Making the Business Case for Cloud-Based Planning and Reporting

Making the Business Case for Cloud-Based Planning and Reporting

Has your organization outgrown its spreadsheet-based system for budgeting and planning?  Have you “hit the wall” in using spreadsheets for financial consolidation and reporting?

Are you ready to upgrade to a cloud-based EPM solution that can help you spend more time on value-added analysis and less time on data collection and fixing Excel errors?  Are you wondering how best to make the business case to your company for investing in a cloud-based planning or reporting solution?

A new Planful white paper provides some guidance and tips on where to look for the savings and benefits your company can achieve by kicking the spreadsheet habit and moving to the cloud.

Download the Whitepaper

Reducing Reliance on Spreadsheets for Budgeting, Planning, and Reporting

Despite all of the news in the market about the high percentage of errors in spreadsheets (88% according to a University of Hawaii study) and the challenges of using spreadsheets for budgeting, planning, and reporting – many organizations continue to struggle with the tool.

The key challenges in using spreadsheets and email for budgeting and planning:

  • Too much manual work – the process takes too long
  • Lack of security sending budgeting spreadsheets via email
  • Spreadsheets are error-prone, low data quality
  • Limited reporting and analysis capabilities

Similar challenges are faced when using spreadsheets for financial consolidation and reporting:

  • Too much time spent on data collection
  • Challenges in consolidating multiple spreadsheets and correcting errors
  • Limited reporting and analysis capabilities, and too much manual effort
  • Not being compliant with US GAAP or IFRS
  • Lack of controls and audit trails
  • Lack of security
  • Time-consuming and costly audit process

All of these issues only get magnified as an organization expands and grows in complexity.  The next logical step is to replace the spreadsheet-based process with purpose-built enterprise performance management (EPM) applications designed to streamline budgeting, planning, and financial reporting.

Managing Budgeting, Planning and Financial Reporting in the Cloud

Historically, most organizations have deployed packaged EPM applications for budgeting, planning and financial reporting on-premises.  But many are now finding that this approach can be time-consuming and costly, especially for small and mid-sized organizations.  This is fueling increasing interest and demand for cloud-based budgeting and planning.

The good news here is that cloud-based solutions have been available for a number of years, and many now offer the same capabilities as on-premises solutions.  They also provide a number of advantages over on-premises solutions:

  • Speed of deployment
  • Reduced reliance on IT
  • Faster innovation
  • No hardware or software to set up or maintain and upgrade over time
  • Reduced up-front costs and lower ongoing cost of ownership
  • Better security

These benefits are well-documented in a number of our published blog articles, white papers, customer videos, and case studies.  But to acquire and implement a cloud-based budgeting, planning or financial reporting system, you’ll still need to get approval for the annual subscription, as well as the implementation and training costs.

So how do you make the business case for investing in cloud-based EPM applications to your senior management?  Based on the work we’ve done with many other customers, here are some suggested areas to focus on and ranges of potential savings.

Reduce manual budget data collection and aggregation by up to 75%

Streamline budget reviews and approvals by 50 – 80%

Automate and accelerate management reporting by 50%

Reduce manual data collection and consolidation by up to 75%

Streamline adjustments and intercompany reconciliations by 50 – 80%

Automate and accelerate financial reporting by 50%

Improve audit trails, reduce audit costs

Finance time shifts to value-added analysis, reduce hiring needs

Cloud-Accounting.jpg
Finally, a key benefit of implementing a cloud-based solution for budgeting, planning, and reporting is that it provides a platform that can support other needs or future requirements.  Most cloud-based applications are part of an integrated suite that supports budgeting, planning, forecasting, financial consolidation, reporting and analysis of the business.  The solution can benefit not only the VP of FP&A’s office, but also your colleagues in the financial reporting department who are struggling with spreadsheets.  So there’s plenty of upside benefit to be gained here as well by replacing other spreadsheet processes with the same platform.

To learn more about the benefits your organization can achieve by replacing spreadsheets with Planful Enterprise Performance Platform, check out our customer videos and case studies.  And for more information about how to build the business case for cloud-based planning and reporting solutions, download our free white paper.

Download the Whitepaper

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The Growing Fear of Excel and Finding An Excel Replacement

The Growing Fear of Excel and Finding An Excel Replacement

For the past 30 years, Excel has been integral to businesses everywhere.

It’s become the foundation of countless business processes, aiding in computing, financial tasks, IT projects, marketing, and so much more. It’s no wonder Excel was such a hit from the start.

With its ability to process mathematical equations, store and organize data in attractive and manageable ways, and create a variety of what-if scenarios, Microsoft Excel has long provided a critical function to businesses. Yet, many are now moving away from Excel in search of other, more modernized, technologies. Why have so many businesses suddenly decided to abandon Excel for critical business processes?

How Many Businesses Are Turning Away from Excel?

While many businesses have awoken to the inefficiencies of Excel, a lot of companies still rely on it, if for no other reason than sheer force of habit. An article published in the Enterprise Times reported that about 60 percent of businesses in the U.S. are still relying on spreadsheets, while 21 percent are moving toward other software solutions.

Why Are Businesses Moving Away from Excel?

Excel usage has been declining among businesses, particularly in the financial department. So, why is it that people are moving away from such a useful and prevalent software?

1. Excel is prone to error. When entering data manually, there is always the potential for errors. Unfortunately, especially in the world of finance, even a minor error can have a major impact.

2. Excel has low visibility. When it comes to catching errors, visibility is key. Perhaps the reason so many Excel errors go undetected is due to the fact that visibility is so poor in the one-dimensional framework that Excel provides.

3. Excel is tedious. While Excel provides the ability to calculate equations, model what-if scenarios, and aid in other complex financial tasks, it does so in a lengthy and tedious manner. It relies on a lot of manual data entry, which is incredibly time-consuming, and it can often be more of a hassle than it’s worth.

Some Major Spreadsheet Blunders that Have Instilled Fear in the Hearts of Businesses

Perhaps the main reason companies are moving away from Excel for corporate processes is due to the increasing financial risk. Countless businesses have fallen victim to fatal spreadsheet errors which have had devastating effects on the finances of their company. Fidelity’s Magellan Fund fell victim to a particularly embarrassing and costly error. They estimated that they would make about $4.32 per share, which later turned out to be false. When entering the numbers in Excel, the accountant accidentally omitted the minus sign on a net capital loss totaling $1.3 billion, in turn greatly overestimating the value per share.

TransAlta experienced a relatively minor error that cost them over $24 million in losses. The costly error was traced back to nothing more than a simple cut and paste mistake in Excel, but that tiny mistake cost them a tremendous amount of capital. That’s the main problem with spreadsheets. Humans are prone to manual errors, and yet, even the slightest of spreadsheet errors can have a crushing impact on finances.

The Growing Complexities of Financial Management

Managing revenue and planning business finances is more complex today than ever before. There are countless variables today that weren’t as prevalent in the past, all of which make financial planning increasingly challenging. In today’s world, there are more government regulations and oversight, there is an increased demand on trade which entails the need for complex currency conversions, the economy is constantly fluctuating, and the marketplace is more demanding than ever before. With all of these added variables placing pressure on businesses, managing finances is becoming increasingly challenging. Thus, many businesses are in search of improved methods of managing financial allocations efficiently and accurately.

How Do Modern CFOs Feel About Spreadsheets?

The goal of every CFO is to tackle financial processes in the most efficient and accurate way. This is perhaps why so many CFOs are turning away from spreadsheets. According to Robert Gothan, CEO and Founder of Accountagility, four out of five CFOs have cited problems in their spreadsheets, which is a troubling statistic and indicative that major changes are needed. He also notes that one of the main issues with spreadsheets is firms aren’t spending nearly enough time reviewing the data they create. This is perhaps the core reason so many errors go undetected.

The Convoluted Nature of Excel

A core reason companies are being turned away from Excel is due to its convoluted nature. Firstly, Excel documents can be difficult to organize and share. When it comes time to compile data, you need to sift through countless spreadsheets to find what you’re looking for. It is also sloppy and difficult to make sense of. According to Vineet Virmani from LiveMint, formulas can be difficult to read, formatting is haphazard, the multiple tabs lend to endless confusion, and the graphs created can be misleading and unattractive. While some of these things may seem minor on the surface, they all work to create a financial process that is frustrating and inefficient.

The Best Excel Replacement Solution

While Excel may not be going away entirely, as it still provides a variety of integral functions to businesses, it is at least making its long-foreseen departure from the world of finance. It’s clear that Excel simply isn’t providing the solution that many modern businesses need. Instead, enterprises need to become more dependent on software applications that provide enhanced agility and accuracy.

With cloud-based enterprise performance management (EPM) software, businesses can avoid many of the pitfalls of Excel, while using it as a front-end for reporting, analysis and data entry. The cloud provides a single platform for managing financial data, so you no longer have the chore of managing and organizing an innumerable number of spreadsheets. It enables businesses to automate a lot of their data entry, so the propensity toward errors can be drastically reduced. In turn, businesses can also increase efficiency by reducing the painstaking process of manual data entry.

Most cloud-based EPM software embraces Excel as a front-end, but also comes equipped with advanced data analysis tools on the back-end. This allows for multidimensional modeling of what-if scenarios that provides enhanced visibility to reduce oversights and errors.

Break free of spreadsheets once and for all. To learn more, read 5 Signs You Are Abusing Excel for Planning white paper.

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A Call for Change: 6 Indicators You Need a New Approach to Budgeting

A Call for Change: 6 Indicators You Need a New Approach to Budgeting

Perhaps you've been considering implementing a new approach to budgeting but are concerned it will be too complicated or time-consuming.

Maybe you think there is a better approach, but you simply aren’t sure what it is. The first step in any budgeting process overhaul is to identify the need for a change. Only then can you begin implementing new processes that will remedy the very issues you are facing. These are some of the top red flags that could indicate a pressing need to implement a new budgeting method.

1. The budgeting process is taking too long. Many businesses are spending far too much time on their budgeting, which is draining their employees, while offering little value in return. If your budgeting process is taking longer than needed, and is obsolete by the time it’s approved, it’s time to implement a more efficient approach.

2. You aren’t satisfied with your planning capabilities. A survey conducted by Accenture found that only 11 percent of companies are satisfied with their current planning capabilities, and this number has been declining over the years. If you find that your planning capabilities aren’t meeting the needs of your business, a change in budgeting methodology could significantly improve your budget processes.

3. You’re spending too much money on budgeting. It seems a bit oxymoronic when you think about it, since the goal of budgeting is to allocate resources in a way that’s sensible, while advancing the goals of the company. Yet, many businesses are spending too much on their budgeting process, resulting in them wasting far more time and resources than needed.

4. Your forecasting performance is struggling. Forecasting is a critical part of the budgeting cycle, and it needs to be accurate and reliable, while also being efficient. If your company is unable to rely on your forecasts, this is a major red flag that your budgeting process isn’t working.

EPM software

5. Your budgets and plans lack long-term visibility. You need to be gradually building on your budget over time to create a longer-term view of your business. If your company is growing frustrated by trying to adhere to the annual budget and finding it difficult to create long-term plans that are realistic and workable, it’s time to find an alternate approach.

6. Your budget isn’t providing the flexibility you need. If you find that your budget is too rigid, and it isn’t easily adaptable to fluctuating trends, then it simply won’t be practical on a long-term basis. You need to implement a budgeting approach that provides the elasticity you need to respond quickly to trends and opportunistically approach resource allocation. With techniques like rolling forecasts, you’ll have far greater agility and control over finances, offering you the ability to adjust your budget plan easily as circumstances change.

Implement an EPM Solution and Transform Your Budgeting Approach

Any of the above red flags need to be heeded by businesses. Once you’ve identified these difficulties, it indicates a need for a shift in your budgeting approach. By augmenting your budgeting process with rolling forecasts, you’ll be able to gain greater agility and flexibility. And by forecasting more frequently, you can improve the accuracy forecasts and potentially shorten the budgeting process. With the help of a cloud-based EPM solution, you can leverage a scalable, flexible system equipped with all of the tools you need to streamline the annual budgeting process, implement rolling forecasts, and focus more of your FP&A time and resources on value added analysis of the business.

To learn more, read out white paper titled, “Financial Planning and Forecasting Best Practices.”

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Accelerating the Financial Close Can Fix Other Problems

Accelerating the Financial Close Can Fix Other Problems

What does the efficiency of your company’s financial close process say about the health of your company?  Some experts claim that having a long financial close process can be a symptom of other underlying problems.

Why?  Because the month-end or quarter-end close depends on data produced from many other accounting processes and systems.  In fact, Robert Kugel, SVP and Research Director at Ventana Research, recently commented on this in an article titled “Accelerating the Close Can Fix Other Problems.”

Back to My Roots

The financial close process is one of my favorite topics in enterprise performance management (EPM).  As a former accountant, I spent a number of years closing the books on a monthly, quarterly, and annual basis in banking, manufacturing, and high-tech companies.  The majority of my time was spent collecting data from different systems and remote operations, entering the data into a computer system, consolidating the numbers, reconciling intercompany activity, reconciling accounts, reviewing results, making adjustments – and eventually producing the financial statements.

Running this process back in the mid-1980s, using archaic technology, typically took 15 business days or more.  This left 5 days or less per month for other work.  Then we were back into another closing process.  And I do remember working nights and weekends a few times to complete certain tasks, especially at year-end.

pizza_boxes.jpg(I also have vivid memories of coming into the office on Monday morning after a working weekend to the sight of piles of pizza boxes, donut boxes, coffee cups, beer cans, and other debris.)

State of the Market

Fast-forward to the 21st century.  For the past 15 years or so, a 5-day close has been viewed as the best practice benchmark.  But in Rob Kugel’s article, he highlights how recent benchmark research by Ventana indicated that 60% of companies surveyed take 6 days or more to close the books.  In fact, the Ventana study showed that it’s actually taking longer for companies to complete their close now than it did a decade ago.

  • The monthly financial close process is averaging 6.8 days, compared to 6.5 days a decade ago
  • The quarterly financial close process is averaging 8.0 days vs. 7.5 days a decade ago

Mr. Kugel considers the main reason for this increase is that companies are using outdated manual close processes, which often are poorly executed and rely heavily on spreadsheets.  He goes on to say that shortening the close allows companies to deliver financial results to internal stakeholders faster, to help in decision-making – but it also creates an opportunity to drive efficiency in all accounting processes.

 

Getting to the Root of the Problem

The reasons cited in Mr. Kugel’s article for long period-end close processes are consistent with what I’ve observed in working with clients over the past 15+ years:

  • Too many manual processes
  • Reliance on spreadsheets and email for critical processes
  • Inadequate financial systems
  • Management complacency

In his article, Mr. Kugel also suggests a number of solutions to the problem:

  • Reducing reliance on spreadsheets and manual processes, automating manual steps
  • Upgrading or consolidating legacy systems that may be bogging down the process
  • Closing sub-ledgers earlier
  • Changing the threshold for account reconciliations

doctor_diagnosing_patient.jpgI agree with these points, as well as the suggestion that the most important step companies can take in shortening the period-end financial close process is to act like a doctor – diagnosing the symptoms and prescribing a remedy.

You need to analyze each step of the process, identify the bottlenecks, and take action to control and streamline the process.  This should be done every month and quarter – so you can compare and analyze closing cycles over time to understand which issues might be temporary glitches vs. ongoing problems.

This type of diagnosis can be done manually using spreadsheets, but that can be time-consuming.  This is much easier to achieve using modern financial close and consolidation systems.  These systems have built-in workflow and process management capabilities that allow companies to track each step of the close process, flag bottlenecks and focus efforts to overcome obstacles, and complete the entire process as quickly as possible.

And of course, speed is not the only goal in the financial close, consolidation, and reporting process.  Accuracy is also a key imperative.  This ensures that internal management is making decisions based on accurate financial and operating results, and that investors are doing the same.  If there’s one thing that keeps CFOs awake at night – it’s the risk of having to restate financial results.  So speed and accuracy of financial reporting need to go hand in hand.

Reaping the Rewards

Companies that are successful in streamlining the financial close process – from 10 days to 5 days, or even 15 days to 10 days, while improving accuracy – typically receive a number of benefits:

  • Accelerate delivery of financial results to internal management – to support faster decision-making
  • Accelerate delivery of results to external stakeholders and financial markets – whether it’s good news or bad, getting it out sooner is a sign of a healthy company
  • Free up Accounting and Finance staff to spend less time on closing and more time analyzing results and helping management with strategic decision-making

One of the key benefits cited by Mr. Kugel is that companies can use the learning from streamlining the close to improve other financial processes.  In the course of streamlining the close, a number of upstream accounting processes will get reviewed and impacted, including accounts payable, payroll, accounts receivable, fixed asset accounting, revenue accounting, general ledger accounting, and other processes.

But Mr. Kugel’s point is that the learning that companies gain from reducing reliance on manual processes and spreadsheets in the financial close process can be extended and applied to other processes, such as budgeting, planning, and forecasting.

Learn more about decreasing time to close with continuous planning.  I also encourage you to check out the Planful white paper titled “Five Reasons to Move Off Excel for Financial Consolidation and Close.”

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Leveraging Analytics to Improve Enterprise Performance Management

Leveraging Analytics to Improve Enterprise Performance Management

The key to operating a thriving enterprise is continuously managing performance.

Measuring and monitoring business performance relies on a process of defining clear objectives, planning and budgeting, and evaluating progress at established intervals to ensure the company is keeping pace with their outlined objectives.

In doing so, businesses can be more opportunistic when leveraging beneficial trends, while also having the ability to mitigate business risk and operate a more successful company. Analytics play a vital role in this mission, and a recent whitepaper by Ventana Research entitled “Analytics Is Critical to Effective Performance Management” delves into this very topic.

The Importance of Analytics in Managing Performance

Analytics are a crucial part of successfully managing business performance. It can help with planning, budgeting, forecasting, and accounting, allowing organizations to identify trends and important relationships with ease, so they can more accurately and swiftly respond to these trends. It also enables organizations to improve the accuracy of forecasts and budgets, while ensuring all budgets and plans conform to the overall goals of the company.

The Role of FP&A in Finance Organizations

Financial Planning and Analysis (FP&A) entails the organizing and updating of budgets and forecasts, while compiling all performance metrics to gauge potential outcomes and monitor performance. It enables executives to determine the various options at their disposal for responding to shifting circumstances, so business decisions contain less risk and each decision can be carefully calculated.

Placing More Emphasis on Analysis

Analysis is perhaps the most critical aspect of FP&A, and yet, it often receives the least attention. Oftentimes, the process of collecting and compiling data, as well as reporting results, is so time-consuming that organizations have little time and resources left over to focus on analysis. However, by neglecting analysis, businesses are failing to move their company forward and greatly limiting the potential of their financial planning.

Corporate performance management

Using Performance Management Software to Leverage Analytics

Performance management is most effective when organizations utilize enterprise performance management (EPM) software. The software can provide analytic tools to help gauge performance and improve the accuracy of forecasting and budgeting. Analytics can be used to create metrics that monitor various operating conditions, and the software can be programmed to automatically alert the organization any time a condition deviates from the norm, enabling businesses to respond quickly to changes.

One of the main reasons companies are failing to focus on analysis is due to time constraints. With the help of EPM software, organizations can automate a lot of tasks that would otherwise be conducted manually, thus greatly expediting the process. The software also enables companies to improve reporting, making the process more efficient while adding a visual and interactive element to the reports.

The Time Spent on Data Management

Data management is a time-consuming task. In fact, according to Ventana Research, about 68 percent of employees’ report spending a majority of their time on collecting, organizing, and preparing data, as well as other non-analysis related data tasks. Only 28 percent reported spending a majority of time on analysis itself.

Improve Reporting and Visibility with Performance Management Software

With the right EPM software, organizations can streamline reporting with the help of automation, while accessing dashboards that clearly present updated information and can improve communication. The software can also enhance data visualization, providing users with a variety of tools to help present data in a visual and engaging manner. This allows businesses to leverage their data to its fullest capacity, while increasing the visibility and clarity of reports.

To learn more about the power of analytics, read the full whitepaper, “Analytics is Critical to Effective Performance Management.”

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Building a Better Budget with the Help of Rolling Forecasts

Building a Better Budget with the Help of Rolling Forecasts

Budgeting is a concept constantly riddling the minds of CFOs. How can a company build a better and more efficient budgeting approach that will maintain accuracy, while improving agility?

In a webinar entitled “Ask the Expert: Building a Better Way to Budget,” Steve Player, the Program Director at Beyond Budgeting Round Table, reflected on this question.

Watch the Webinar Replay

Understanding the Budget Process

The key to operating an efficient budget process is by ensuring every team member is well-versed in their role and has strong comprehension of the budgeting process. Unfortunately, this is often not the case. A poll conducted in the webinar revealed that just over 50 percent of businesses don’t feel that their budgeting process is well understood throughout the company. This can lead to a Planful of problems while greatly prolonging the process of budgeting.

 

The Formula for Transforming a Budget

Steve Player lays out the right formula for changing a budget. The process starts with dissatisfaction, which is the initial factor that motivates the desire for change. The business also has to have a vision for change, know the first steps to implement change, and have a resistance to change.

 

Beyond Budgeting Principles

There are 12 key principles that can guide a budget change, which include:

Principles to Change Governance:

  1. Values
  2. Governance
  3. Transparency
  4. Teams
  5. Trust
  6. Accountability

Principles to Change Processes:

  1. Goals
  2. Rewards
  3. Planning
  4. Coordination
  5. Resources
  6. Controls

For those unsure about how to proceed with a budget change, these core principles can guide you through an effective change, altering both the governance and the processes of the budget.

Figuring Out Where to Start

Budget changes can feel overwhelming. To know where to start, you need to thoroughly assess where you’re currently at. There are two primary methods of implementation. There is the revolutionary approach, which is an approach that’s led by visionary leadership, the goal being to achieve the budget change very quickly. Then there is the evolutionary approach, which relies on incrementally implementing the principles to gradually improve upon the budget over time. This method focuses heavily on leveraging rolling forecasts, while still partially relying on the traditional budget. Eventually, over time, the rolling forecast can completely replace the traditional budget.

Problems with the Traditional Budget

The main problem with the traditional budget, according to Steve Player, is that it “tries to do too much.” It relies on the same set of numbers for setting targets, forecasting, and allocating resources, which creates complications within forecasting and resource distribution. Instead, the numbers for each should be unique.

Budgeting and forecasting

Targets need to be set relative to others in the industry, while forecasts need to be realistic. Resource allocation also has to remain separate so businesses can dynamically shift resources depending on the needs of each department at varying times. By separating targets, forecasts, and resource allocation, businesses can improve the accuracy of budgeting and avoid the limitations of traditional budgets.

Adapting Your Budget for a Constantly Changing World

When considering new budget options, many businesses contemplate implementing a zero-based budget. However, this still isn’t ideal, as it’s hard to adjust the budget over time. Rather, rolling forecasts provide the most elasticity, offering businesses the ability to continually update the forecast as circumstances in the industry or economy shift.

The forecast needs to constantly look toward the future, and businesses can do this by regularly reviewing their processes. For the rolling forecast to be successful, the business needs to continually check their current business processes, plan for the future, and act upon changes as they arise. Scenario planning is key for rolling forecasts. With frequent scenario planning, businesses can predict the impact of a range of potential outcomes, enabling them to better plan for the future.

Many businesses are dissatisfied with their budgeting process, but they don’t know where to begin in implementing a new one. An evolutionary approach to budget change can provide businesses with a way to gradually improve upon their budget process, without completely overhauling their strategy and disrupting the flow of business. Cloud-based enterprise performance management(EPM) software can help you get started. It provides the tools you need to support annual budgeting and implement rolling forecasts effectively, while accessing tools to aid in analysis and scenario planning.

To learn more, download our white paper, Best Practices in Rolling Forecasts.

Download

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Beware of the Lowest-Cost EPM Solution

Beware of the Lowest-Cost EPM Solution

By all indicators, the adoption of cloud-based financial and EPM applications is accelerating.  One of the key advantages of cloud-based solutions vs. on-premises alternatives is the lower up-front costs and lower on-going costs of ownership.

However, not all cloud-based applications are created equally.  Buyers should beware of the hidden costs of what appears to be the lowest-cost cloud solution.

It’s the same idea as the old FRAM Oil Filter commercial from the ‘70s.  Remember that?  The point was that paying a little extra for your car’s oil filter could save you hundreds in repairs down the road.  It’s a bit of a dramatization since you wouldn’t typically remove a car’s piston from under the engine, but the point is valid – and it applies to cloud-based EPM software as well. 

Matching Requirements to Solutions

As I’ve mentioned in other articles, 2015 may have been the tipping point in market adoption of cloud-base financial software applications.  And in 2016, evaluations of cloud-based enterprise performance management (EPM) solutions for areas such as budgeting, planning, consolidation, reporting, and modeling are accelerating.  But there’s one theme we occasionally hear from prospective customers – “All of the products we evaluated can meet our requirements, so we are selecting the lowest-cost solution.”

Seriously?  After months of defining requirements, engaging a consultant to help drive the evaluation, creating a short-list of vendors, issuing an RFP, and reviewing responses – and weeks of detailed software demonstrations – the final decision is based on price? 

vendor-selection.jpgThis seems shortsighted to me.  If a prospective buyer evaluates 4-5 vendors and concludes they can all meet the requirements, that tells me that the buyer’s requirements must be fairly limited – maybe just financial budgeting to start.  And it’s true, just about every EPM vendor in the market can deliver those capabilities to some degree.  But companies grow and evolve.  Over time, there will be a need for additional, more advanced capabilities.  Examples include detailed sales or revenue planning, financial consolidation and reporting, financial and operational modeling, advanced analytics, profitability analysis, etc.    

So when defining requirements and evaluating EPM solutions, companies should focus not only on their short-term needs, but their longer-term needs as well, looking 2-3 years down the road.  Choosing a solution that meets the company’s current needs, but has to be replaced in 2-3 years because of lack of functionality or scalability, will not make the evaluation team look good.  It could end up costing the company more over the long term – and it could put the leader of the evaluation team out of a job as a result. 

Watch Out for Hidden Costs

hidden-costs.jpgAnother issue to watch out for in evaluating and selecting EPM software is “hidden costs.”  Lower-priced software solutions often have limited or incomplete functionality and may need more custom development or implementation services to get up and running.  So be sure to compare apples and apples – including the software licenses/subscriptions and the implementation services and support costs.  And check references to find out how close the vendor’s initial implementation estimates align with the actual bills.  A more expensive software solution with more complete functionality may cost your company less over the long-term vs. a less functional, lower-cost solution.

Other things that will impact costs are the amount of support the software vendor will provide as part of the solution, and the long-term customer relationship.  Is the software vendor truly committed to customer success – and willing to commit the resources to ensure this with a “customers for life” approach?  Or is the vendor more of a “hit and run” operation – selling the software and turning the customer over to its services organization or partners to implement and support?  This consideration, in addition to the ability of the software to meet your current and future requirements, should be part of the vendor evaluation process.

Examples in the Consumer Products Market

Plenty of examples exist of the pitfalls of the “lowest cost” product approach in the consumer products market.  Many of us have fallen into the trap of purchasing the lowest-priced product, only to have it fail after a short period of usage, costing us more in repairs or having to replace it.  Think about your experiences purchasing these products at the lowest price:

  • Gas grillsbroken_lawnmower.jpg
  • Lawnmowers
  • Washers and dryers
  • Televisions
  • Plumbing parts
  • Electrical fixtures
  • Computers and peripherals

 

You only need to make that mistake once or twice to learn the lesson – paying a bit more for a higher quality product typically leads to better reliability, longer lasting value, lower repair and replacement costs – and fewer headaches.  This is especially true with the “assembly required approach” vs. purchasing a fully assembled product.  You only have to go through the assembly of a gas grill one time in your life to appreciate the value of paying more for a fully assembled product.

Not All Cloud-Based EPM Solutions Are Equal

As Finance executives have become more comfortable with cloud-based applications, market adoption of cloud-based EPM solutions has accelerated.  As a result, every EPM vendor in the market now offers a cloud-based solution, even the ones who historically have delivered only on-premises solutions.  But not all cloud-based EPM solutions are equal, and this may be reflected in the price.  Here are some key differences you, as well as any evaluators, should be aware of:

  • Single-tenant Planfuling vs. multi-tenant applications – I’ve covered this in other articles, but multi-tenant cloud applications offer a number of advantages over single-tenant, Planfuled versions of legacy on-premises applications. And these advantages often impact the long-term costs of ownership.
  • Toolkits vs. packaged applications – The cloud-based EPM solutions available in the market offer a broad range of functionality. Some are really “toolkits” that enable the development of a budgeting or financial reporting solution, while others offer a high degree of pre-built functionality.  The degree of customization vs. configuration the solution requires will have a big impact on costs.
  • Incomplete solutions vs. comprehensive suites – Not all cloud-based EPM solutions offer the same breadth of functionality. To use terminology recently coined by Gartner, some solutions are more focused on “strategic” EPM functions – such as budgeting, planning, and modeling – while others are more focused on “financial” EPM functions, such as financial close, consolidation, reporting, and disclosure.

Pay Me Now – or Pay Me Later

Hopefully this article gives you, as a prospective buyer of EPM solutions, some key factors to consider in the evaluation process.  Selecting the lowest-cost solution might feel like the right decision for your company in the short-term.  But evaluators should also think about longer-term requirements.  You need to consider the services needed to deploy and maintain the solution over a 3-5 year period.  And don’t forget about the vendor’s commitment to your long-term success.

As the FRAM oil filter commercial reminds us, paying a little more up front may save your company hundreds of thousands of dollars over the longer term.  It may also help improve your job security. 

To learn more, read the white paper entitled “Selecting Enterprise Performance Management Software.”

Selecting EPM Software

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There’s been a lot of buzz in the accounting and finance community recently about the upcoming change in revenue recognition guidelines from the FASB and IASB.

To date, most of the focus has been on the transactional accounting impact of the new guidelines.  But Robert Kugel, SVP and Research Director at Ventana Research, recently published an article highlighting the impact the new guidelines can have on budgeting and planning.

Background – What’s Changing and When?

Revenue is one of the most important measures used by investors in assessing a company’s performance. However, the revenue recognition guidance offered under US GAAP vs. IFRS has differed and was in need of improvement. So for a number of years, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have been working to converge their guidelines for revenue recognition. In May of 2014, the two bodies issued their converged guidance under ASC 606 and IFRS 15.

Presently, US GAAP has complex, detailed, and disparate revenue recognition requirements for specific transactions and industries – including, for example, for software and real estate.  As a result, different industries use different accounting for economically similar transactions.

According to the FASB, the objective of the new guidance is to establish the principles to report useful information to users of financial statements about the nature, timing, and uncertainty of revenue from contracts with customers.  The new guidance does the following:

  • Removes inconsistencies and weaknesses in existing revenue requirements
  • Provides a more robust framework for addressing revenue issues
  • Improves comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets
  • Provides more useful information to users of financial statements through improved disclosure requirements
  • Simplifies the preparation of financial statements by reducing the number of requirements to which an organization must refer

The new guidance on revenue recognition affects any reporting organization that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. The exception here is for those contracts that fall under the scope of other accounting standards (for example, insurance contracts or lease contracts).

Publicly held companies will need to apply the new revenue standard to annual reporting periods beginning after December 15, 2017.  Nonpublic companies should apply the new revenue standard to annual reporting periods beginning after December 15, 2018.

Here is the five-step approach the FASB has developed to help companies determine when revenue from customer contracts should be recognized:

Rev_Rec_Rules.png

Impact on Companies with Customer Contracts?

So what are the implications of these changes in revenue recognition guidelines to companies whose businesses rely on contracts with customers?  According to Mr. Kugel, affected companies will need to closely examine the policies, processes, procedures, and systems for accounting and contracting. Even planning and budgeting will need to be reconsidered. Ultimately, the changing guidelines will require changes within the companies themselves.

They key concept behind the new revenue recognitions guidelines is “performance obligations.” What this means is that revenue is no longer recognized upon delivery of a service, but when the customer is satisfied.  This could create some variability in accounting for revenue and expenses over time, and difficulty in comparing actual results vs. budget.

Another Reason to Kick the Spreadsheet Habit

In his article, Mr. Kugel goes on to note that most of the focus thus far has been on how the new rules will affect Accounting organizations and very little on FP&A.  But for companies where the changes in revenue recognition rules will have a material impact, planning and budgeting processes will need to be reviewed and adjusted.

Mr. Kugel’s recommendation is that companies currently using spreadsheets for budgeting and planning, and who are impacted by the new revenue recognition guidelines, should consider upgrading to purpose-built planning and budgeting software to effectively deal with this new complexity.

To learn more, read Rob Kugel’s article: “Planning Is Necessary for Revenue Recognition Under ASC 606 and IFRS 15.”

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