This is part of a series of blogs on improving the corporate budgeting process. In the last blog I looked at cloud-based Vs. ‘on-premise’ budgeting software. In this blog I will look at a specific cloud-based budgeting solution in action and how it can be used to implement some of the suggestions covered in previous blogs. Financial Driver is a modern cloud-based planning and reporting application designed for collecting and reporting budgets without the administrators having any technical knowledge or IT support. All application information and data is held within a secure central database, which users access through a standard web browser. Financial Driver supports as many users as is required – each being controlled by an administrator user as to what role they play and the data they can access. Unlike a spreadsheet that contains 3 dimensions (row, column and sheet), the Financial Driver model consists of 6 dimensions - department, accounts, project/product, year, period and version.
Financial Driver, like most modern planning systems, allows an organisation to be split into a hierarchy of departments.
This means that data entry templates can be issued to each and once data has been entered it will be consolidated by the system to give a total company position. With Financial Driver, data to be held by department is defined within schedules, which is simply a grouping of accounts. These accounts can be both resources to hold the budget and other measures that can collect and hold workload and output information. To tailor the collection of data for each department, Financial Driver has something called ‘Sheet packages' that allows measures to be associated with specific departments/projects. This relationship is then used by Financial Driver to issue data entry templates that automatically contain the right combinations of measures, making it easy to associate budgets with each business process.
Schedules are a way of grouping accounts into sets of information. These schedules can denote different types of data such as detailed backup data to support a sales target that may be collected by product; or summary data that makes up a standard report. For variable data, Financial Driver allows relationships between measures, so that by entering a few drivers, the system is able to calculate the rest of the P&L.
In the above example Average Selling price (ASP) and Average Cost Price (ACP) are entered as global values by the administrator where they apply to the whole organisation. Annual sales revenue (SALREV) is entered manually for budgets and forecasts, with rules being used to calculate Quantity and Cost of Sales. However, when loading actual data for comparative reporting, these rules can change. For example quantity is whatever was shipped and we can then calculate the average price from volume and revenue.
Financial Driver has an extra dimension that can be used to budget and track detail such as projects. To implement the recommendations in this series of blogs, this dimension can be used to set up a number of members that would include 'Business as usual' plus any projects that are to be tracked.
This means that when collecting budgets or forecasts, resources can be assigned to particular projects and tracked accordingly. This allows management to assess whether a project is being implemented and whether the costs are worth the outcomes being generated.
Financial Driver is a multi-user system, where each person can be assigned a role and an area of responsibility. This controls what they are allowed to see, and when collecting data what areas they are allowed to update. Financial Driver uses the concept of worksheets to collect data. To go with this Financial Driver has an in-built workflow capability that manages who gets the right worksheets; who is to approve data submitted; and that chases up users who are late in submitting. Once data has been approved, the worksheet no longer allow changes unless authorised by an administrator.
At all times, administrators can see the status of submissions so they are always aware of what else needs to be collected.
Most budget spreadsheets are good at catching numbers at a summary level, for example, how much marketing costs will be in April. But they typically fall down when the level of detail required is unknown, for example, what conferences will be attended, the potential return that will be gained, how those costs break down between fees, setup costs and materials to be used. This requires much more data – more than just a number – and that could go on for many rows. Fortunately, Financial Driver does have such a capability called ‘Detailed Data Tables’ or DDT for short. DDT’s are set up by an administrator and can contain a variety of fields such as dates, text, notes and so on. For example they can be set up to collect by date the name of the exhibition, the name of the organiser, the number of people required, the expected return, setup cost, etc. The number of records that can be entered are unlimited, with the system then summarising any key data such as cost, which is then used to automatically populate the appropriate measure in the right period for the department concerned. This level of detail can then be used to backup any reports that show the summarised cost, to give managers a better view of what is being planned.
Financial Driver allows an unlimited number of versions. These are typically used to hold actual, budget and forecast versions of any data. But they can also be used to hold different scenarios. For example, senior management may want to better understand the impact of a rise in energy prices. To do this they create a new scenario – say ‘Higher Energy Price’ and using Financial Driver’s Data management capability they can copy the data from actual (or budget, forecast or a combination of all three) into the new version. If energy price was set up as a global variable, it can now be changed in the ‘Higher Energy Price’ version after which the ‘Calculate Formula’ command can be issued. This will then reevaluate all the data in that version but at the new energy rate. This exercise can now be repeated but with a new version called ‘Lower Energy Price’, only this time using a lower energy cost. The two versions can now be compared ‘side-by-side’ in a report. Financial Driver is perfect for organisations wanting to carry out scenario analyses, which can be done simply and quickly but without invalidating the integrity of actual results
The last area to be covered is that Financial Driver makes the budgeting and reporting process more dynamic. For example, the same system can be used to report actual results and to collect forecasts that also show the original budget and progress towards its achievement. To facilitate this, actual data can be loaded from CSV files that most GL’s are able to produce. In loading data, Financial Driver is able to map codes from different GL’s that may have a different chart of accounts, as well as warn users if new codes have been setup which have no corresponding measure in the model. This information can then be passed out as reports to end users through the systems reporting capabilities. As the year progresses some things will work as planned while others will need extra resources. These can be found either by re-allocating budgets from one area to another, or finding new sources. To this end, Financial Driver can be used to initiate a partial or complete re-plan. With a few clicks, an administrator is able to request a revised budget while showing current results that are ‘locked’ against change while the remaining months are ‘open’ to capture the new budget. This could be re-seeded in advance with the ‘old’ budget to help users in updating their submissions.
Financial Driver is able to hold the original version of the budget as well as the new one, allowing management to see where adjustments have been made. In the next blog, which will be the last in this series, I will look at a number of suggestions regarding ‘Next Steps’ that organisations can make in improving the budget process. If you would like to see all the blogs as a single document, then request our free booklet ‘No-Nonsense Guide to Corporate Budgeting’ that’s guaranteed to help you get control and make best use of scarce company resources.