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.
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.
-
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.
-
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.
Why does every financial department need Financial Data Quality Management?
If I had a dollar for every time a finance professional asked me this question I’d be a very rich man! Luckily the answer is easy to explain since every organisation has the same problem with data, managing it productively and easily comes at a price and is not as simple as 1-2-3.
In general data quality is a must have. The value of consolidation, reporting, planning and analytical applications is eliminated if the data that comes in is “Bad Data”. Companies must avoid the garbage in garbage out trap by eliminating manual data handling wherever possible and providing error identification and notification along with a vehicle to investigate and correct errors. Any ETL or Integration tool can put data into a waiting application, but quality issues arise when there are problems with the data and errors need to be addressed. FDM helps companies deliver the best process for achieving data quality reporting by delivering:
I. Data Quality
· Mapping Validation- provides immediate mapping error identification and notification as well as a vehicle for quick and easy mapping correction.
· User Defined Data Quality Checking- applies rules and restrictions to the load file ensuring corporate receives the highest level of quality.
II. Data Accuracy
· Read any ledger report, file or even some ERPs in any format eliminating the need for manual data manipulation and data keying thus improving accuracy and shortening the data collection process.
· FDM delivers easy reconciliation from the ledger via dynamic drill-back to source, whether it’s a file, spreadsheet or ERP system.
III. Data Consistency
· FDM can provide visibility to mapping consistency across all locations.
· Drill into any target account and see every source account from every location.
IV. Audit Trail/Log and 100% Process Transparency
· FDM delivers a vehicle to investigate any material discrepancy with 100% transparency to the data translation and mapping and a log of all new, changed or deleted map entries giving finance the tools needed to find the needle in the haystack quickly and painlessly.
Process Improvements
Flexible GL importing – Because of FDM’s powerful importing capabilities, you can read in any source system or trial balance report that is printed to a file. Alternatively you may load spreadsheets or even connect to a growing list of ERP systems direct. FDM will simultaneously improve throughput and accuracy by reading your GL file in a pure format. Bottlenecks are reduced and hard IT costs are eliminated.
ERP Integration – As from 2009 FDM users can now also connect FDM direct to their ERP, including Oracle E-Business Suite GL, PeopleSoft GL and SAP Financials. This allows for adapter-based data transfer and mapping, with drill-back to source from the WorkSpace, Financial Reports and SmartView for Excel as standard.
Powerful Mapping – Power and flexibility to handle the most complex mapping rules such as ranges, globals, wildcards, conditional mapping and double sided wildcards. FDM allows end users to easily map new accounts on the fly eliminating bottlenecks and opportunities for errors.
Data Validation and Error Prevention– FDM is best practice for loading data that reduces bottlenecks in the closing process while eliminating chances for errors. FDM forces end-users to validate files prior to loading into the Hyperion target application.
Meta data Management– With the release of the FDM ERP Integration module FDM users may also load meta data from their source ERPs (Oracle E-Business Suite GL, PeopleSoft GL) to Financial Close and Planning applications.
Data Check Reports–Force end-users to view and pass data validation rules that corporate has enforced to improve the quality of data provided by the locations.
Supplemental Journal Entries and Multi-Period Budget Data Loading – FDM can read and interpret supplemental information or budget templates produced in Excel. IFRS Adjustments, PP&E Roll forwards, Headcount, and Multi-period Budget/Plan information can be loaded quickly and easily with the same audit trail accountability. Standard templates can be used month after month and load in seconds. All supplemental data is subject to process visibility and a complete audit trail.
External Auditor Time Savings- Initial data from auditors suggest FDM can eliminate multiple weeks of external auditing time due to electronic linkage of source trial balance data to Hyperion. Support for all auditing questions from end-users to administrators is stored centrally in FDM and is easily accessible with standard reports.
Flexible Acquisition Tool – FDM has flexibility and adaptability to change as your business changes. New requirements and new business rules can easily be accommodated. Acquisitions can be converted into Hyperion in hours rather than weeks. The scripting capabilities allow FDM to adapt to any changing requirements that may arise.
The elimination of manual manipulation, ease of use, audit trail, data validation, consistency of mapping, and 100% transparency achieved with FDM is necessary for companies to simultaneously shorten the close cycle and achieve data integrity.
If you’re not already using Financial Data Management to manage your Hyperion data, what are you waiting for?
Intellient is the performance management and business intelligence company to connect with.
Target vs Bottom-up Planning
Target vs. Bottom up Planning
In most organisations, budgeting is highly iterative process, sometimes requiring dozens of budget recalculations and adjustments in assumptions before the best possible results are obtained. There are various ways to streamline and simplify the budgeting or forecasting process, one method involves defining the organisation’s strategy and tactical goals at the beginning of the budget model.
All too often, a planners at Cost Centre level will lose sight of the organisation’s total targets when going through the many iterations that are needed to develop his realistic budget for the Cost Centre. By defining the target and strategy upfront in the budgeting or forecasting model, it is much less likely that the final budget will deviate significantly from the organisation’s original plan.
The Oracle Hyperion Planning tool provides an organisation with the capability to budget in a target (top down) or bottom up method, or to use a combination of the two methods to plan streamline and shorten the budgeting process.
- Target (Top down)
For target versions, planners enter budget data for members at any level in the dimension hierarchy herby defining the organisation’s high level target. Business rules can be used to distribute and allocate values from parent members (high level) to their descendants (lower level).
For example, sales numbers are set at the corporate head office level by the Head of Sales. These figures are then used to drive sales quotas and revenue plans for the organisation. This method of budgeting is often called Top-down or Target Budgeting.
- Bottom up
With bottom up version of the budget, planners enter budget data into bottom level members, and the parent member values are aggregated from bottom level members. The budget process builds a version of the budget from the lowest level of information up to the high-level total organisational plan.
For example, sales numbers are input by the individual employees responsible for doing the selling. They forecast what they think they can sell. These numbers are rolled up to create the total organisation revenue plan. This method of planning is often called Bottom-up Budgeting.
- Combining both Methods
Organisations can use target versions to set high-level targets for the budget model. Planners working with bottom up versions can reference these targets when they enter their department’s budget information. If there is a discrepancy between the top-down numbers and the bottom-up numbers, adjustments are made to the budget until the two versions meet. This solution addresses the challenge of performing top-down and bottom-up budgeting in the same plan.
For more information on Oracle Hyperion Planning:
http://www.oracle.com/technology/products/bi/planning/index.html
Financial Data Integration made easy with Oracle Hyperion FDM
Finance organizations need to enhance the quality of internal controls and reporting processes. To meet these goals, you need a source-to-report view of financial data. Oracle Hyperion Financial Data Quality Management allows business analysts to develop standardized financial data management processes and validate data from any source system—all while reducing costs and complexity. Fully integrated with Oracle enterprise performance management, Oracle Hyperion FDM is the only enterprise-class system of its kind for managing the quality of financial data and drill-through to detail.
Specially designed source adapters make it easy to load data from any data file (text or spreadsheet), or connect and drill back directly to a variety of transaction systems, including
• Oracle E-Business Suite Financials
• PeopleSoft Financials
• SAP Financials
• Any ODBC data source
For more information go to www.oracle.com/epm, or view video demo’s at www.oracle.com/demos. Look for Record-to-Report (Consolidation) and Planning with Oracle E-Business Suite.
