Efficiency-improvement for the Budgeting Process
In most organisations, the annual budgeting process is rarely without setbacks and complications, which can be caused by several diverse factors. In many instances, the culprit for these delays is the data that needs to be captured into the budget model by various divisions or cost centres within the organisation. For some divisions or cost centres, this submission of budgeting data might not be a high priority. As mentioned in one of my previous post, the budgeting process is highly iterative, sometimes the process requires dozens of recalculations and adjustments to assumptions before the desired results are achieved.
The typical budgeting process is represented in the graphic below, where we see that there is a sequential/iterative process that requires the completion of, for example, the sales plan before the production plan can be completed, which in turn must be finished before the departmental expense budgets can be finished, which then only yields a financing plan. If the results do not meet expectations, then the process starts over again at the top of the graphic. This process can be so time-consuming that the budget cycle may not be complete before the budget period has begun.
There are a number of best practices that can be used to create a more streamlined budgeting process and here I will discuss some of the items I have found useful when building a budget model solution.
- Reduce the number of accounts. The number of accounts included in the budget model should be reduced to only the essential accounts needed for the budget process. By reducing the number of accounts you can greatly reducing the amount of time needed to enter and update data in the budget model.
- Reduce the number of reporting periods. Summarize the 12 month periods shown in the typical budget into quarterly information, thereby reducing two-thirds of the data input required in the budget model. If the budget data must later be re-entered into the organisation’s GL system in order to provide budget-to-actual comparisons, then a simple formula can be used to divide the quarterly budget into its monthly split – which is still much less work than maintaining a full 12 months of budget information.
- Use percentages for variable cost updates. When crucial business activities, such as revenues, are adjusted by management in the budget model, the entire budget needs to be reviewed in order to determine what related expenses should be changed in conjunction with the revenue activities. A much easier approach is to use percentage or assumption based calculations for variable costs, etc, in the budget model so that these expenses automatically update. The manual input items should be colour-coded/highlighted in the budget model, so that they will not be mistaken for items that are automatically changed.
- Report on variables in one place. A number of key variables will impact the typical budget model, such as the rate of inflation in wages, tax rates for income, and employee’s compensation, medical insurance rates, etc. These variables are much easier to find if they are created in a cluster within the budget model structure, so that one can easily reference and update them. Also, it is useful to show results (such as net profits) on the same page with the variables, in order to make changes to the variables and immediately see their impact without having to search through the budget model to find the information.
- Use a budget procedure and timetable. The budget process is known for the many budget cycle iterations. The first results will yield profits or losses that do not meet the management’s expectations. Also, it requires input from all parts of a organisation, some of which may be slow in sending in data on time. Accordingly, it is best to communicate a budgeting procedure that specifically identifies who must send budgeting information to the budget coordinator, what information is required of each person, and when that information is due. There should be a clear timetable of events that is adhered to, so that plenty of time is left at the end of the budgeting process for the calculation of multiple iterations of the budget.
In addition to these efficiency-improvement issues, there are other ways to modify the budgeting process so that it can be completed much more quickly. These items will be discussed in a future post.
Business Intelligence: What sets the giants apart?
Business Intelligence: What sets the giants apart?
There are a few companies in South Africa considered the elite of the business world. The top 100 JSE listed companies are the benchmark by which the rest of the business community measure their success.. Many researchers have conducted studies with regards to the difference between those who make it to being listed as a top 100 company, and those who don’t. What do they do differently?
In addition, many studies have been embarked on to determine the characteristics of world class companies. But what exactly is a world class company? Bosman (1998) defines a world class company as being equivalent in every respect to the best in the world. This entails an holistic approach to productivity and quality improvement and a focus on the elimination of all forms of waste and non-value adding activities in the organisation. Bosman states that success is achieved through creating a habit of continual improvement based on the involvement of the total workforce.
Some other criteria established as common denominators amongst those successful companies in business are the alignment of management objectives, managing for quality, good operational practices, staff empowerment and a strong customer focus.
Other characteristics include having visible measurement systems, knowledge sharing throughout the organization coupled with purposeful communication, and valid, accurate and accessible data, leading to good decision making. The success of an organization fully depends on the efficiency of the decision making processes. The ability to analyse the historical data, the macro and micro environment, predict the future and make decisions accordingly, will set a company apart. Scholars have developed different techniques and methodologies to assist in sound decision making, but with all those tools and techniques, such as the decision tree, accurate data is still necessary before a decision can be reached. Top CEOs are expected to make various good decisions on a daily basis. The effectiveness of the decision making process will have a direct impact on the success or failure of the company.
Wouter van den Heever, Group Internal Control Manager of Sappi Limited, says that accurate data on which to base decision making, although crucial, is only the starting point. The correct tools with which to analyse the data is necessary to reach the correct decisions at all times. “There are so many tools in the market today, we are spoilt for choice. The tool should provide accurate reporting in real time and in a format that is user friendly,” says van den Heever.
Sappi chose to engage with Intellient, a member of the EOH Group, since 2000 to provide the Hyperion Financial Management system. The system is used, amongst others, to provide accurate financial reporting. “The archiving system is good, data is accurate and accessible and reports are provided regularly and customised according to the needs of each division. Sappi implemented the system globally and have found it stable and able of being fully integrated with other systems in the organisation. Intellient provides good back-up support with seamless access to the Oracle know-how and training,” concludes van den Heever.
Jeanine Janse van Rensburg, who joined Sappi in the Group Finance division in March 2008, says that the first criterion for effective reporting is to prevent data from being manipulated. “When data is consolidated on Excel, each person working with the data can easily manipulate the data to suit the current situation. This could lead to situations where data has to be checked continuously to determine accuracy. After all, decisions involving billions of rands are made according to the reports provided”. Furthermore, by 2011 it will be required by USA legislation to submit annual reports to the USA Securities Exchange Commission in eXtensible Business Reporting Language (XBRL). Sappi is striving, with the help of the Hyperion system, to be prepared for this requirement by late 2010. Janse van Rensburg is confident that this goal will be achieved as a result of the help received from the Intellient helpdesk.
Oracle Hyperion Financial Reporting offers the XBRL Manager, using XBRL to convert data into a standard format that can be read and processed automatically. It is common knowledge that the variables in financial data and reporting are vast. Simultaneously, the most onerous responsibility for compliance is in the financial field. The Hyperion XBRL Manager assists financial managers and investors through providing a standards-based method to prepare and exchange financial statements.
“Business processes were improved through the implementation of the system, which was done in line with the Sappi business requirements. “Through the use of XBRL interactive data, investors will be provided accurate financial information from public companies, such as Sappi” concludes Janse van Rensburg.
The message is clear for aspiring companies striving to move into the world-class arena and become part of the top 100 elite in South Africa; good decision making, based on correct data and sound analysis thereof, coupled with continuous learning and management for quality, based on good communication and knowledge sharing throughout the company, will go a long way towards a company reaching its goals.
Intellient is the performance management and business intelligence company to connect with.
How best to export Essbase outline information
Quite a few people have asked me recently how to export Essbase outline information from an existing Essbase cube. This might seem like a trivial exercise, but in reality is not.People want to export this information either to document outlines, or to make use of the Essbase metadata in other systems, so it is a valid request.
One reason why this export can be problematic is that Essbase does not store its metadata in a relational database, unlike some other OLAP systems. Instead the metadata is stored in a .OTL file which is not readable by text editors. The Essbase outline editor in Administration Services makes it very easy to view and maintain the outline, but for some or other reason Hyperion (and now Oracle) just never got around to including proper outline export functionality for Essbase.
There are a couple of ways to get outline data out of Essbase. The best approach really depends on exactly what information is required – do you need just the outline hierarchy with member names, or do you need extra information such as consolidation symbols, UDA’s and Attributes, formulas etc.
If you need just the outline hierarchies, I would recommend using the Essbase Excel add-in (or Smartview). Set the options to turn of navigating with no data and to drill to bottom level, put the dimension you want to export in the row dimension, and drill. You will now have all the members in hierarchical order. One issue is that the different levels are not placed in seperate columns, but all in one column with indents to indicate generations. If you want seperate columns, it is relatively easy to write an Excel formula which parses the number of open spaces and places each member in the right column.
If you need a more detailed outline export, the best way is to make use of a third-party tool, freely available, called the Essbase Outline Extractor (see URL below to download it). This tool has been around for a long time, and thankfully the people at Applied OLAP, who develops the brilliant Dodeca Essbase front-end, has taken ownership of this tool and keeps it up to date with the latest Essbase versions, which still making it available as a freeware download.
The Outline Extractor gives you the option to set exactly what you want to export, including items such as UDA’s, formulas, aliases etc., and then exports this to a text file. You can also automate this using a script file using command line functionality. You can get the Outline Extractor at the link below:
http://www.appliedolap.com/free-tools/outline-extractor
So until Oracle decides to include a proper outline extraction tool with Essbase, or makes the .OTL file readable (anyone heard of XML???), your best best is the third-party Outline Extractor, or doing something manual in Excel.
Intellient is the performance management and business intelligence company to connect with.
Oracle Hyperion Planning Product Components
When new users are exposed to Oracle Hyperion Planning, I often get asked “What exactly is Planning?”
Oracle Hyperion Planning is a budgeting and forecasting application that uses Essbase (a multidimensional database) as a database and calculation engine, and included a web-based and Microsoft Office user interface.
Oracle Hyperion Planning is not an application that runs out of the box. It is a framework for budgeting and planning applications and requires a complete build of the application based on an organisation’s business needs and requirements. However, there are pre-built budgeting and planning frameworks available for Workforce Planning and Capital Asset Management.
To extend the power and flexibility of Oracle Hyperion Planning the following product components are utilized.
- Essbase
Enables the Oracle Hyperion Planning application to store data and perform complex calculations. (Planning runs on top of Essbase)
- Administration Services
Interfaces to Essbase Server using Administration Services Console and enables you to design, develop, maintain and manage multiple Essbase applications and databases. Optimisation and performance tuning of the Essbase databases is done in the Administration Services Console.
- Performance Management Architect
Enables you to create, reuse and manage dimensions and applications.
- Workspace
Enables you to navigate and manage Planning applications and other Oracle Hyperion products.
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Calculation Manager
Enables you to use a graphical user interface to create calculation scripts.
- Smart View
Enables you to enter Planning data in Microsoft Excel spreadsheets, using the same functionality as Planning, and to take Planning data offline to work disconnected from the data source.
- Financial Reporting
Enables you to create reports and charts for Web or print for analysis and distribution of budget plans.
- Shared Services
Enables you to provision users from external systems to Oracle Hyperion products and to share data and metadata among Planning applications or between Planning and other Oracle Hyperion Products.
Several complementary Oracle Hyperion products are integrated with Planning, complementing the Financial Performance Management solution.
- Workforce Planning
Enables you to handle workforce, salary and compensation related planning in a pre-built Oracle Planning module.
- Capital Asset Planning
Enables you to handle new asset purchases and existing asset actions in a pre-built Oracle Planning module.
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Web Analysis
Enables you to transform data into insightful information though an easy-to-use, highly graphical display and robust analytics.
For more information on Oracle Hyperion Planning
Intellient is the performance management and business intelligence company to connect with.
