Imagine the following scenario: You’re building next year’s budget in Microsoft Excel, using current year-to-date actuals that you exported from your enterprise resource planning (ERP) software. You also have this year’s approved budget on hand for reference. During this process, you notice that maintenance and repair expenses were especially high in June and July. That increase wasn’t in the budget, but maybe you should budget for it next year. Was it a seasonal rise, or was this an anomaly? Before you can determine a budget for next year’s maintenance and repair costs, you’ll need to investigate further.
Researching that question requires substantial additional effort if your organization uses manual planning and budgeting processes. The source data in this scenario represents a snapshot of the information in your ERP system. It’s not updated when someone records new transactions, and you can’t drill down to the details. In this hypothetical situation, you’ll have to log into the ERP system, scan through the details of the general ledger account, see if any large invoices stand out, and pull up those invoices to learn more.
Connected Data Makes the Process Faster and Easier
Now consider the same situation, but with one important difference; you’re working with connected data. Your planning and budgeting processes all take place in a single, cohesive environment. It looks like Microsoft Excel, and it functions in very much the same way. You can enter formulas, allocate annual expenses seasonally or according to a fixed schedule, and view the bottom line results at any time.
This time, when you notice that maintenance and repair expenses were especially high for several months, you simply drill down on that line-item to learn more. Double-click that number, and you’ll see all of the detailed transactions that comprise that expense line. You can drill down even further to see individual invoices. This jogs your memory; there were several issues with the HVAC system in the main building over the summer that required some costly repairs. Within seconds, you have the information you need, and you can move on.
That is just one of the significant advantages to working with connected data. If you base your year-to-date numbers on static information exported from the ERP system, then those numbers don’t reflect any transactions recorded after you initially pull the information. In contrast, with connected data, your system automatically pulls data from the ERP software. If someone enters a new sales order or makes an adjusting journal entry, it automatically updates your year-to-date figures on the fly.
Going Beyond the General Ledger
The example above dealt with figuring out how much to budget for certain cost categories in general ledger expense accounts. For most companies, revenue projections are substantially harder to calculate, adding some new complications to your manual budgeting and planning processes.
Imagine, for example, your company sells an array of different widgets and widget accessories. To project a revenue line for widget sales, you’ll probably want to build a separate spreadsheet to calculate sales projections. You’ll need to know last year’s sales, including both quantity and price for each item. You’ll want to consider whether or not to increase your prices. If you do, you might also need to adjust your sales quantities downward. In any case, you’ll have to come up with a revenue projection to add to your profit and loss (P&L) budget.
All of this typically takes place in a separate worksheet, or perhaps even in a separate spreadsheet created by the VP of Sales. Just as in the previous example, the process involves pulling information from the ERP system, cross-referencing that to the current year’s budget numbers, and coming up with a reasonable projection for next year.
Once again, you run into the problem of static data. Last week’s sales reports don’t reflect recent activity. And if you want to research that big spike in sales from last February, you’ll need to switch over to the ERP system, track down the transaction details, and perform your analysis there.
With connected data, all of that information is available to you with just a few clicks of the mouse. You can see projected quantities and prices for the current year, as well as actual sales quantities and average selling price for the year to date. You can apply some simple Excel-like formulas to create a starting point for next year’s budget and then make adjustments to suit your needs.
Collaborative Planning and Budgeting With Connected Data
Now consider the dialog that often takes place between the finance department and the VP of Sales. With manual spreadsheet-based systems, that usually involves emailing spreadsheet files back and forth. The VP of Sales enters comments in the spreadsheet, adjusts a few numbers, and emails the file back to finance. You must then incorporate those changes into the master budget spreadsheet.
There’s a lot that can go wrong with this process. If two different users are editing the same file at the same time, then some of those comments and edits may get lost amid the confusion. As you add more people to the conversabudgeting and planning toolstion, the risk of multiple files and multiple versions grows even greater.
If your organization manages sales projections separately from the overall budget, someone will need to get those revenue numbers into the budget spreadsheet. A simple formula error or data entry mistake can lead to inaccuracies in the final budget that simply don’t reflect consensus. That can be a much bigger problem down the road when a company fails to deliver on the budgeted numbers.
Connected data enables rapid, effective, accurate collaboration among stakeholders throughout the organization. With the best planning and budgeting tools, everyone is operating on the same page. Everyone is working with the same connected data, updated automatically to reflect the most recent activity. When static exports from the ERP system are a thing of the past, you virtually eliminate the errors associated with manual entry and mismatched document versions.
If your organization is seeking to streamline and automate your planning and budgeting processes, insightsoftware can help. Bizview offers fast, scalable cloud planning software in a browser-based solution.
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