September 25, 2000

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Budget Planning: The Next Generation

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"We're trying to get cost-center managers to be more responsible for their own budgets," says Sean Bernhoit, a senior financial analyst with Conexant Systems Inc. in Newport Beach, Calif. The semiconductor maker has been testing Hyperion Planning for nine months and plans to begin implementing the system in October. Once it's installed, department managers will be able to enter draft budgets and operating results directly into the system, Bernhoit says. Conexant uses Pillar, Hyperion's older planning software, but Bernhoit says Hyperion Planning can be deployed to a larger number of employees more easily because it runs on

the Web. The software will give the company better control over expenses and allow it to respond to market changes more quickly, he says. For example, Hyperion Planning's process-management capabilities will let financial administrators monitor where specific cost centers are in the budget cycle, Bernhoit says.

Hunter Douglas now uses Cognos Finance 4.5 for budget planning and forecasting. But the system doesn't let department managers enter detailed financial data. Instead, they use spreadsheets and send the information to Lorenz and other finance executives, who enter the information into the Cognos application. "We have always done it that way," Lorenz admits. "But it's very difficult. It takes us months to do."

Hunter Douglas plans to install Cognos Finance 5.0 by year's end. With that system, Lorenz says, managers of the company's 25 manufacturing, sales, and distribution sites around North America will be able to enter detailed budget data and operating results directly into the application. "This will speed the whole process up and give us a lot more information to drill down into," he says. The company already uses the reporting capabilities built into Cognos Finance, as well as Cognos' PowerPlay multidimensional analysis tool for sales and profitability analysis.

Amway Corp. began implementing Adaytum Software Inc.'s e.Planning software this year to help the $5 billion home-and personal-product supplier develop a strategic budget. The application's "breakback" capabilities let the Grand Rapids, Mich., company test various budget scenarios--cutting travel expenses by 5% across the board, for example--and see what impact such changes have on the rest of the budget, says Roger Coleman, global planning manager.

Use of the Adaytum tool was limited to Amway budget executives this year, but the company plans to deploy the application on the Internet next year to make it available to 300 to 500 Amway managers who contribute to the budget process, Coleman says.

Users of these new-generation budgeting tools are going beyond collecting data from operational managers. Information services provider Ceridian Corp. is implementing Adaytum's e.Planning to collect revenue-related information, such as product sales and customer attrition, from some 200 department managers around the country. "The place where I think we're going to get the real benefits is on the revenue side," says controller Mike Varecka. "Hopefully we'll get a more accurate bottom-up revenue projection for the year."

Financial executives are using these tools not just to collect data from departmental and line-of-business managers, but to provide them with easy access to financial data. "It's all on the Web and everyone is already accessing it. We don't distribute paper anymore," says Bob Vesely, CFO at Advantage Sales & Marketing LLC. The Irvine, Calif., agency, which provides sales and marketing services for consumer packaged-goods companies such as Johnson & Johnson, M&M/Mars, and Tropicana Products, uses Comshare's Budget Plus software for its budget preparation and forecasting chores.

In addition to opening the budget-planning process to more people, the new crop of applications makes it possible to develop more-flexible budgets that are updated and revised to reflect operating results and changing business situations. Some companies are already using these tools to create the apex of budget planning: a "rolling budget." Unlike budgets that are cast in stone at the start of a fiscal year, rolling budgets are updated regularly, either quarterly or twice a year, to reflect actual operating results and create a new budget for the next 12-month period.

Conexant is using Hyperion's Pillar to produce a rolling budget. Bernhoit is engaged in a process that creates spending forecasts for company operations four quarters out and a rolling one-year budget based on those forecasts. Budget analysts also do high-level assessments on a monthly basis to make sure that the budget is in line with actual spending and revenue.

This process will be more efficient once the company switches to Hyperion Planning because data will be in a centralized location, making it more accessible to managers, Bernhoit says. The software also will make it easier for managers at all levels of an organization to see corporate spending and revenue targets and understand what's expected of them, he says. Conexant will deploy Planning to financial analysts in October, then roll the application out to department and divisional managers early next year.

Hunter Douglas isn't that far along--it still prepares an annual budget that stays in force for a year. But the company is using Cognos Finance to collect actual spending and revenue numbers, forecast that out for the rest of the year, and match those against the budget to see if midcourse corrections to spending and revenue are needed to stay on budget.

BenefitPort, a startup owned by BLC Holdings LLC that provides online sales and marketing services to the group insurance industry, has linked OutlookSoft Corp.'s Everest budgeting and performance-analysis software to its general ledger system. That lets BenefitPort see how close actual revenue and spending are to forecasts--critical for a startup that has no financial history on which to predict future results, says financial planning director Keith Hopper. "We do a rolling forecast every month. Until we get familiar with the business, we feel it's in our best interest to gain an understanding of the numbers," he says.

These new business practices, and the new generation of budget-planning and forecasting applications, are transforming company finance departments into something more than just number-crunchers. Says Gartner Group's Geishecker, "The goal is for finance to be more of a contributor to the strategic planning process."

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Photo of Bernhoit by Tom Keller

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