This book focuses on both the budgeting process and the reporting process. Although the two relate to each other, each is covered in its own chapter. Depending on the existing weaknesses and inefficiencies in each area, you can, of course, combine the budgeting and reporting projects into one project, or you can evaluate them individu- ally, as we do here.
Note:Because of the importance and popularity of a chart of accounts (COA) improvement project, we address it in a separate section. This will allow those of you who are primarily concerned with improving your COA to easily access all the ma- terial in one place. If you are considering a more complete BPI project, the COA will just be a subproject, and as such is referred to in numerous places in this part of the book.
BUDGETING AND REPORTING OVERVIEW: SO YOU WANT PERFECT ANALYTICS PROCESSES?
Budgeting and reporting processes are in many ways similar across different com- panies and industries. Though the underlying ERP systems and chart of accounts may differ, and though there maybe variations in layouts and detail of budget input tem- plates and financial statements, still there are a large number of similarities. For example:
• Detailed budgets are usually produced annually
• A large number of people and effort are assigned in the annual budget.
• Actual figures from the ERP system are compared to the budget for the same period to produce variances that can be used as management controls and per- formance measurements.
• Forecasts are produced at certain points in time (e.g., monthly, quarterly, or an- nually) to provide a fresher outlook for the rest of the year than the old annual budget.
• Budgets are collected and “rolled up” using the ERP system itself, spreadsheets, or specialized budgeting systems (see Part Five)
• Financial reports (most of which will include budget figures) are produced monthly, quarterly, and annually, by a few central accounting or IT people who know how to write and execute reports.
• End users either receive reports as hard copies or as e-mail attachments, or they have access to the reporting system locally or through the Web.
• A lot of time and effort is spent on budgeting and reporting, and most compa- nies complain that there is too little time left to analyze the numbers.
These examples represent only a few of the high-level budgeting and reporting processes being used in companies, and in later chapters we will discover more re- lated processes, activities, and tasks.
Many organizations, professional services companies, and even individual “ac- tivists” have started to address the many flaws, inefficiencies, and issues related to most companies’ analytics processes. Improvement propositions range from small fixes to large, expensive projects that will completely change current procedures.
As stated, in this part of the book we take a close look at budgeting and reporting processes and how they can be improved, to arm you with knowledge and a set of useful tools for your own financial BPI project.
PREPARING FOR THE BPI PROJECT
By now you should be ready to roll up your sleeves and kick off the actual project itself. However, before you dive into the budgeting and reporting processes, you should develop a clear picture of the roles that end users, administrators, and man- agers play in the budgeting and reporting process. By identifying and documenting these roles, it will be easier for everyone involved in the BPI project to comprehend who is doing what, why they are doing it, and when they are doing it. There are also a few other items you should evaluate to create the best possible framework for the project. They are (see Exhibit 7.1):
• Management objectives
• Improvement opportunities and ROI
• Methodology
• BPI enablers (“toolkit”)
• Potential obstacles
• Project organization Management Objectives
Whether you are the manager initiating the BPI project or you have been assigned by someone else to handle the project, it is still of critical importance to involve top- level financial managers and executives at a very early stage. You have to clearly define management’s objectives so you know you can validate a BPI project and get buy-in and support throughout the project.
The best forum in which to discuss and document management objectives is a meeting. The people who initially raised the issue of the need for improvement in budgeting and reporting should prepare some basic notes for the meeting and make a high-level presentation of the major issues and how they ultimately affect the business. For example:
Problem Effect on Business BUDGETING
Too-lengthy budget cycle The budget is outdated before it’s even completed.
Inflexible tools Takes weeks to do a reorganization or what-if analysis, thus changes are costly and often not done.
Too much detail or manual input The Process is demotivating for end users, resulting in lack of participation.
REPORTING
Too-lengthy monthly closing cycle Slower decision making because of lack of information.
Lack of easy-to-use, flexible No, or low, analytical activities, resulting
reporting tools in poor decision making.
It is important that the problem areas identified be real and worth pursuing. The last thing you want is to have the BPI project derailed by focusing on insignificant EXHIBIT 7.1 BPI Project Preparation
Project Organization
Potential Obstacles
BPI Enablers
Management Objectives
Methodologies Improvement
Opportunities
problems or jumping the gun on the methodology deployment. For example, a num- ber of “best practices” methodologies suggested by consulting companies today, which can be costly to implement, might not fit a corporate culture, and ultimately might not improve things much. In other words, make sure the focus of the meeting is not just to change for the sake of trying something different, but to solve actual problems and suggest solutions that will result in a solid ROI for the project.
Once the items/problems have been discussed, get input from the participants, then take a vote on whether you should initiate a project. Depending on the level of preparation and documentation you brought to this first meeting, you might have to call for a second meeting, to which you bring more detailed information on the ac- tual improvement opportunities (including ROI), potential methodologies (if you are going to take a new approach to budgeting and reporting versus what you do today), the key enablers you will utilize, obstacles to success, and organizational plans.
Improvement Opportunities and ROI
Assuming you now have an initial buy-in for the project from top management, it is time to look more closely at current analytics processes and at potential improve- ments. Many improvement opportunities will probably be obvious and commonly known throughout the organization, based on everyday discussions and complaints about inefficiencies and problems with the budgeting and reporting processes. How- ever, to make sure all the significant opportunities for improvement are uncovered (not just the issues that a few people may be vocal about) and can be fairly ranked ac- cording to importance, it is best to take a methodical approach to this research.
Some good starting points are:
1. Map and describe the major steps in both budgeting and reporting processes (see Exhibit 7.2). This will be very useful when talking to different people about problems and opportunities, as you can always make sure you are describing the same tasks or items in the same part of a process.
2. Create a list of all the people involved in budgeting and reporting. This step should include support staff (e.g., IT), end users (input and output), top decision makers (as long as they depend on information from the systems), as well as power users/administrators (the people who initiate and manage the budgeting process, responsible for report writing, closing books, etc.) (Exhibit 7.3).
3. Assign roles and responsibilities to each person listed. This ensures that every- one involved in the BPI project knows who is responsible for what and when.
4. Interview the people on your list. To encourage as much openness as possible amongst the interviewees, you can let someone with a low political profile in the organization perform the interviews. Get a good sampling from within each similar user group and focus specifically on uncovering key issues, so as not to drown in documenting unimportant detail that will slow down or clutter the BPI project. You might start by describing the purpose of the project and how it can result in a better situation (the reward.) Then ask questions such as:
• What is your role in the budgeting and/or reporting processes?
• Where do you see major problems?
• How would you propose solving these problems?
• How would improvement make you better able to focus on more important tasks?
• How would you rank each problem based on importance?
5. Document current issues. Create a summary document that lists all relevant is- sues and ranks them based on total score.
EXHIBIT 7.2 Example of Budgeting Process Feedback to
Managers Start of
Budget Cycle
Consolidation and Reporting
Budget manager locks budget
version. Budget
Submission
Managers enter their budgets.
Communication of Objectives
and Targets Assumptions
Upload actual figures.
Open budget for input.
Signal budget start to managers.
Copy old budget version to new version.
Users make changes.
Completed Budget
6. Map improvement opportunities. Meet with the project group, present ranked improvement opportunities, and gather information (research/interviews) on how many of them are reasonable (based on money/time invested) to determine how each selected item can be improved. Graph each and calculate the ROI (see Exhibit 7.4).
7. Meet the project group to achieve final buy-in and give the start signal. Present the findings to the project group and the rest of the management organization, and make a final decision as to whether the project should be launched based on all available information and the current business climate. (Are the right people still here? Are any other projects, such as an ERP implementation, going on that could disturb or impact this one?)
Methodology
There is no perfect methodology to apply to your BPI project. Think of a chef mak- ing a five-course gourmet meal flavored with his or her favorite spices and prepared according to his or her preferred workflow in the kitchen, while still satisfying special customer requests. Even though different chefs might create the same meal accord- ing to their own kitchen rules and outside influences, the objective is the same: to make the customer happy and to do so without wasting unnecessary time and re- EXHIBIT 7.3 People and Processes
Input
Budgeting Reporting
Read Comment
Submit
Approve Comment
Adjust
Close books Control
Read
Set targets Analyze Approve
Read Analyze Present Administrators
End Users
Management
sources. And if it is the first time that a specific meal is being made, it is important that the chef write down the recipe (i.e., document the process), so that the restaurant can continue to serve the meal to customers even if the original chef departs and a new one takes his or her place.
It is not hard to analogize this scenario to your own BPI project. You need to have a plan of action and you need to document both the plan and the result. We propose the following methodology (as introduced in Part One):
1. Research 2. Sell 3. Plan 4. Design 5. Execute
We have discussed research and sell; and plan, design and execute will be cov- ered in depth in the budgeting and reporting chapters in this part.
Create budget in three months.
Desired Process Value and Efficiency
0%
100%
Full revenue detail by product/market. Complete financial reporting by fifth of every month.
Activities
Not achievable with current resources
Improvement opportunity
Current level
ROI ROI ROI
EXHIBIT 7.4 Improvement Opportunities and Associated ROI
BPI Enablers
There are a number of tools you can utilize to help improve the analytics processes.
One of the most common solutions companies apply when they need to streamline their budgeting process is to invest in budgeting software. Technology alone cannot, however, effectively improve analytics processes, but it continues to be the most fre- quently applied solution to solve problems. There is no doubt that technology will, and should, play an important role in most BPI projects. But if you want to maximize the improvement opportunities that exist, it is very important to both carefully ana- lyze objectives and current problems and to look at a number of other potential en- ablers. We have identified these enablers as follows:
• Human resources. People involved both in the BPI project itself and in ongo- ing budgeting and reporting activities
• Best practices. Budget detail, frequency, report content, linkage to strategy, and so on
• Technology. Software and communication platforms that help automate and streamline processes and increase control and decision support
• Workflow. Who is doing what? When? In what order? A well-planned workflow is the backbone of an efficient budgeting and reporting infrastructure.
In the rest of the chapters in this part we will first look at the budgeting process, analyze it, and offer suggestions for making improvements; we’ll then do the same for the reporting process. As you will see, all of the improvement enablers are im- portant for maximizing the potential results of your BPI project.
Potential Obstacles
If you prepare and plan well for your BPI project, you should face fewer surprises and obstacles along the way. That said, with larger projects, there are more variables and a longer time period during which problems can occur. The following list out- lines three typical obstacles you might come across in your project, along with tips on how you can avoid or overcome them:
1. Turnover
Challenge:A key person might leave the company, such as the manager who sanctioned the project or someone responsible for key activities in the project itself.
Solution:Document all important parts of the project, so new people can more easily replace those who left. Also document the sales pitch (including ROI, etc.) that you gave the project sponsors, so that new managers can readily take ownership of the project if the original sponsors are gone.
2. Lost focus
Challenge:Unless you carefully adjust activities to fit the objectives of the BPI project, it can very easily expand in size or shift focus to less important areas.
Solution:Make sure the BPI objectives are documented, easily available, and al- ways referred to when there is any question whether the activities in the project are outside the scope. If a project must be expanded (or decreased) in size, make sure this is formally verified with the manager(s) who sanctioned the project.
3. Lack of planning and project management
Challenge:If changes must happen quickly, it is tempting to try to fix the ob- vious problems right away without doing the proper planning and without as- signing ownership and responsibilities. Ultimately, this can lead to poor or even failed projects.
Solution:Use the planning tools described in this book or other tools available to you; and don’t underestimate the importance of good project planning and management to keep a BPI project on track.
Project Organization
If your BPI project is a small one, you might be doing most of the work yourself, sup- plemented by some discussions and meetings with end users and decision makers involved with the budgeting and reporting processes. But, if you are planning to do a major overhaul of all analytics activities, a number of people will have to be involved in different parts of your project. Whichever of the categories best describes your sit- uation—anything from a two-person project team with some assistance from other people to numerous people across multiple departments and locations—will be part of the project. Just as it is important to plan well for your project, it is of key importance to create an effective project organization.
SUMMARY OF CURRENT ISSUES: SIMPLIFIED EXAMPLE
As you begin to map out the different areas that are due for improvement (“im- provement opportunities”), it can help to create a table like the one in Exhibit 7.5. For each improvement opportunity, identify which of your BPI enablers can be effec- tively used to generate an improvement. This table will not only be a good draft doc- ument to refer to as you move into more detail in the project, but it will help keep you focused on the key problems and the potential enablers to help resolve them.
USING DIAGRAMS TO VISUALIZE PROCESSES
Before you start your BPI project, we want to provide you with some ideas and tools to help you and the project team visualize both existing and new processes.
Note:This is a brief overview, so if you are planning to create highly advanced diagrams, we suggest you read one of the many diagram-related books on the topic.
By creating graphical diagrams depicting the different steps in a budgeting or reporting process, it is much easier for people to understand all the activities involved and the order in which they should take place.
Enabler
Improvement Human
Opportunity Best Practices Workflow Resources Technology Lack of system
knowledge
among users X
Too lengthy a
budget cycle X X X
Too much detail
in some areas X
Too little detail
in other areas X
Poor integration with ERP
system X
Lack of access to transaction detail in ERP
system X
Poor report formats (not
attractive) X
Can’t produce the reports management
wants X X
Too many keystrokes to
complete tasks X
Lack of ownership of
processes X X X
Outdated budget (lack of continuous
planning) X X
Too lengthy a closing (and
reporting) cycle X X X X
EXHIBIT 7.5 Improvement Opportunities and Enablers
To create professional and easily editable diagrams, it is best to use specialized software. For simpler processes, you can use any software with drawing capabili- ties, like Microsoft PowerPoint. Most people are familiar with this tool and it comes with a number of prebuilt objects (e.g., circles, squares, and arrows) that are easy to integrate to a process diagram. If you have more advanced needs, a tool like Microsoft Visio will give you the functionality you need to create almost any type of diagram.
A word of caution here: If you are going to invest in a professional diagram tool, make sure at least a couple of people on your team are willing and interested in adapting it for the project so it doesn’t go unused.
The following are three examples of the most popular diagrams used in BPI projects:
1. Organizational hierarchy diagram
Purpose:This diagram provides important insight to the organizational roll-up of a company, in particular for midsized and large companies, which often have rather complex organizational structures. The organizational hierarchy diagram should not be used to depict budgeting or reporting processes, but rather to clar- ify the administrative relationship between entities and/or people in the com- pany (see Exhibits 7.6 and 7.7 for examples).
Comments:The two most common versions of the organizational hierarchy dia- gram are the vertical and the horizontal. The major difference between them is that a vertical diagram is better used to fit a large organization on paper and/or in computer software (almost all analytics software use vertical organizational hierarchy diagrams).
EXHIBIT 7.6 Sample Horizontal Organizational Hierarchy Diagram ABC, Inc.
Division 1 Division 2 Division 3
Dept.
A
Dept.
B
Dept.
C
Dept.
D
Dept.
E
Dept.
F
Dept.
G