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Alan Whitehouse
www.TrueSky.com
Best Practices for Planning, Budgeting and Forecasting Copyright 2013 True Sky Inc.
All Rights Reserved
True Sky is a trademark of True Sky Inc. Microsoft, Excel, SharePoint and Yammer are trademarks of Microsoft Corporation. All other brand and product names are trademarks of their respective owners. This document may not be reproduced or transmitted in full or in part in any form or by any means electronically, verbally or mechanically without the express written consent of True Sky Inc. NOTE: The information contained in this document is subject to change without notice. True Sky shall not be liable for errors or omissions contained herein or any damages that may arise in connection with the use of this material. True Sky Inc. 140 Renfrew Drive Unit 120 Markham, ON L3R 6B3 1-855- TRUE-SKY 1-855-878-3759 1-905-752-3355 www.TrueSky.com
Table of Contents
Table of Contents
Chapter 1 Introduction .............................................................................................................5 Purpose of this White Paper ....................................................................................................5 Some Notes about Terminology .............................................................................................5 A Focus on Excel as the Primary Tool ......................................................................................5 More Information ................................................................................................................... 6 Chapter 2 Why Do We Budget in the First Place ...................................................................... 7 Because We Have To ............................................................................................................... 7 For Financial Predictability ...................................................................................................... 7 To Understand the Business Drivers....................................................................................... 8 To Manage Peoples Performance ......................................................................................... 8 The Million Dollar Question ................................................................................................... 8 Chapter 3 The Elements of a Budget ....................................................................................... 9 The People ............................................................................................................................. 9 The Data ................................................................................................................................ 9 The Process ........................................................................................................................... 10 The Typical vs. Ideal Budget Cycle ........................................................................................ 11 People + Data + Process = Accuracy or Lack Thereof ............................................................ 12 Chapter 4 Creating Your Input Templates .............................................................................. 13 Remember That No One Likes Budgeting ............................................................................. 13 Give the Users Some Guidance ............................................................................................. 13 Keep the Templates Simple .................................................................................................. 14 Tailor the Templates to the User and/or Process................................................................... 17 Connect to Your Data and Stop Copying It In ........................................................................ 19 Validate the Data Up Front ...................................................................................................20 Think About Your Naming Conventions and Distribution Methods ...................................... 21 Chapter 5 Inputting Data........................................................................................................22 Eliminate the Divide by 12 Mentality.....................................................................................22 Budget the Drivers and Calculate the Dollars ........................................................................22 Budget the Underlying Detail................................................................................................ 23 Budget the Knowledge ......................................................................................................... 23 Want Budgets on Schedule then Consider Fake Deadlines .................................................. 24 Pursue Zero Based Budgeting .............................................................................................. 24 Collaboration Means Success ............................................................................................... 24
Table of Contents Chapter 6 Merging Data ........................................................................................................ 26 Storage and Retrieval........................................................................................................... 26 Use Formulas to Link Workbooks Not Copy/Paste ............................................................... 26 Protect the Workbook to Protect Your Sanity ...................................................................... 26 Use a Planning, Budgeting and Forecasting Application ....................................................... 27 Chapter 7 Reviewing the Data ............................................................................................... 28 Leave Yourself Enough Time................................................................................................ 28 Dont Sweat the Small Stuff ................................................................................................. 28 Decide Who Owns the Numbers .......................................................................................... 29 Make Sure You Understand the Context .............................................................................. 29 Surprises in Review Means You Have Failed ......................................................................... 29 Chapter 8 Analysis ................................................................................................................. 31 This is the Whole Point of Budgeting .................................................................................... 31 Analysis is Strategy not Review............................................................................................. 31 Analyze All the Content ........................................................................................................ 31 Use Tools Youve Already Have and May Not Know It........................................................... 32 Chapter 9 Wash, Rinse, Repeat .............................................................................................. 33 Transform Budgeting into Corporate Performance Management ........................................ 33 Investing in a Budgeting Application ..................................................................................... 35 The Final Word ...................................................................................................................... 35 Chapter 10 Reference Links.................................................................................................... 37 Product Links ........................................................................................................................ 37 Excel Functionality Links ....................................................................................................... 37 Chapter 11 About True Sky .................................................................................................... 39 What Is True Sky ................................................................................................................... 39 For More Information Contact ............................................................................................. 40 Chapter 12 About the Author ................................................................................................. 41
Chapter 1 Introduction
Chapter 1 Introduction
Purpose of this White Paper
This white paper is a companion piece to a live learning event that has been presented numerous times to financial and accounting professionals across a wide variety of industries and sizes. The information within is based on real-life experiences gathered over 20 years of helping organizations successfully implement financial, business intelligence and planning/budgeting solutions.
Chapter 1 Introduction Therefore, this white paper has a heavy focus on optimizing Excel in the budgeting process. However, many, if not all, of the practices mentioned are transferable to other solutions. Also keep in mind that many commercial budgeting software solutions such as True Sky natively support or make implementing many of these best practices far easier.
More Information
Throughout this white paper there are numerous tips and tricks and mentions of different software products. You will find a table at the end of this document with URL links to help you quickly find more information.
Because We Have To
Ask any budget contributor why they budget and because we have to is probably the first response you will get. For many, this isnt a smart-alecky answer as from their point of view this really is an exercise in doing what they are told to do, and they would be just as happy to never have to do it again. However, from an organization point of view because we have to does carry some validity. Maybe you have industry or government regulatory reporting requirements and have to report back certain specific pieces of information in order to stay certified. Maybe you have certain covenants with your bank or lending institution that require you to provide future forecasts to keep lines of credit available. And maybe you have ownership or a board of directors that are not involved on a day-to-day basis but need specific information to make decisions about the future of the organization.
The People
People is the human element that is required to do a budget. It consists of the following four components: Involvement. Obviously, the more engaged a person is with the process the better the end product. However, to be successful, involvement needs to be both physical as well as mental/emotional. People need to be given a reason to care about the quality of the budget. Accountability. At the end of the day, if people are never held accountable for the numbers they provide, then you will find that in the end no real thought or effort goes into the numbers. Yes this sounds cynical, but it is the truth. You need to make people accountable for the quality of their numbers. But dont forget that accountability is a two way street. If you are holding people accountable for the numbers and you routinely change those numbers without their knowledge or consent, then you risk building an environment of what does it matter, they are just going to change them anyway which will affect the quality of the end product. Time. Time is finite and there are only so many hours in the day. If a user wants to put in accurate numbers, but doesnt have time, then the end product is rushed and substandard. You have to give people enough time if you want a quality budget. You do this by either increasing the time it takes to submit the budget or by reducing their other tasks during the budget cycle.
The Data
Data refers to the raw numbers you get out of the budgeting process. Notice how the term information is specifically not used here. What you collect during the budgeting process tends to be data and not information. It is only information after you have had a chance to process it, analyze it and determine the effect it will have on your organization. The data element of a budget consists of the following four components: Detail. Detail refers to the level of detail collected from the users. To make life simpler, organizations will often build templates that capture data at a high level. This forces
Copyright 2013 True Sky Inc.
Chapter 3 The Elements of a Budget users to create their own spreadsheets with the detail in them to build up this higher level. The problem here is that after the user finishes cutting and pasting this data into the main form, all that fantastic detail is lost. It is easy to summarize too much detail, but you cant drill into details where none exist. Capture as much detail as possible. Drivers. The easiest way to understand the concept of drivers is with the formula R = P x Q or Revenue equals Price multiplied by Quantity. What most people budget is the revenue, however revenue is driven by your sales price and the quantity sold, each of which are in turn driven by other factors. Whereas you might get the revenue component right, being dramatically off on the sales price and/or the quantity sold can have severe consequences in your profitability and ability to deliver. Budgeting the drivers and then doing the math is the first step in turning data into information. External Information. External Information is any outside information that might be useful to the contributors or reviewers during the budget cycle. This includes such items as economic trends, regulatory rules, expected exchange rates and commodity costs. These things need to be taken into account when producing the budget. Timeliness. Not to be confused with time as mentioned above, timeliness is a measure of how up-to-date the data is that is being presented to the users. In most cases, this relates to input templates being populated with actuals that come from an ERP/accounting system. Due to the outdated methods many people use to populate actuals, such as generating reports and then either manually typing or performing copy/paste, by the time all the input templates are ready to go, the actuals are already out of date by weeks - if not months. You are asking people to budget in September for the next year but all you can provide them is January through April actuals to help guide them. Data needs to be timely in order to be useful.
The Process
The process element is how the people and the data come together and consists of the following components: 1. Accessibility. Accessiblity relates to how easily the people involved in the budget process can access the system, data and components they need to do their job. The more difficult you make it for the user, the worse the end product will be. You need to develop mechanisims that make the budget process as accessible as possible 2. Security. Is the data secure enough? Is the data too secure? Who can see which pieces of data? Are you avoiding providing critical, yet needed pieces of informaton due to
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Chapter 3 The Elements of a Budget security concerns? You need to walk a fine line between providing the data the users need to do their job while not providing too much confidential data that can cause issues if disseminated widely or publically. 3. Visibility. Visibility comes into play on many levels. Approvers need visibility into the data they are going to review. Contributors need visibility into your business strategy to ensure their numbers are in line with the directions the company desires to take. And managers of the budget need to have the visibility into the state of the budgeting cycle so they can ensure that the process runs smoothly. 4. Confidence. People need confidence in the numbers. They need to know that what is being presented to them is correct. A lack of confidence in the numbers will undermine the best budgeting process in the world. 5. Duration. Duration goes hand in hand with timeliness. The ideal budgeting process needs to move quickly enough so that by the time you are finished, you can actually use the data collected to make business decisions, rather than lament the fact that the data is so outdated that using it would be useless. 6. Frequency. How many times a year are you budgeting? Once? Four? Twelve? Fiftytwo? The more frequent you can budget, the more accurate your numbers will be and the more useful the data will be to your organization to make quick business decisions. The once a year budget is no longer enough in todays world.
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Chapter 3 The Elements of a Budget If you follow the advice in this white paper, hopefully over time you can begin to resemble the second image. The key concept being you not only shorten the budget cycle but you give yourself more time for analysis and strategy.
Diagram 2 More Ideal Budget Cycle with Analysis and Strategy Time
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Now at first pass this template doesnt seem so bad. It is only when you realize that you have to zoom out to 12% of the original size to be able to actually fit the entire budget template onto a single screen that you see what kind of a beast this template really is.
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Chapter 4 Creating Your Input Templates This template is insane and unless you have super human vision it is virtually impossible to digest the information being presented. You will spend all your time scrolling left and right and up and down and by the time you get to the end you have forgotten what was at the start. Below is a copy of a cleaner template that is more user friendly.
One of the reasons that people procrastinate doing their budget is because they become visually overwhelmed by the templates they are interacting with. In order to make things easier on the user, try to build templates that keep the following in mind: Reduce the amount of data presented to the contributor to the bare minimum required to get the job done. Use the Excel Group function to hide groups of rows or columns that users might need to see but dont need to see initially or all the time. Shade cells different colors to differentiate between cells requiring input from the user and cells that contain formulas or that are read-only.
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Chapter 4 Creating Your Input Templates Use indicators and visual clues to warn users when their numbers are outside of acceptable ranges. Know the most common screen resolutions used in your organization and build accordingly. Try to build templates that fit on one screen without vertical or horizontal scrolling. If that is not possible, try to design such that you just scroll vertically as most modern mice have scroll wheels built in making this quicker for the end user. Instead of one huge worksheet, consider breaking it into multiple worksheets each covering a specific area. For instance, have one tab for office expenses, one for travel expenses, one for marketing expenses and so forth. This has the dual effect of making the templates easier to understand and helps the user focus since they are only dealing with one particular area at a time. Remember that data input is not the same thing as data reporting. Make sure you build input templates that are optimized for data entry and you build reports that are optimized for analyzing and reading. The formats might be the same, but usually not.
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The problem with this format is that while it is fine for accountants, it is not intuitive for nonaccounts. For instance, if you were to ask a sales executive to budget for their yearly travel expenses related to visiting clients, they are most likely going to think first in terms of which client they need to visit, how many trips they need to make to that client and then they will estimate what the major costs are with each trip. So what will they do? Most likely they will create their own spreadsheet and use it to calculate the total costs based on all of their trips and then just copy the aggregated numbers into the main template. You have created extra work for the contributor, you have increased the risk of bad data due to the user creating calculations and the extra step of cutting and pasting the data. Plus that spreadsheet is only known about by the person who created it and nobody else can use that data for budget versus actual comparisons later on.
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Chapter 4 Creating Your Input Templates You might want to think about creating something similar to what is shown below.
As you can see the trip is the main focus, but it still captures all the information accounting needs to complete the budget. This format in Excel adds a little additional complexity to the data merging process, but can be accomplished if designed and linked correctly. However, investing in a commercial budgeting software solution might also make this easier.
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Chapter 4 Creating Your Input Templates the budgeting workbooks. The problem with this is that it is a slow process that is labor intensive and prone to error. Now imagine the value pushing a button and getting instantly updated actuals from your accounting system or up to the minute exchange rates from a bank website. What many people dont know is that you can connect to your data directly from within Excel. Excel has built in functionality to allow you to connect to numerous types of data including SQL Server, Access, text files, XML and even web pages. Granted the initial setup may require some special knowledge or outside help and the first time setup will take more time. However, from then on, the ability to refresh your data instantly will more than make up for it. To make this concept easier, look at investing in a commercial budgeting application that has this type of functionality as a standard feature.
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In regards to getting the workbooks into the contributors hands, avoid emailing out the workbooks if at all possible. The reason for this is two-fold. First, people are inundated with email and an email saying here is your budget template is sure to go to the bottom of the to-do list. Secondly, people often open a spreadsheet directly from an email and begin working on it. When they try to save the document they will be prompted for a save location and a save name, and then they can rename the workbook to whatever they like - and now your naming convention has gone out the window and your merging has become far more difficult. In addition, the location they are saving to may not be getting backed up which is a recipe for lost data. Instead use a network file share and email each user a link to their workbook, asking them to save only that workbook to only that location. Better yet, consider implementing and using a collaboration and document management solution such as SharePoint. Among the many things a solution like that handles, is security by document by user, as well as version control and check in/check out to prevent multiple copies of the same workbook being edited at the same time.
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Chapter 5 Inputting Data Budgeting the drivers rather than the end product would have helped you plan better. Build your templates such that people put in the drivers and the end result is calculated for them. That way you can look at all the factors and plan accordingly.
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Chapter 5 Inputting Data As a side note, try to avoid using email as your collaboration tool. All the emails flying back and forth and the dreaded reply all can quickly overwhelm inboxes. Instead, take a look at some different collaboration platforms. SharePoint is one option as it has the ability to host discussion boards. There is also Yammer which is a private social network just for your organization which, as a bonus, has a free version which is very robust.
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Chapter 6 Merging Data IMPORTANT NOTE: Protecting a workbook or a worksheet will require you to enter a password. Giving this password out to end uses will defeat the purpose of locking things down. Also, make sure you have a logical schema for the format of your passwords and that you store them someplace safe; and ensure that more than one person responsible for the budgeting process knows where the passwords can be found.
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In this scenario, postage accounts for 0.10% of the total budget. Yet believe it or not, some people would spend time debating the amount. Even if the amount was twenty-five times as large, it is irrelevant in the big picture. In fact, it doesnt become relevant until it is fifty or one hundred times larger. The message here is when it comes to reviewing, be sure to focus on the big ticket items that make a difference.
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Chapter 8 Analysis
Chapter 8 Analysis
Analysis is the process of turning data into information; and it is information that you need to make informed business decisions. The following are key analysis takeaways.
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Chapter 8 Analysis
Excel Compare Files. Excel Compare Files is a new feature added to Excel 2013. It allows you to compare two different workbooks and see what is different between them. This is ideal for comparing different versions of the same data, maybe because someone went back and did edits or maybe because you have separate workbooks for separate departments. It will show you what fields are different, which formulas are different and more. This feature can also be used to visually see all the other workbooks that are linked to the workbook in question.
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What you should receive in return is: Increased control Reduced administration Faster turnaround Greater accuracy Useful information Strategic answers More time to think
Hopefully you have found the information in this white paper useful. If you have any suggestions or comments please use the contact information found on the last page. Good luck with your budgeting!
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Product Links
Page 05 06 21 Topic (Clickable Link) Excel Home Page True Sky Web Site SharePoint Home Page URL http://office.microsoft.com/en-us/excel/ http://www.TrueSky.com http://office.microsoft.com/en-us/comparesharepoint-options-collaboration-toolsFX103479517.aspx https://www.yammer.com/ http://www.microsoft.com/enus/bi/powerpivot.aspx
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Some of the many features of True Sky include: An easy to use Excel-based interface that dramatically reduces training time and costs Dynamic rendering of data to ensure that users see only what they are allowed to see Approval workflows that support simple organizational structures or structures with complex branching and dotted line approvals Attachment of notes and electronic documents to help approvers review not only the what but the why Unlimited versioning with the ability to compare versions side-by-side 39
Chapter 11 About True Sky A series of robust and easy to use tools to assist end-users with the data entry process in order to get more accurate figures quicker The ability to integrate with unlimited electronic data sources for access to up-to-theminute data Integrated business intelligence with support for the creation of charts, graphs, scorecards and complete dashboards
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Alan was awarded the exclusive Most Valuable Professional (MVP) designation by Microsoft four times for his work in the Business Intelligence space. His education includes a Bachelors Degree in Economics and a Masters Degree in Business Administration with a formal accounting concentration. How he got into the software industry is anyones guess. Alan is devilishly handsome, unbelievably witty and exceptionally modest. He currently resides in the Toronto area where he is Chief Software Architect for True Sky Inc. You can stalk him at the following sites: Linked-In: http://www.linkedin.com/in/alanwhitehouse Twitter: http://www.twitter.com/alanwhitehouse True Sky: http://www.truesky.com
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