliers report that the most common inquiry they get is for tools to help customers automate and manage their budgeting processes.
"Most of the corporate performance management suites we cover will enable any planning/budgeting process you can think of," says Gartner research vice president Nigel Rayner. "The software goes far beyond what most people think budgeting is about."
Gartner estimates that between 50 percent and 60 percent of large enterprises still use Excel as their primary budgeting solution, and they typically come to the analyst looking for advice on replacing their spreadsheet budgets with workflow systems that will provide data entry forms and a mechanism to consolidate the information into a top-level budget.
"If that's your mentality, you're not doing planning, you're doing financial budgeting," says Rayner, who remains concerned that finance managers view budgeting software more as a tool of suppression rather than as a mechanism for guiding and monitoring corporate strategy.
"The software has gone way beyond the budget as suppression, but financial people don't seem to recognize that," he says. "Business managers think in terms of sales, prices, discounts, new products and so on - so you need to put in driver-based planning. The financial budget is an outcome of that - but most financial people don't understand how to implement it.
"They think of a budget as a spreadsheet with a list of nominal lines on the left and a grid of figures in the middle. Unless finance managers can understand how planning works, we'll be stuck in the mire of financial budgets disconnected from business activities."
While accepting that the spreadsheet remains the predominant budgeting tool, this article will leave aside the theoretical discussions to other threads and focus on the potential alternatives. The mindset of finance managers may not have changed, but the software systems and suppliers have gone through a wave of consolidation. This piece will attempt to document the technical and commercial shifts that have taken place since 2002
The article is intended to introduce the key issues and help users identify suitable budgeting applications. It provides background information on vendors' philosophies and product strategies rather than detailing every feature and interface. If you spot any oversights or errors, feel free to email the editor with your suggested amendments.
Budgeting as part of the performance management "closed loop"
In the past five years, two key things have happened. First, the top end of the market has solidified through a series of mergers and acquisitions into an elite group of corporate performance management software suppliers. The group includes Business Objects (acquired ALG in 2006); Cognos (acquired Adaytum 2002); Infor (acquired Geac and Systems Union in 2006; Applix; and, as of this week, Oracle, which intends to spend $3.3 billion to bring Hyperion into its ever expanding stable.
"Bigger companies have all moved into unified CPM suites. Since Business Objects bought ALG, there are no more specialists targeting large enterprises with budgeting-focused solutions," says Gartner's Rayner. "For tier one users, everyone now offers a combination of planning/budgeting, consolidation and other CPM functions as a whole."
Oracle and Hyperion are likely to go through a lull while Oracle determines its product strategy for the competing products. Infor, another acquisitive group, faces a similar challenge with its MPC (Geac/Comshare) and MIS (Systems Union) performance management applications. SAP, meanwhile, has a sophisticated budgeting/planning solution to rival the CPM suppliers, but this remains restricted to the pool of mySAP ERP users.
Rayner points out that as you get to the mid-market, the need for sophisticated financial consolidation becomes less important. Here you will find a spectrum of suppliers providing specialist budgeting tools, ranging from web-based collaborative workflow environments to shrink-wrapped systems costing a few hundred pounds.
Support for interactive/collaborative processes
Borrowing our frame of reference from AccountingWEB member Alastair Harris and the experts at PA Consulting, IT Zone differentiates between the strategic, top-down nature of planning and the annual budget, which is typically developed from the bottom up as a tool for tracking whether the organization is on target to achieve its planned goals.
Where these two meet is the messy patch of turf where most budget game playing takes place. Line managers habitually hedge their targets numbers and senior executives usually send them back once or twice with demands for more acceptable numbers. These shenanigans take time and energy, particularly if all the revisions are being manually compiled on a spreadsheet.
The idea budgeting environment is one where the two sides can carry out the iterations electronically and record the agreed figures on one central database. Web-based mechanisms are ideal for this task and one developer, Adaptive Planning, has entered the market offering a planning and budgeting system as an "on-demand" online software service.
In the era of stiffer corporate governance rules, finance managers and auditors are also looking for systems that provide good controls around the budget figures and, for administrative efficiency, provide tools for managing the budgeting process and chasing up managers who are slow to return their figures.
"Process management is absolutely fundamental," says Rayner. "You've got to have good workflow capabilities - ideally in a collaborative environment where you can look at a budget, propose changes, make changes and agree what they should be."
To be assessed within Gartner's Magic Quandrant, systems have to have these capabilities. But at the lower end of the market, you start to find more functional gaps.
Mid-market budgeting and the Microsoft dimension
Over the past five years, the planning/budgeting software marketplace has followed a common pattern of technology development. While the top corporate tier of the market has consolidated, new players have brought similar capabilities to the market at lower prices. For budgeting and CPM software, the key ingredient in this shift has been Microsoft SQL Server, which includes online analytical processing (OLAP capabilities) in the Analysis Services module at no extra cost.
Financial software developers such as o2olap, Outlooksoft and ProClarity used the new Microsoft business intelligence platform to build sophisticated suites that rival the old giants (Hyperion, Cognos, Applix). Since an increasing majority of finance systems now run on SQL Server, anyone wanting to supply a budgeting system will need to support Microsoft's relational database management system.
As a technology rather than financial software specialist, Microsoft has been slower to exploit the tools within its portfolio. It already has a dominant position with Excel, but until the past year it has relied on specialist software partners to connect the spreadsheet to the underlying data sources and OLAP warehouses. Last year, the company bought ProClarity, one of the leading new wave CPM software houses, and is now incorporating the tools and financial expertise into a new product suite, PerfromancePoint Server 2007.
PerformancePoint Server 2007 seeks to provide the "closed loop" CPM environment that will satisfy people like the Gartner analysts. But as with all the other integration projects taking place at Oracle/Hyperion, Cognos and Business Objects, Microsoft faces challenges not only in getting the components to work together, but in rolling them out into productive implementations in the field.