Paul Sharman | Darren Griffith Industry expert Paul Sharman and Prophix CFO Darren Griffith discuss the evolution of budgeting.
Darren Griffith (DG): While the Office of Finance continues to evolve, the fundamental processes for creating and managing budgets have stayed constant for decades. A logical conclusion to draw is that the processes continue to be relevant. Your thoughts?
Paul Sharman (PS): That is indeed a reasonable conclusion. The budget process has been built over the years to ensure that there is a comprehensive set of financial projections for the ensuing year. The projections involve analyses of revenue, direct costs, operating expenses, and overhead, department expenses, profits, as well as balance sheet and cash flow requirements.
DG: Throughout this process, the Office of Finance plays a key role. But, what’s exciting is that the Office of Finance is rapidly shifting from being the collector of data from across a company to the transformer of business metrics and key business drivers into more accurate budgets. In fact, Prophix’s customers have likened their role to that of an orchestra conductor. Do you think that is accurate?
PS: That’s precisely the role that the Office of Finance plays. And, it’s particularly true as companies grow – for example by expanding business lines, launching more products, and establishing offices across geographic locations. It’s also very true given that technologies supporting the Office of Finance enable collaboration throughout a company.
DG: As you say, technology, a key catalyst of process change, is itself evolving. Over the last few years, there have been dramatic improvements in software built for the Office of Finance in terms of its computing speed, capacity, reliability, and security. The result: Excel, the once go-to tool of choice for Finance professionals, is being widely revisited. Your thoughts?
PS: Finance professionals are always exploring ways to improve budgeting processes. So, while budgeting did begin as a very manual process, as soon as technologies emerged for enhancing efficiencies, Finance professionals began adopting them. For instance, VisiCalc and Lotus 123 were widely used throughout the 70s and 80s. Then, when electronic spreadsheets became available in the 90s, Finance professionals began using Excel.
Looking forward, the budgeting process will fundamentally remain the same – becoming far more efficient, of course – as long as budgets continue to be relevant for business planning, and control and reporting requirements. However, your point is well-taken. In practice, Finance professionals around the world are taking advantage of increasingly powerful software tools to help better manage the process.
Furthermore, because of the increased expectations placed on them, Finance professionals are widely adopting technologies that help them gain efficiency while integrating information from across sources, far beyond the General Ledger. These advancements in technology allow Finance professionals to automate time-consuming and tedious tasks. That means gathering, calculating, analyzing, and submitting data is conducted in a fraction of the time that it once took.
DG: This is a great example of how technology has pushed the boundaries of budgeting – causing the budgeting process itself to evolve into something that was previously unimaginable.
PS: Exactly. In effect, a new budgeting system has emerged – an Integrated Financial Planning (IFP) system. That system empowers Finance professionals to draw data from operating systems, such as customer relationship management/sales, order processing, personnel management and general ledgers, to capture business driver related information that is essential for preparing budgets. An IFP system also enables the automation of timely forecasts and what-if analyses.
This is the future of budgeting; what’s exciting is that this future actually exists today. Furthermore, by adopting today’s automation technologies, Finance professionals are actively evolving the budgeting process for the better.
In upcoming blogs, Darren and Paul will reflect further on how budgeting has evolved.