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Is Your Financial IQ Up To Par?

By Amy Radishofski, Features Editor, Manufacturing.netBudgeting, forecasting and reporting are necessary in our culture of constant change, but companies aren’t doing enough, says a recent survey.

Thinking about the current state of the U.S. economy doesn’t exactly give you a warm, fuzzy feeling. With the economy nearly sputtering to a stop, what’s a company to do to stay ahead of the competition?

“Even small businesses are thinking about going global now, not just the big guys,” said William Soward, President and CEO, Adaptive Planning. “But as you get more distributed, it becomes more difficult to keep your financial reporting under control.”

Even though manufacturers may be struggling with their U.S. operations, many are finding opportunities in the global market, which underscores the need to get their finances under control.

“Companies today need to find a balance against the ups and downs of the U.S. market,” Soward added. “Improving your financial reporting can help create an infrastructure to facilitate that balance.”

Now more than ever, it’s key for companies to stay on top of their financials. Budgeting, forecasting and reporting are necessary in our culture of constant change, but companies aren’t doing enough, says a survey by the Business Performance Management (BPM) Forum and Adaptive Planning.

Eighty-six percent of the survey respondents say those processes are very important or essential to their business. However, two-thirds of participants say they are either not or only somewhat adaptive and agile when it comes to budgeting, forecasting and reporting.

Common reasons companies find themselves lacking include:
• Either too many or not enough staff involved in budgeting and forecasting
• The budgeting process is too burdensome and time consuming
• They lack information availability, or have collaboration challenges or rapid business change
• No automated budgeting solution
• Poor cross-departmental communication 

“Companies are finding that rapid businesses changes are hard to forecast and they have difficulty collaborating with other members of the organization,” notes Derek Kober, Director of the BPM Forum. “CFOs and financial planners aren’t having fun -- they rely heavily on Excel and that ‘spreadsheet sprain’ is hurting them.”

According to the survey, one third of companies use over 25 Excel spreadsheets as part of their budget, with nearly 20 percent using hundreds or thousands.

Problems with your businesses financial management could lead to going over budget, or missing your expense targets or revenue forecasts.

The survey found 40 percent of companies are very or absolutely confident that they will be on target with this year’s budget -- three times higher than the number that actually came in on budget for 2007.

Despite the concerns and missed projections, the majority of companies still feel that they would deserve a “B” or higher on the financial IQ report card. However, companies are admitting the strain their finances are putting on them.

Forty percent say their frustration levels with budgeting are somewhat or very high. Perhaps that’s why only 25 percent of them forecast more than once per quarter. Not forecasting can hurt companies in an ever-changing global marketplace.

“One in five companies indicated that budgeting, forecasting and financial reporting was a drain on time and resources,” added Kober. “Larger companies are finding it even more difficult.”

Clearly, size matters when it comes to financial worries. Mid-sized and large business are struggling with collaboration and many feel budgeting is a burden. Moreover, mid-sized and large companies are using larger numbers of spreadsheets, increasing the complexity of their financial reporting.

But companies are making a choice to change. They see the need to adapt and are working to hold onto their market share.

Future improvement initiatives for budgeting and forecasting include:
• Improving the efficiency of the process
• Involving more people and departments
• Formalizing the process
• Make changes to the underlying technology
• Move beyond spreadsheets for a purpose-built solution

“There has been an interest among CFOs to get information on best practices for budgeting and financial reporting,” Soward said. “They want to change, but think it’s a daunting process. It’s a perception issue. Change is much easier than they think.”

For more additional information regarding the survey, visit http://www.bpmforum.org/request_form_perfect.asp

The BPM Forum is dedicated to advancing performance accountability, process improvement, operation visibility and compliance in global organizations.

Adaptive Planning is a leader in on-demand financial planning and reporting solutions that increase efficiencies and drive agile decision making in mid-sized companies and divisions of corporations.