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IT Zone guide to budgeting systems (2007)

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5th Mar 2007
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Introduction
Five years ago, I wrote, "In recent years, budgeting has been getting a bad press." Not much has changed on that front. Budgeting remains an entrenched habit - and some would argue a weak spot - in financial management.

Even when companies do embrace the concept of business performance management, suppliers report that the most common inquiry they get is for tools to help customers automate and manage their budgeting processes.

"Most of the corporate performance management suites we cover will enable any planning/budgeting process you can think of," says Gartner research vice president Nigel Rayner. "The software goes far beyond what most people think budgeting is about."

Gartner estimates that between 50% and 60% of large enterprises still use Excel as their primary budgeting solution, and they typically come to the analyst looking for advice on replacing their spreadsheet budgets with workflow systems that will provide data entry forms and a mechanism to consolidate the information into a top-level budget.

"If that's your mentality, you're not doing planning, you're doing financial budgeting," says Rayner, who remains concerned that finance managers view budgeting software more as a tool of suppression rather than as a mechanism for guiding and monitoring corporate strategy.

"The software has gone way beyond the budget as suppression, but financial people don't seem to recognise that," he says. "Business managers think in terms of sales, prices, discounts, new products and so on - so you need to put in driver-based planning. The financial budget is an outcome of that - but most financial people don't understand how to implement it.

"They think of a budget as a spreadsheet with a list of nominal lines on the left and a grid of figures in the middle. Unless finance managers can understand how planning works, we'll be stuck in the mire of financial budgets disconnected from business activities."

While accepting that the spreadsheet remains the predominant budgeting tool, this article will leave aside the theoretical discussions to other threads and focus on the potential alternatives. The mindset of finance managers may not have changed, but the software systems and suppliers have gone through a wave of consolidation. This piece will attempt to document the technical and commercial shifts that have taken place since 2002

The article is intended to introduce the key issues and help users identify suitable budgeting applications. It provides background information on vendors' philosophies and product strategies rather than detailing every feature and interface. If you spot any oversights or errors, feel free to email the editor with your suggested amendments.

Budgeting as part of the performance management "closed loop"
In the past five years, two key things have happened. First, the top end of the market has solidified through a series of mergers and acquisitions into an elite group of corporate performance management software suppliers. The group includes Business Objects (acquired ALG in 2006); Cognos (acquired Adaytum 2002); Infor (acquired Geac and Systems Union in 2006; Applix; and, as of this week, Oracle, which intends to spend $3.3 billion to bring Hyperion into its ever expanding stable.

"Bigger companies have all moved into unified CPM suites. Since Business Objects bought ALG, there are no more specialists targeting large enterprises with budgeting-focused solutions," says Gartner's Rayner. "For tier one users, everyone now offers a combination of planning/budgeting, consolidation and other CPM functions as a whole."

Oracle and Hyperion are likely to go through a lull while Oracle determines its product strategy for the competing products. Infor, another acquisitive group, faces a similar challenge with its MPC (Geac/Comshare) and MIS (Systems Union) performance management applications. SAP, meanwhile, has a sophisticated budgeting/planning solution to rival the CPM suppliers, but this remains restricted to the pool of mySAP ERP users.

Rayner points out that as you get to the mid-market, the need for sophisticated financial consolidation becomes less important. Here you will find a spectrum of suppliers providing specialist budgeting tools, ranging from web-based collaborative workflow environments to shrink-wrapped systems costing a few hundred pounds.

Support for interactive/collaborative processes
Borrowing our frame of reference from AccountingWEB member Alastair Harris and the experts at PA Consulting, IT Zone differentiates between the strategic, top-down nature of planning and the annual budget, which is typically developed from the bottom up as a tool for tracking whether the organisation is on target to achieve its planned goals.

Where these two meet is the messy patch of turf where most budget game-playing takes place. Line managers habitually hedge their targets numbers and senior executives usually send them back once or twice with demands for more acceptable numbers. These shenanigans take time and energy, particularly if all the revisions are being manually compiled on a spreadsheet.

The idea budgeting environment is one where the two sides can carry out the iterations electronically and record the agreed figures on one central database. Web-based mechanisms are ideal for this task and one developer, Adaptive Planning, has entered the market offering a planning and budgeting system as an "on-demand" online software service.

In the era of stiffer corporate governance rules, finance managers and auditors are also looking for systems that provide good controls around the budget figures and, for administrative efficiency, provide tools for managing the budgeting process and chasing up managers who are slow to return their figures.

"Process management is absolutely fundamental," says Rayner. "You've got to have good workflow capabilities - ideally in a collaborative environment where you can look at a budget, propose changes, make changes and agree what they should be."

To be assessed within Gartner's Magic Quandrant, systems have to have these capabilities. But at the lower end of the market, you start to find more functional gaps.

Mid-market budgeting and the Microsoft dimension
Over the past five years, the planning/budgeting software marketplace has followed a common pattern of technology development. While the top corporate tier of the market has consolidated, new players have brought similar capabilities to the market at lower prices. For budgeting and CPM software, the key ingredient in this shift has been Microsoft SQL Server, which includes online analytical processing (OLAP capabilities) in the Analysis Services module at no extra cost.

Financial software developers such as o2olap, Outlooksoft and ProClarity used the new Microsoft business intelligence platform to build sophisticated suites that rival the old giants (Hyperion, Cognos, Applix). Since an increasing majority of finance systems now run on SQL Server, anyone wanting to supply a budgeting system will need to support Microsoft's relational database management system.

As a technology rather than financial software specialist, Microsoft has been slower to exploit the tools within its portfolio. It already has a dominant position with Excel, but until the past year it has relied on specialist software partners to connect the spreadsheet to the underlying data sources and OLAP warehouses. Last year, the company bought ProClarity, one of the leading new wave CPM software houses, and is now incorporating the tools and financial expertise into a new product suite, PerfromancePoint Server 2007.

PerfromancePoint Server 2007 seeks to provide the "closed loop" CPM environment that will satisfy people like the Gartner analysts. But as with all the other integration projects taking place at Oracle/Hyperion, Cognos and Business Objects, Microsoft faces challenges not only in getting the components to work together, but in rolling them out into productive implementations in the field.

PLANNING & BUDGETING SOFTWARE VENDORS

Applix
Applix remains the last remaining "independent" CPM supplier with its own multi-dimensional database system. In the face of competition from larger suppliers such as Microsoft, Infor and Oracle, Applix has downplayed the underlying technology and become more of a niche specialist, focusing on end-user implementations that can incorporate non-financial data for tasks such as production planning and customer profitability analysis. Applix's Planning Server includes a web-based planning, budgeting and forecasting suite as seen in its work on Diageo's corporate planning system.

Business Objects
With Crystal Reports and its associated tools, Business Objects has a good foothold on management reporting, but until it acquired ALG last June, it was weak on the planning and budgeting side. ALG grew out of an actvity-based costing consultancy and expanded into interactive budgeting and planning systems. The Business Objects deal will greatly expand the potential market for ALG's highly rated budgeting tools on top of a much bigger reporting - and marketing - platform. According to Gartner's 2006 CPM Magic Quandrant report, Business Objects still needs to formulate a rationalised road map for its product portfolio, while also creating a strong sales channel and partner relationships for the combined 0offering.

Cartesis
Cartesis is another niche player within CPM, but undertook the acquisition of Inea in 2005, which led to the development of its latest ES Planning product. The tool uses a spreadsheet-style grid for data entry and includes a range of tools for allocating and spreading budget numbers. Non-finance managers are able to input non-financial drivers, which can be converted by underlying logic into a financial number (with changes displayed in different colours on the budget sheet). The product also includes workflow and controls to dispatch and collect budget packs and track the progress of the budgeting exercise. In spite of its previous strength in financial consolidation, Cartesis is now winning budgeting-led deals and putting pressure on the market leaders, Gartner notes. [Update: In April 2007, Cartesis accepted a €225 million bid from Business Objects, accelerating consolidation in this sector.]

Cognos
Like Business Objects, Cognos is a reporting/consolidation house that plugged the budgeting gap through the 2002 acquisition of Adaytum and is currently rated just below Hyperion in Gartner's "visionary/leader" CPM Magic Quadrant. Based around the Adaytum tools, Cognos Planning can cater for collaborative top-down/bottom-up planning and budgeting discussions in a web environment. The budget figures can be negotiated around a combination of historical patterns and user input and the budget models rolled up into the enterprise's financial statements. Like Hyperion, implementing Cognos budgeting tools will require a significant amount of business process and implementation consultancy work.

Hyperion
Oracle has effectively bought itself a $3.3 billion place at the CPM top table with the deal to acquire Hyperion, but faces a massive challenge in how it integrates and develops Hyperion's products alongside the existing suite of Oracle CPM products. Hyperion System 9 Planning relies on both Excel and web browsers to compile the budget data, which then feed into a managed planning process. While Hyperion is rated by Gartner as having the strongest vision and market presence in the corporate sector, it is also said to be the highest cost option in a market where the margins are beginning to erode. There are already internal database connections between Oracle and Hyperion's Essbase, so whatever strategy is ultimately decided, Oracle users will find their options are expanding. But Hyperion will give Larry Ellison and his cohorts a system they can offer beyond the Oracle applications universe - specifically in the SAP universe, according to the company's post-bid briefings.

Infor MPC
For Infor, read "mini-Oracle". Assembled from a sequence of more than 20 major ERP software acquisitons, Infor can offer budgeting and CPM systems from both its Geac subsidiary (which acquired the Comshare MPC system) and MIS, the performance management wing of Systems Union. MPC is sits on top of ERP or transactional systems and sucks planning forecasts, performance budgets, consolidated financial figures and transactional data into a central MPC database, which then allows users to develop and manage their budget process from a web interface. The MIS tools are the next rung down, but are good at data extraction and translation, which will be useful with so many different ERP systems to support. According to Gartner's Nigel Rayner, Infor appears to be focusing on developing its CPM applications around the MPC suite, but using the MIS tools to do so. "Infor has a strong opportunity in its installed base, but will struggle to gain traction in the open market," the analyst suggests.

Lawson
Lawson is a bit of a throwback to the halcyon days of the 1990s, but in the past few years it has moved from its base as an ERP system supplier to offer a budgeting/planning-focused Enterprise Performance Management application.

o2olap
The o2olap budgeting and forecasting approach is probably what Microsoft ought to have come up with if it concentrated purely on the financial processes involved rather than its beloved technology stack. Taking SQL Server's Analysis Services as its processing engine, o2olap has created a layer of financial logic that associates things such as KPIs and workflow responsibilities within the financial data. - all of which is output to users in Excel, via a web-based content management system, if required.

OutlookSoft
Since Microsoft took out ProClarity last year, OutlookSoft has been left to challenge the old CPM order. The company emphasises that budgeting/planning takes place within an integrated suite that is based around a centrally defined business model with workflow triggers and actions triggered when the model changes. In recent months, Outlooksoft has been working to add industry-specific guidance and Excel-driven wizards to differentiate itself from more technology-focused suppliers.

SAS Financial Management
SAS's Financial Management suite handles collaborative budgeting and planning with tools that managers play with "what-if" scenarios that will be written back into the reporting site of the CPM application. SAS strengthened its planning and budgeting capabilities with the 2002 acquisition of ABC Technologies, but is not as successful as some of the larger suppliers in winning in budgeting-led CPM deals.

Clarity
Canadian CPM developer Clarity is a Microsoft-based "second generation" mid-market CPM supplier in the mould of Outlooksoft and ProClarity. Having approached CPM from the budgeting, planning and forecasting camp, Clarity has a good reputation for these functions. Clarity users create their budget templates and reports in Excel, but then capture the structure and formulae into the Clarity 6 environment, which imposes validation rules, version controls and drill-down links into the underlying source data. The company is still considered a "niche" player and is currently attempting to build its international profile and user base, and opened a UK office in December 2006.

CorVu
CorVu is another niche planning specialist that has expanded into the offering a mid-market CPM suite. It's web-based CorPlanning system supports collaborative budgeting, with workflow controls and caters for top-down/bottom up negotiations, rolling forecasts and specialist techniques such as actvity-based costing, zero-base and outcome budgeting. CorVu has adopted a vertical market strategy as an accompaniment to manufacturing ERP systeams and has also carved out a fruitful market within the UK public sector.

Longview
Longview is another mid-market satellite hovering around the fringes of the CPM elite. While not as high profile as some of the names mentioned, its planning/budgeting as well as consolidation/reporting modules get good customer ratings for both product quality and value for money.

Microsoft
With its 2002 Great Plains purchase, Microsoft acquired the reporting specialist FRx, which developed the mid-market FRx Forecaster budgeting tool, an Internet Explorer-based product with security controls, online tracking and workflow tools. However, FRx Forecaster is about to be superseded by PerformancePoint Server 2007, which will include a new set of planning, budgeting and forecasting tools called Biz# that will integrate with ProClarity visualisation and analysis tools and the Microsoft Balanced Scorecard Manager. Excel remains the primary client for all of these applications, and has been enhanced with the ability to store and spreadsheets on a cetnral server (Excel Services) and publish them on the web with Microsoft SharepointServer. With SQL Server's Analysis Services module, Microsoft undermined the dominance of OLAP database CPM systems such as Comshare (MPC) and Hyperion. The new budgeting and reporting offerings could do the same in the budgeting/planning applications market. But, as Gartner notes, "Microsoft faces execution challenges before it can deliver on the promise of PerformancePoint Server."

Adaptive Planning
If you really want to see what the latest trend in budgeting is going to look like, pay a visit to the Adaptive Planning website, where you can book a 45-minute online demo of its online budgeting, forecasting, and reporting system. The software is designed as an on-demand, web-based service, but can also be delivered as a desktop "Express" edition for smaller users. The latest versio of Adaptive Planning was delivered in February - online customers were upgraded immediately, while Express Edition users are entitled to free upgrades - a central tenet of the software as a service philosophy that is anathema to the licence-based revenue models of the established players.

Analyst Financials
Analyst Financials relocated to the US and has been less in evidence on this side of the Atlantic in recent years. It does offer a collection of Excel-based budgeting, consolidation and reporting tools, with workflow controls, that integrate with systems including Sage 500 and CedarOpenAccounts' e5 and SalesLogix. For more information, try UK reseller FD Systems.

B-Plan Synergy Integral
The Integral Budgeting solution has made a mark with industry-templates, for example in the public sector, where system is used to support Private Finance Initiative planning applications and payroll budgetign exercises. The system links to activity-based costing, modelling and forecasting modules and can support techniques such as incremental and zero-based budgeting.

Brixx Planning
A business modelling tool that can output budgets, Brixx Planner includes an audit trail to track the development of the model and lets the user flex the input numbers to test different scenarios. Specialist editions have been created for housing associations, sports clubs, retail, finance, logistics and manufacturing organisations.

CedarOpenAccounts Collaborative Planning
Collaborative Planning is a web-based budgeting and planning system with integrated workflows, and target-setting tools to handle the top-down/bottom-up crossfire. One of a new breed of collaborative applications from this consolidated financial software house, Collaborative Planning can disseminate information from all of the COA product families into hierarchical forms that support the review-submit-approve/reject processes at all levels of the organisational hierarchy. The agreed figures are then output back into the finance system. Collaborative Planning was designed to give COA users an alternative to going the full CPM route, but the developer is now thinking about taking it out into the wider market.

CODA-Planning
CODA has been working with Cognos since 2002 to support budgeting and planning within a CPM-style environment for its users. The Cognos elements typically meant a price tag upwards of £50,000, and so the company introduced a more cost-conscious "s-planning" spreadsheet-based system in 2005. So far, these tools have mainly been sold mainly to CODA users rather than the wider CPM market.

Corporate Planner
Developed in Germany, Corporate Planner is targeted at medium-sized organisations and can cope with rolling, multiple-year planning periods and accept a variety of user-defined data streams for top-down or bottom-up techniques - or a combination of the two. The system is based on an Excel-like grid that connects to a graphical logic tree and tools for variance analysis, while its Simulation Manager lets you to see the effect of possible changes to compare different scenarios. A wide range of import/export options is supported, along with a library of charts.

Inca Planning
Leading Cognos reseller Inca acquired Excel-specialst Dillon Technologies in 2005 and rebranded its software as Inca Planning to cater for demand for planning tools from companies turning over £1 million to £30 million. The system lets users make rapid changes to their models, such as adding new products, geographies and customer groups. Built around Microsoft technologies including SQL Server, it can integrate with other business and finance applications and handles inputs and exports from Excel for ad hoc analysis and reporting.

Prophix Software
US developer Prophix Software began with budgeting and planning software for the mid-market and recently expanded its portfolio with integrated reporting tools. Top down/bottom up budgeting, version control and scenario planning are all supported - but not in a web environment. A single-seat 30-day free trial version is available for the program, which starts from £995 for a single user - although more seats will be needed for interactive budgeting.

Rugged Logic
This web-hosted system is primarily designed for working up Excel forecasts, models and business plans. Once the model is delivered, you'll be looking at a traditional budget spreadsheet - but with a difference. The logic within the sheet has been developed for more than a decade and includes thousands of checksums and validation rules to ensure the forumlae are consistent and accurate. The output package includes integrated P&L, balance sheet and cashflow sheets, with built-in variance reports and charts.

Sage Financial Forecasting
Aside from Excel, the most prevalent tool used to create budget spreadsheets is Sage Financial Forecasting and its predecessor WinForecast. While designed strictly as a forecasting tool, users such as AccountingWEB member Ian Clark frequently push it beyond its design limits - for example to maintain a monthly reporting pack that reports actual figures alongside rolling budget forecasts, with variance analysis. Good Excel links let you do more complicated analysis on a spreadsheet. A shrink-wrapped application starting from £499+VAT, it does not include all the workflow tools you get from more grandiose CPM-type budgeting systems.

Most enterprise resource management and accounting systems include modules and tools to define budget figures for each nominal account, but in practice this is not a great contribution to the budgeting discipline. AccountingWEB's consultant editor David Carter explains that very few people budget at the nominal account level - which makes it difficult to then report against the budget. As a result, most people get the actual figures out [usually to Excel] and will budget at the next level up from the nominal codes, and track actuals against those figures.

Gartner's Nigel Rayner is even more stern on this subject: "None of the ERP systems has budgeting built in. My advice to anyone evaluating an ERP system is that if they think they can do budgeting in the general ledger, they're mistaken," he says.

"Budgeting should always be done outside of the finance system. For creating a budget and planning based on business drivers and assumptions, no general ledger can do it. If you attempt the inside the general ledger, you're not doing it properly."

Once budget figures have been agreed, they can be sucked into the general ledger system, many of which have good features for budget management and monitoring expenditure or income expectations against actual figures, he says.

In reality, finance managers have to use the tools they're given, or those they can convince their managers to invest in. If you are already using the systems listed below, or another ERP/accounts system, you are likely to be aware of their budgeting modules and any limitations they have. The choice you face is to become a budgeting/CPM purist and find a suitable tool to work alongside your main system, or devise a workaround approach - as most finance managers have probably done at some point in their careers:

  • Deltek - this US "project ERP" developer does not deserve to be tarred with the Gartner brush, as it has devised quite sophisticated costing, resourcing and budgeting tools that can be applied on a project-by-project basis.
  • Epicor
  • Microsoft Dynamics
  • Oracle
  • SunSystems
  • SAP

Mid-market accounts with budgeting

  • Access Accounts
  • Dataflow
  • Exchequer from IRIS Enterprise
  • Pegasus Opera II
  • Sage MMS

Desktop applications
As life is for the average accountant with access to an ERP system, so it is for the Sage, QuickBooks or MYOB user. These packages also offer the opportunity to set budgets against nominal accounts, and in Sage 50's case to output a Budget Report that displays the monthly budget values you entered and the differences between actual and budgeted values. Sage and MYOB will also let you transfer the previous year's actuals values forward to set a base line for the next year's budget. In Sage, you can add a percentage increase to your budget values, or set budgets for individual projects if you are running Sage Accountant Plus or Financial Controller.

Because of the need to negotiate and play with budget figures, it is likely that you will still end up putting the numbers into a spreadsheet at some point, whatever accounting system you use - even the CPM systems will use either Excel or a close approximation.

Not everyone is going to use a bespoke system, but AccountingWEB member Richard Willis applied a novel approach to extracting and reporting on the data by taking advantage of his software's multi-company feature. "We use a dummy company to run our P&L budget," he explains. "We enter the figures as one-line journals by month and build up the entire year. This is then pulled together with the actuals in Excel, using ODBC links to the database."

If you've got Excel-friendly accounts systems, it's a good way to go, he continues: "You can have a base budget and enter any amendments as additional journals, these can be modified, or voided, at will to see the new picture without losing the basis."

For such a black art, no budgeting tool is every going to be perfect. As they have done through the ages, accountants like Richard Willis have found many ingenious ways to get the job done.

What this latest IT Zone software round-up demonstrates is that the tools are getting better at opening the budget process up to line managers and in handling the mechanics. The challenge for finance managers is to break away from their obsession with the budget process and devote more energy to gaining insights from the numbers and spotting profitable opportuntities.

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