Seeking Financial Agility in the Face of Rapid Business Change: Survey Links Key Finance Challenges to Major Budgeting Pitfalls

More than ever, we live in uncertain financial times. Reports of impending recession, a declining real estate market, and shrinking consumer spending make every company question what the future holds. Yet many business categories are thriving, and global expansion continues. Companies in the small and mid-size categories are still able to achieve meteoric growth. And big mergers, acquisitions, and venture-funding stories abound.

So what does this all mean to today's business? It adds up to an environment of change, dynamics, and opportunity ' one in which companies must be agile, adaptive, and aggressive. They must be fiscally responsible and responsive to changing environments, particularly in times of downturn, when nimble and smart companies can capitalize on uncertain times to leapfrog competitors.

The unfortunate truth is that most companies are ill prepared for this constant flux and flow. They are not sufficiently nimble and dynamic in their fiscal processes to deal with the changing landscape. In fact, two-thirds of companies are not highly adaptive in their financial planning processes, according to a recent study on budgeting, forecasting, and reporting conducted by the Business Performance Management (BPM) Forum and sponsored by the author's firm, Adaptive Planning. Organizations currently lack the means and tools to deliver the predictive and prescriptive processes to manage through the tough times.

The 'Perfect How You Project' online survey of more than 340 financial professionals revealed that executives and financial staff, from a broad industry spectrum of small, medium, and large companies, unanimously agreed that budgeting, forecasting, and reporting are essential or very important to their business success. However, more than 65% admitted they are not agile or adaptive in their financial practices, and even more significantly, 60% were not confident of hitting their 2008 expense and revenue plans. Half of those surveyed agreed that they spend too much time and too many resources on the budgeting process. Lack of automation, difficulty collaborating, and the speed of business change are cited as the key factors derailing, delaying, or disrupting the budgeting process. This makes sense, given the fact that more than 75% are entirely dependent on Excel for budgeting. Going forward, companies plan to put more effort into budgeting practices in order to dynamically respond to economic change, manage growth, improve inefficient processes, and fulfill executive mandates, according to the respondents.

The need for change is very real. Part of the problem lies in the fact that a vast majority of businesses still rely on simple spreadsheets to handle increasingly complex financial scenarios. Many of these companies are using hundreds or thousands of static Excel spreadsheets to manage budgeting, forecasting, and monthly reporting and analysis. These organizations struggle with engaging the appropriate level of resources in the process, according to the study. In fact, those still dependent on spreadsheets report much more anguish and wasted time associated with financial processes than those who are not tied to spreadsheets.

A look at the larger company segments of mid-sized businesses (100' 1,000 employees) and large businesses (more than 1,000 employees) reveals that they are even more dependent (78%) on spreadsheets, are less adaptive, and have bigger concerns around a lack of collaboration in the financial process. Fast, well-focused financial planning becomes a competitive advantage helping propel companies into leadership positions. This means finance pros need something far more effective than slow, error-prone spreadsheets to involve business-wide participation in the planning and budgeting process and develop solid plans.

They also need tools they can adopt and put to work immediately, not those that require months and millions of dollars to bring up to speed before some financial intelligence comes out the other end. Running 'What-if?' scenarios and financial models lets them prepare for what's coming, good or bad.

Professional Services Pains

When we look at how the professional services industry ' including law firms ' responded, we see the same overall trends and frustrations, with a few exceptions. While about the same low percentage (17%) of these companies came in right on target against budgeted revenues, a much lower portion (only 4% in professional services versus 16% overall) reported coming in on target for expenses. A higher percentage of professional services firms responded that too many (25% versus 17%) people were involved in budgeting and forecasting within their organization, indicating that processes are getting bogged down and creating inefficiencies. Interestingly enough, however, almost twice as many in this same professional services group said that they don't spend enough time on or involve the right people in the budgeting process. No matter how you slice it, there seem to be resource disconnects on either side of the equation.

In terms of the pitfalls that hinder budgeting, forecasting, and reporting, professional services point to the same top three as the rest of the group ' namely lack of information availability, challenges in collaborating, and rapid business changes. This latter challenge, however, was by far the number one response in professional services, as 50% of them pointed to the pace of business change as hindering their ability to accurately budget (versus only 36% in the overall group).

It's Time for Change

Financial professionals realize that change is necessary, and they point to specific areas where they plan to make improvements this year. Change in the form of new technology, better collaboration, and better processes were the top priorities for 2008. Twenty-three percent of midsized and larger companies plan to move beyond spreadsheets for a purpose-built solution in 2008. These areas of change are those in which companies felt they could make some significant strides in the coming year, perhaps because there is more awareness that better options are now available to them.

The following section summarizes the key findings of the study overall.

Top-Level Survey Findings

Budgeting, forecasting, and reporting are critical to business
success.

1) 86% say they are very important or essential to their business.

2) 45% say they are essential.

Yet, a vast majority are not very nimble and dynamic in these processes.

Two thirds of respondents are either not or only somewhat adaptive and agile in their budgeting, forecasting, reporting, and analysis.

Resource challenges and frustrations are significant.

1) Almost half say there are either too many or not enough staff involved in budgeting and forecasting within their company.

2) More than 50% report that the budgeting process is too burdensome and time consuming (20% say hugely so); less than 30% of respondents believe that they are spending the right amount of time and resources on the process.

3) More than a third point to lack of information availability, collaboration challenges, and rapid business change as the top pitfalls derailing the budgeting process.

4) Other top-rated challenges are a lack of an automated budgeting solution and poor cross-departmental communication.

Spreadsheet sprain is a big problem.

1) 76% of respondents are still dependent upon Excel spreadsheets for their budgets ' an astonishing number given the complexities and dynamic nature of business that drives the need for automation.

2) Over a third use more than 25 Excel spreadsheets as part of their budget, and nearly 20% use hundreds or thousands!

3) Cumbersome spreadsheets are cited as one of the top six pitfalls that derail, delay, or disrupt the budgeting process.

4) This widespread 'spreadsheet sprain' is causing huge levels of anxiety and resource drain ' 50% more of those dependent on spreadsheets report anguish in the process, and four times more say it's a huge time drain than those that are using other means for budgeting and reporting.

As a result, budgeting and forecasting has been a hit or miss (mostly miss) process on the wrong side of both revenue and expense targets.

1) More than 40% said actual 2007 expenses came in over budget.

2) A mere 16% hit their expense targets in budgeting.

3) Only 11% hit their revenue forecasts on the head last year.

4) 41% missed the mark on the down side, coming in short of forecast revenue numbers.

Predictions are that this year's budgets will not be highly accurate either.

1) Nearly 60% are only somewhat or not confident that their company will hit its expense and revenue plans.

2) The other 40% are very or absolutely confident that they will hit their mark ' about three times the number that actually came in on budget for 2007.

A majority of organizations forecast more than once a year, but only about 25% do so more than once per quarter, presenting a challenge to keep up in dynamic business climates.

1) 44% set formal budgets or re-forecast once every six months at most, and nearly a third only do it once a year.

2) A mere 9% conduct forecasting on a rolling basis.

Budgeting blues are peaking.

Forty percent say their anguish and frustration levels associated with budgeting are somewhat or very high.

Mid-sized and large businesses are acutely feeling the pain.

1) Three-fourths said financial planning processes were not highly adaptive.

2) Difficulty collaborating was the number one pitfall.

3) One-third more respondents in this category said the budgeting process is a huge time and resource drain than did overall respondents.

4) 50% more said anguish and frustration around the process is high.

Need for change is very real.

1) Top plans for changing the budgeting, forecasting, and reporting processes in 2008 include improving the efficiency of processes, involving more people and departments, and formalizing processes.

2) Companies will put more effort into budgeting and planning because they see the need to respond to dynamic market conditions, manage growth effectively, and improve broken or inefficient processes.

Particularly in an economy that is predicted to be weak or recessionary this year.

1) 45% expect the economy to be somewhat or very weak this year.

2) Only 18% estimate a strong or very strong economy in 2008.

Executives, healthy cross-section of industries, and businesses well represented.

1) Two-thirds of respondents described themselves as executive-level budget participants.

2) More than 25 different industries made up the pool, with financial services and manufacturing as the largest concentrations.

3) There was a relatively even distribution of company sizes. Sixty percent were mid-sized or large businesses.

4) 30% of companies described themselves as on the fast track, and 75% are growing at some level.

Conclusion

There is no doubt that current economic conditions are more challenging and unpredictable than ever. Those organizations that can muster the courage and the fortitude for incremental change can make huge strides in enhancing their agility and competitive advantage, particularly in times when the going gets tough for everyone.

For a full survey report, visit http://www.bpmforum.org/.

William A. Soward is CEO of Adaptive Planning, a provider of on-demand financial planning and reporting solutions that increase efficiencies and drive agile decision making in mid-sized companies and divisions of corporations.

More than ever, we live in uncertain financial times. Reports of impending recession, a declining real estate market, and shrinking consumer spending make every company question what the future holds. Yet many business categories are thriving, and global expansion continues. Companies in the small and mid-size categories are still able to achieve meteoric growth. And big mergers, acquisitions, and venture-funding stories abound.

So what does this all mean to today's business? It adds up to an environment of change, dynamics, and opportunity ' one in which companies must be agile, adaptive, and aggressive. They must be fiscally responsible and responsive to changing environments, particularly in times of downturn, when nimble and smart companies can capitalize on uncertain times to leapfrog competitors.

The unfortunate truth is that most companies are ill prepared for this constant flux and flow. They are not sufficiently nimble and dynamic in their fiscal processes to deal with the changing landscape. In fact, two-thirds of companies are not highly adaptive in their financial planning processes, according to a recent study on budgeting, forecasting, and reporting conducted by the Business Performance Management (BPM) Forum and sponsored by the author's firm, Adaptive Planning. Organizations currently lack the means and tools to deliver the predictive and prescriptive processes to manage through the tough times.

The 'Perfect How You Project' online survey of more than 340 financial professionals revealed that executives and financial staff, from a broad industry spectrum of small, medium, and large companies, unanimously agreed that budgeting, forecasting, and reporting are essential or very important to their business success. However, more than 65% admitted they are not agile or adaptive in their financial practices, and even more significantly, 60% were not confident of hitting their 2008 expense and revenue plans. Half of those surveyed agreed that they spend too much time and too many resources on the budgeting process. Lack of automation, difficulty collaborating, and the speed of business change are cited as the key factors derailing, delaying, or disrupting the budgeting process. This makes sense, given the fact that more than 75% are entirely dependent on Excel for budgeting. Going forward, companies plan to put more effort into budgeting practices in order to dynamically respond to economic change, manage growth, improve inefficient processes, and fulfill executive mandates, according to the respondents.

The need for change is very real. Part of the problem lies in the fact that a vast majority of businesses still rely on simple spreadsheets to handle increasingly complex financial scenarios. Many of these companies are using hundreds or thousands of static Excel spreadsheets to manage budgeting, forecasting, and monthly reporting and analysis. These organizations struggle with engaging the appropriate level of resources in the process, according to the study. In fact, those still dependent on spreadsheets report much more anguish and wasted time associated with financial processes than those who are not tied to spreadsheets.

A look at the larger company segments of mid-sized businesses (100' 1,000 employees) and large businesses (more than 1,000 employees) reveals that they are even more dependent (78%) on spreadsheets, are less adaptive, and have bigger concerns around a lack of collaboration in the financial process. Fast, well-focused financial planning becomes a competitive advantage helping propel companies into leadership positions. This means finance pros need something far more effective than slow, error-prone spreadsheets to involve business-wide participation in the planning and budgeting process and develop solid plans.

They also need tools they can adopt and put to work immediately, not those that require months and millions of dollars to bring up to speed before some financial intelligence comes out the other end. Running 'What-if?' scenarios and financial models lets them prepare for what's coming, good or bad.

Professional Services Pains

When we look at how the professional services industry ' including law firms ' responded, we see the same overall trends and frustrations, with a few exceptions. While about the same low percentage (17%) of these companies came in right on target against budgeted revenues, a much lower portion (only 4% in professional services versus 16% overall) reported coming in on target for expenses. A higher percentage of professional services firms responded that too many (25% versus 17%) people were involved in budgeting and forecasting within their organization, indicating that processes are getting bogged down and creating inefficiencies. Interestingly enough, however, almost twice as many in this same professional services group said that they don't spend enough time on or involve the right people in the budgeting process. No matter how you slice it, there seem to be resource disconnects on either side of the equation.

In terms of the pitfalls that hinder budgeting, forecasting, and reporting, professional services point to the same top three as the rest of the group ' namely lack of information availability, challenges in collaborating, and rapid business changes. This latter challenge, however, was by far the number one response in professional services, as 50% of them pointed to the pace of business change as hindering their ability to accurately budget (versus only 36% in the overall group).

It's Time for Change

Financial professionals realize that change is necessary, and they point to specific areas where they plan to make improvements this year. Change in the form of new technology, better collaboration, and better processes were the top priorities for 2008. Twenty-three percent of midsized and larger companies plan to move beyond spreadsheets for a purpose-built solution in 2008. These areas of change are those in which companies felt they could make some significant strides in the coming year, perhaps because there is more awareness that better options are now available to them.

The following section summarizes the key findings of the study overall.

Top-Level Survey Findings

Budgeting, forecasting, and reporting are critical to business
success.

1) 86% say they are very important or essential to their business.

2) 45% say they are essential.

Yet, a vast majority are not very nimble and dynamic in these processes.

Two thirds of respondents are either not or only somewhat adaptive and agile in their budgeting, forecasting, reporting, and analysis.

Resource challenges and frustrations are significant.

1) Almost half say there are either too many or not enough staff involved in budgeting and forecasting within their company.

2) More than 50% report that the budgeting process is too burdensome and time consuming (20% say hugely so); less than 30% of respondents believe that they are spending the right amount of time and resources on the process.

3) More than a third point to lack of information availability, collaboration challenges, and rapid business change as the top pitfalls derailing the budgeting process.

4) Other top-rated challenges are a lack of an automated budgeting solution and poor cross-departmental communication.

Spreadsheet sprain is a big problem.

1) 76% of respondents are still dependent upon Excel spreadsheets for their budgets ' an astonishing number given the complexities and dynamic nature of business that drives the need for automation.

2) Over a third use more than 25 Excel spreadsheets as part of their budget, and nearly 20% use hundreds or thousands!

3) Cumbersome spreadsheets are cited as one of the top six pitfalls that derail, delay, or disrupt the budgeting process.

4) This widespread 'spreadsheet sprain' is causing huge levels of anxiety and resource drain ' 50% more of those dependent on spreadsheets report anguish in the process, and four times more say it's a huge time drain than those that are using other means for budgeting and reporting.

As a result, budgeting and forecasting has been a hit or miss (mostly miss) process on the wrong side of both revenue and expense targets.

1) More than 40% said actual 2007 expenses came in over budget.

2) A mere 16% hit their expense targets in budgeting.

3) Only 11% hit their revenue forecasts on the head last year.

4) 41% missed the mark on the down side, coming in short of forecast revenue numbers.

Predictions are that this year's budgets will not be highly accurate either.

1) Nearly 60% are only somewhat or not confident that their company will hit its expense and revenue plans.

2) The other 40% are very or absolutely confident that they will hit their mark ' about three times the number that actually came in on budget for 2007.

A majority of organizations forecast more than once a year, but only about 25% do so more than once per quarter, presenting a challenge to keep up in dynamic business climates.

1) 44% set formal budgets or re-forecast once every six months at most, and nearly a third only do it once a year.

2) A mere 9% conduct forecasting on a rolling basis.

Budgeting blues are peaking.

Forty percent say their anguish and frustration levels associated with budgeting are somewhat or very high.

Mid-sized and large businesses are acutely feeling the pain.

1) Three-fourths said financial planning processes were not highly adaptive.

2) Difficulty collaborating was the number one pitfall.

3) One-third more respondents in this category said the budgeting process is a huge time and resource drain than did overall respondents.

4) 50% more said anguish and frustration around the process is high.

Need for change is very real.

1) Top plans for changing the budgeting, forecasting, and reporting processes in 2008 include improving the efficiency of processes, involving more people and departments, and formalizing processes.

2) Companies will put more effort into budgeting and planning because they see the need to respond to dynamic market conditions, manage growth effectively, and improve broken or inefficient processes.

Particularly in an economy that is predicted to be weak or recessionary this year.

1) 45% expect the economy to be somewhat or very weak this year.

2) Only 18% estimate a strong or very strong economy in 2008.

Executives, healthy cross-section of industries, and businesses well represented.

1) Two-thirds of respondents described themselves as executive-level budget participants.

2) More than 25 different industries made up the pool, with financial services and manufacturing as the largest concentrations.

3) There was a relatively even distribution of company sizes. Sixty percent were mid-sized or large businesses.

4) 30% of companies described themselves as on the fast track, and 75% are growing at some level.

Conclusion

There is no doubt that current economic conditions are more challenging and unpredictable than ever. Those organizations that can muster the courage and the fortitude for incremental change can make huge strides in enhancing their agility and competitive advantage, particularly in times when the going gets tough for everyone.

For a full survey report, visit http://www.bpmforum.org/.

William A. Soward is CEO of Adaptive Planning, a provider of on-demand financial planning and reporting solutions that increase efficiencies and drive agile decision making in mid-sized companies and divisions of corporations.