As more analysts push business intelligence (BI) and dissatisfaction with spreadsheets grows, William Soward, offers a step-by-step guide of moving your company to a better organised budget.

For most companies, annual budgeting and planning is a broken process. The dream of business intelligence is absent and spreadsheet sprain gets more painful.

First off, the process takes months to complete, and in addition, because line managers see little benefit to their efforts, they are often dragged through the process against their will. When finance does much of the work themselves, managers refuse to buy in and the plan loses credibility. What's more, once the agonising process is finally complete, the budget is already outdated. Rather than being a useful decision-making tool, the budget is a disconnected document that has little impact on the company's business.

Compounding these broken processes are the underlying budgeting technologies, which in many companies are spreadsheets and email - tools not designed for complex budgeting and planning. While these personal productivity technologies are ubiquitous and well-understood, they simply do not work well for mission-critical enterprise planning.

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The solution is a set of best practices and new technologies that are well-suited for current dynamics and complexities. By combining best practices with technology, companies can:

• Consistently deliver a more timely, accurate, and flexible plan
• Strengthen the link between strategic objectives and operational and financial plans
• Improve communication and collaboration among managers

Enhance strategic decision-making, enabling leaders to more quickly identify, analyse, and forecast the impact of changes as they occur within and around their business.

Best practice #1: make planning part of the corporate culture
First and foremost, it is critical that a company's culture embraces and rewards planning. Excellent business management requires excellent financial management, which in turn requires a company-wide commitment to excellence in budgeting, forecasting and reporting. Companies that desire excellence in planning set achievable strategic objectives, demand that these goals be met and reward those who do so. They require department managers to produce their own plans and tie incentive compensation to their ability to manage their business and achieve their goals. In such an environment, finance can provide tools and support to the managers, functioning as an important ally instead of an obstacle.

Best practice #2: align the strategic and operating plans
Because of their responsibility to engage department managers in the planning process, finance has the unique opportunity to help clearly communicate the corporate strategic plan to the individuals who run the business. Finance can help translate strategic goals into specific departmental plans and related expense drivers, such as headcount and equipment.

By translating their strategic goals into operational plans, and by tracking and measuring performance against a plan, leading companies are able to make meaningful progress in achieving their objectives.

Best practice #3: start at the top - and the bottom
Leading companies provide initial guidance from senior management - a top-down perspective on strategic goals, objectives, and expectations. Next, department managers build a plan from the bottom-up, showing how they intend to meet those goals. This process will often require frequent iterations for the top-down and bottom-up approaches to meet. The result is a plan that:

• Is supported by department managers, because they helped create it and will be rewarded for meeting it
• Is supported by senior management, because the operational goals are aligned with the strategic goals
• Is supported by finance, because they added value to a productive, collaborative effort

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Best practice #4: drive collaboration between functions
Not only should strategic and operating plans be aligned, but plans between functional areas should also dovetail. Best practices include direct involvement from line-of-business managers and a collaborative approach to budgeting and forecasting. In addition to understanding strategic goals, department managers also need to know what other functions are planning. For example, the manufacturing, marketing, sales, and customer support organisations need to be completely aligned in order to effectively launch new products to market.

This collaborative planning can be accomplished through an iterative process that provides managers with the opportunity to forecast and share different scenarios with each other. Finance can play a key role in facilitating the coordination of plans across the company.

Best practice #5: adapt to changing business conditions
All businesses, particularly during volatile and uncertain economic times, are better served by a planning process that can quickly adapt to change in the company or in the market. The key elements of such a process are frequent re-forecasting and rolling forecasts. Ongoing re-forecasting will help managers to continually answer critical questions such as 'What did we expect?', 'How are we doing against our plan?', and even more importantly, 'How should we adapt our plans as a result?' A company engaged in ongoing rolling forecasts is always looking forward to the immediate or near-term future. The forecast time-frame should extend out two to eight quarters, depending on the volatility of the business. This process will facilitate more informed decision-making in areas such as pricing changes, product line changes, capital allocations, organisational changes, and the like.

Best practice #6: model business drivers
An important feature of a first-rate budget or forecast is that it is based on a model with formulas that are tied to fundamental business drivers. Simply importing and manipulating past actuals does not reflect the underlying cause and effect relationships in a business. Building modelling into plans provides a way to ensure appropriate consistency across functions. It also provides a way to promote planning coordination between functions. For example, future sales forecasts can be tied to the marketing expenditure needed to generate the necessary number of leads.

Best practice #7: manage content that is material to the company
A focus on material content in budgeting will free managers from unnecessary detail, enabling them to produce better plans. According to a Hackett Group study of planning best practices, the fewer the number of line items, the better the planning practices. Hackett found that world-class companies average 15 to 40 line items in their budgets, compared to highly inefficient companies that averaged 2,000 line items. Managing material content means that a company pays attention to whatever has a real and significant impact on expenses, revenues, capital or cashflow.

Best practice #8: be timely and accurate
Many companies have an inefficient and inflexible planning process, at the centre of which is the annual budget. These companies' time-consuming distribution and consolidation processes practically guarantee that the plan data is irrelevant before it is even shared. And plans based on stale data and assumptions are of no value. According to the Hackett Group, the average annual planning and budgeting process is three to five months long. World-class organisations have been able to shorten their planning cycles by implementing the best practices described here. They have also leveraged technology so that they can manage budget consolidation and aggregations in real time.

Alternative technology can promote best practices

Leading companies have recognised that spreadsheet-based planning impedes their implementation of these budgeting and forecasting best practices. They have moved to a purpose-built application with lean infrastructure requirements. This type of planning software enables them to accurately plan and re-plan quickly, using the same or fewer resources than they formerly devoted to the process.

Streamlining the planning process demands technological tools capable of supporting a faster, more flexible and adaptive approach to planning. Fortunately, however, the tools do not require heavy-weight, expensive investments. In particular, a new breed of on-demand budgeting and planning applications that are delivered over the web enable organisations to quickly and easily implement the best practices outlined in this paper.

By following the above best practices and adopting the proper software the budgeting, forecasting and planning processes can be integrated, collaborative, adaptive, timely, efficient, relevant, and accurate. This will give a company a significant competitive advantage over companies that are stuck with the slower, problem-ridden processes that so many companies still use today.

William Soward is president & CEO of [1]Adaptive Planning which offers a subscription company-wide software solution for financial reporting and planning including to UK companies. Finance Week members can access free software and trials through the company's website.