The vast majority of businesses create and maintain their budgets using an electronic spreadsheet such as Excel. Though this approach works fine for small organizations, it is quite unwieldy for large ones. The trouble is that individual departments create their own budget models using formats that vary from the one used by the budgeting department. When the budgeting staff receives these models from the various departments, it must manually re-input the information into a master spreadsheet, which is quite labor-intensive. Also, when any significant variable is added to the model, all related formulas must be manually altered and then tested to ensure that the model still operates properly. Further, it is difficult to track which department has submitted budget information, or when it made its last update. For these reasons, larger companies have considerable difficulty using spreadsheets as the basis for a budgeting system.
The solution is to purchase budgeting and planning (B&P) software. This software maintains a central database of budgeting information that is automatically updated when users enter information. They can enter information in a variety of ways – through a local or wide area network, or the Internet (depending on what software is purchased). They can also be maintained off-site by an application service provider (ASP). In addition, the software generates templates for data entry use by each department, as well as issuing all pro forma financial reports at the press of a button. The better systems also have workflow management capabilities that reveal who has not yet submitted a budget. Variance analysis tools also issue warnings to the budgeting staff when submitted budgeting information exceeds predetermined levels, or if other pre-set rules are violated. Some systems are also designed with links to customer relationship management (CRM) systems, so that real-time sales information can be shifted into the budget model for additional analysis. A variety of other features are available, such as automatically calculating line of credit projections, what if scenarios, determining inventory requirements based on sales and turnover levels, and ratio analysis.
Examples of the companies that produce B&P software are Cognos, Hyperion Software, Comshare, and Adaytum Software. Most of the enterprise resources planning (ERP) systems already include a B&P module. These are complex software systems that require customized installation, so one should expect to pay more than $100,000 for the larger systems. A pay-as-you-go ASP solution will be significantly less expensive in the short term, and may be a better solution if a company wants to see how the system works before investing in an in-house installation.