It’s not just a matter of choosing the right technology. Financial leaders also need to think about aligning resources with corporate objectives.
Which comes first: the budgeting software or the budget plan?
This may seem like a fairly obvious chicken-and-egg question, but some of the brightest minds in finance technology will tell you it needs to be answered in a highly sophisticated way.
No, most companies will not go out and buy tools to improve budgeting before ensuring they know where they want to take their business over the next year. How they approach that journey, however, may be trickier than it sounds.
“…Weaving strategy and budgeting together is the hard but necessary work that defines the CFO role today.”
On TechTarget, for example, a consultant who specializes in working with corporate performance management (CPM) applications says a good budget doesn’t just inform the organization’s overall strategy. Instead, the budget is created with a plan in mind, and developing it requires considerable preparation:
“Some companies buy budgeting software to improve the efficiency and effectiveness of their budgeting cycles,” he writes. “While this approach can be useful operationally, it shouldn’t come at the expense of giving adequate attention to the formal planning that is essential in having an effective budgeting strategy.”
The planning process outlined in the post includes breaking down budgets into areas aimed at operational efficiency, projects, capital expenditures and overall growth. Some of these areas have specific time frames that need to be kept in mind as well. “A strong methodology will help with consensus building, midcourse corrections and the ability to extend the budget each quarter, once actuals come in,” he adds.
Accountants will tell you the same thing. In fact, an executive from Grant Thornton recently wrote a post for FEI Daily that argues that weaving strategy and budgeting together is the hard but necessary work that defines the CFO role today:
If strategic planning is a top priority, the finance function needs to invest in its people and in the technology necessary to support business processes, such as budgeting, forecasting, and long-term planning. This planning effort is not only related to financial data, but also to the operational information that drives the business. It starts with defining key business metrics and then tying these metrics to how they affect or drive bottom-line performance.
Assuming you’re done the planning and budgeted based on the strategy, technology like cloud-based CPM can streamline everything. Which means that instead of something that seemed like a chore, the budgeting process becomes the catalyst for everything important that the company accomplishes afterward.
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