Only 16% of firms budget expenses accurately

Firms are not hitting budget projections, financial reports are straining the capabilities of the executives and the systems they’re using are outmoded. There is a desire among financial directors to get a more collaborative form of planning and reporting to improve their companies, but a lack of knowledge on how to do it.

These are the conclusions of a new survey from the Business Performance Management (BPM) Forum in conjunction with financial software house, Adaptive Planning.

“We were surprised at the depth of the problems chief financial officers were having in their financial planning and reporting processes,” said Dave Murray, head of the BPM Forum. “In spite of 90% saying that these processes were essential to the success of a company, over 50% of larger companies found the process frustrating and only 16% said they were on-target for their budgeted expenses,” he added.

Excel gets it in the neck

It also became apparent that for companies over a certain size they were suffering from “spreadheet sprain”, according to the report entitled “Perfect How You Project”.

In a mixed summary for Microsoft, the research showed that 76% of respondents are still dependent upon Excel spreadsheets for their budgeting, forecasting, and reporting but nearly one-third of mid-sized and larger companies use more than 100 spreadsheets in the process.

This number has lead to unwieldy reporting and cumbersome spreadsheets are cited as one of the top six pitfalls that derail, delay, or disrupt the budgeting process. Even designing how a spreadsheet look and what it contained, including mathematical definitions, lacked consistency.

“We concluded that finance directors were facing a lack of information, their businesses were changing too quickly for budgets to be accurately done and because of the number of spreadsheets, the collaborative process was impossible,” warned Murray.

William Soward, chief executive officer of software house Adaptive Planning, which co-sponsored the survey, said he was unsurprised at most of the results. “We tripled business in 2007 with our web-based collaborative financial planning application, because it suited those businesses looking to change their process,” he pitched.

Indeed 73% of the respondents said they planned to make changes to their financial reporting system this year, although Soward remained sceptical that many would get around to it. “There’s certainly a desire to to improve these processes and to better share information with their peers, but there’s confusion on how to do it cost effectively,” he added.

Soward also believed that the changes were not defensive in the light of the economic downturn but a desire to build better companies that were more responsive to dramatic economic change, especially among expense structures. A capability that made departments more timely and responsible for their financial reporting would have the additional benefit of improving forecasting and rolling analysis, he said.

The BPM Forum is a US-based group with over 2000 international firms as members. Its role is to help advance the understanding of business performance management techniques, especially for the finance director and chief financial officer. More information can be found at BPM.

Co-sponsor of the report is Adaptive Planning which offers a subscription company-wide software solution for financial reporting and planning including to UK companies. Finance Week readers can access free software and trials through the company's web site.