XLerant Blog

The 7 Personas of Budgeting

Tue, 14 May 2013 20:54:00 GMT

The 7 Personas of Budgeting

(Also known as: Persona Non Grata!)

Imagine this: It’s budget time, and you are surrounded…

Surrounded by department heads that don’t have financial training, but do have their own agenda and quirky approach to budgeting.

You probably don’t have to stretch to imagine it – as most finance teams live through this same scenario year after year (after year…)

In fact, this scenario is so common we’ve developed 7 individual personas based on our experience – and the feedback from our customers – on these particularly troublesome, and often reticent, budget stakeholders. Who are they?

The Victim: “I don’t know how to budget. I can’t learn the system.”

Playing the confused and hapless role comes easily to this manager (who would really prefer not to manage). A complicated user interface (like Excel) provides this manager with a built-in excuse for not taking ownership of their own budget and pushing the process right back to finance (as if you didn’t have enough on your plate.)

The Procrastinator: “I’m too busy getting the job done to spend more time on this.”

Speaking of the work on your plate…this manager waits until the last minute to submit (or is late altogether) – putting the finance team in crunch mode. The Procrastinator leaves you on the line for potentially bad numbers, without the time you need to properly analyze the data before final submission.

The Tinkerer: “Wait! I want to make another change! Again!”

Who could possibly figure out the “final budget” from this (particularly annoying) manager who inundates your e-mail with half-finished submissions and multi-scenario questions? A version-control nightmare, the constant resubmissions of the “Tinkerer” slow down the entire consolidation process.

The Critic: “Your process is horrible. I don’t like Excel. That’s not my number.”

Not a fan of the process, and not afraid to share – the critic is frustrated when the budgeting process doesn’t match their individual approach to the business. A high maintenance (and often high profile) manager whose demands can undermine the entire budgeting process.

The Mechanic: “I just made a few changes…myself.”

This is the guy (or gal) who shocks you awake at three AM in a cold sweat. The stuff of budgeting nightmares – the mechanic inserts rows, deletes columns and overwrites formulas on a whim. Never sure quite why or where your roll-ups are inaccurate – this manager causes you hours of work and (what should be avoidable) frustration.

The Outlier: “I’m different. I have special needs – and here’s why...”

The Outlier has special projects and initiatives. And in truth – they often play a critical role in the organization’s strategic vision and growth. This individual wants to budget for their “exceptions” and at the same time, communicate their rationale to upper management. Accommodating these (valid, but time consuming) needs cause yet another burden for an already stretched finance team.

The Executive: “Are these numbers reliable? What was the thinking behind these decisions?”

And let’s not forget the end-user of this whole process – the senior executive who needs to use your numbers to support the organization’s strategy. The Executive needs reliable numbers, in a timely basis, with the rationale behind each decision made.

So – did we capture all the usual suspects?

Do you have one we left out? (If so, please share below!)

And do you have a plan to escape this mind-numbing, frustrating, time-wasting (dare we say “insanity-making”) scenario next year?

You know what Albert Einstein said about “Doing the same thing over and over again and expecting different results…”

Zombie Spreadsheets

Sun, 24 Feb 2013 20:41:00 GMT

Zombie spreadsheets should be dead – for all intents and purposes they should have been put in the ground long ago – but they refuse to die.

Budget templates are the most prevalent form of zombie spreadsheets. They’re complex. They’re prone to error. They’re difficult or impossible to fully audit. Only a handful of people really understand them. They’re inflexible and don’t reflect what end users really want. You’d never want to bet your house that some error wasn’t buried among all those links and nested if-then formulas.

Put a bullet in it already.

So why don’t otherwise smart and resourceful Finance people do that... what’s keeping the un-dead budget spreadsheets alive? Why do people refuse to kill them off? These are the most common reasons I’ve heard:

We just don’t know what will replace them. The Zombie budget spreadsheets have grown so complex, so intertwined, or so widely used that we can’t figure out an alternative.
We can’t afford it. We looked at some budgeting systems that could replace what we have, but they cost and arm and a leg (unintentional reference to Zombie feasting).
The devil you know is better than the devil you don’t know. Simply put, we’re afraid of changing, even more than we are afraid of the living-dead spreadsheets.
Who has the time? Implementing a new budgeting system will take us, what… months? We simply don’t have that type of time.
We’d love to replace zombie spreadsheet budgeting, but I don’t even know how I’d go about justifying it. Does anybody care that we in Finance have to deal with a monstrous process?

There is some good news here. These objections are addressable with a little homework and effort of your part (killing zombies requires picking up a shovel, after all). There are budgeting applications out there, you are not stuck with Excel. They don’t have to cost an arm and a leg, and they can be implemented in four to six weeks (not four to six months) and there some vendors who will do all the work for you. To allay your fears, talk with people who are actually using the product, after you’ve seen a demo for yourself. And if you’re stuck on how to justify your proposal to your management, ask the vendor you’re working with for help. They should have a justification toolkit of some form or another, and be willing to assist you.

“There are multiple ways to kill zombies, of course, and you can be as creative as you like. Remember that each of these methods requires that you destroy the brain…” That’s straight from a Yahoo Answers post called The Ten Best Ways to Kill a Zombie.

So, in the case of Zombie budgeting spreadsheets, heed that same advice. Go right for the brain -- that consolidating monster P&L -- and put it out of its (and your) misery.

Obviously this post is a little tongue-in-cheek, but there is many a truth said in jest. No? If you’d like to add your own comments, please feel free to do so below.

The Best Time to Replace Your Excel-Based Budget

Fri, 15 Feb 2013 15:40:00 GMT

We like to invite others to share what’s on their mind. Today Ted Dacko, the CEO of XLerant. Inc. speaks out on the topic of the inertia that can slow (or even stop) progress.

Here’s a brief but important Bio. Ted has been CEO of four other software firms prior to XLerant. Most recently, Ted was CEO of HealthMedia which he grew from zero to $40M before selling the company to Johnson & Johnson. Ted has extensive experience in budgeting as he has held senior positions with Hyperion, Orion Micro Systems, Comshare, Corporate Class Software, FAME Software and Interactive Data Corporation, all of which offered budgeting and planning software. Ted has an M.S. in Mathematics from The College of William and Mary and a B.S in Mathematics from Waynesburg University.

Many higher education institutions struggle with Excel-based budgeting. That pain is being felt acutely today for a number of reasons, and senior level scrutiny of the process has increased dramatically. Budgeting has risen from a nice-to-have process to mission critical for colleges and universities. A number of factors have driven this, including financial constraints of edu, complaints about lack of user flexibility, lack of faculty and staff participation in and ownership of the budget, complaints about the horrendous potential of Excel errors, complaints about managing the tsunami of spreadsheets and the programming required to maintain the system, and executive complaints about reliability of the numbers and how long it takes to get their questions answered about the budget.

All of these factors have combined to make better budgeting a must-have for colleges; and many recognize the need for change. But when is a good time to think about implementing a new budgeting process?

In higher education, the problem is that there is no “best time”. Higher education has issues not faced by corporations. First, higher education has to deal with at least two new starts to an academic cycle. In addition, a portion of the faculty and staff disappear for several months over the summer. Plus most higher education institutions have to deal with very small staffs, who are over-loaded with the demands of the job.

Think about this from a calendar perspective. Higher education deals with a June 30 fiscal year end. So July is not a good month due to year-end closing. August is not a good month due to vacation and preparation for the new academic year. September is not a good months since students are returning and the organization is consumed with other issues. The budget process can begin in October, so this is not a good month. December has final exams and many institutions shut down the last two weeks. January brings the beginning of a new academic cycle. Most institutions are still wrapping up their budget process in February and March. April and May bring end of semester issues and by June many faculty and staff members have disappeared.

So, when is the best time to implement a new budget system? There is no good time.

Most institutions have to bite the bullet and “Just Do It”. Having the budget vendor, who should have extensive experience in the edu market, and who should handle the full implementation, is a key. If the vendor has dealt with the needs of edu before and understands the unique challenges, then the vendor can become part of the finance team during the implementation and handle the implementation, data loading from historical sources and both the administrative training and the faculty and staff training. Also, a vendor who can handle a full implementation in both a cost effective manner as well as within a 6 week time frame is crucial.

Colleges and universities have implemented the new system at various times of the year but the two most common time frames are March/April/May and September/October/November. This allows for the system to be used for the upcoming budget cycle. It is important to note that some organizations have implemented outside of these windows as well.

So while there is not perfect time to replace the Excel-based budget system, the need to do so is critical. Colleges and universities are quickly learning that it is unacceptable to have a mission-critical application running in a spreadsheet system that lacks both user flexibility, financial controls and does not allow for the proper communications and audit trails required in today’s world.

Hacking the Budget

Sat, 09 Feb 2013 21:12:00 GMT

What’s the one thing every Finance person complains about if their organization uses Excel for budgeting? That users break links or overwrite formulas or somehow introduce errors into the spreadsheet that Finance worked so hard to create. Intentional hacking? Unintentional hacking? Doesn't matter -- the results are the same.

The implications are truly frightening. A single error, introduced at the lowest level of the budgeting process, can go undetected all the way up to the consolidated P&L that’s reviewed by senior management. This isn’t some theoretical risk – like an asteroid hitting your home – it’s a very real risk that every Finance organization needs to cope with.

I worked with a CFO of a joint venture between two very large insurance companies. She told me how a consolidated spreadsheet that produced a P&L was built using multiple linked spreadsheets. Unknown to her at the time, or anyone else, a link with one particular spreadsheet was broken. That resulted in a sizeable error on the consolidated P&L. Sounds bad, doesn’t it? But what made the matter so much worse was the error was not discovered until after the budget was blessed by not just one, but two Board of Directors (one for each of the parent companies).

I worked with the CFO of a university that was in a slightly better position. His team discovered a spreadsheet error before the budget was actually presented to the Board. Good. But in his case the problem was revealed the morning of the Board meeting… so he had to announce that a problem had been discovered and Finance was in the process of reconciling it (and verifying no other errors existed). The Board of Directors review of the budget was pushed back two weeks as a result. Now just imagine standing in front of your Board of Directors and saying “Sorry folks, we won’t be reviewing the budget today after all.”

Broken links. Formulas being over written or deleted. Rows and column being inserted and blowing up elegant formulas that Finance so thoughtfully crafted. Ever wonder why these users seem so intent on making your life miserable? Why do they want to hack the budget?

Excel budget templates don’t reflect how people actually think about the business. So people wind up hacking the budget templates to work the way they think. That might mean inserting rows to add line item detail, overwriting an existing formula, writing a new formula (improperly) or any one of a hundred hacks that introduce errors.

There are two strategies Finance typically employs to try to prevent or eliminate spreadsheet errors. One is to attempt to lock down budget spreadsheets. This can prove fatal because it provides a false sense of security… “Hey, no reason to validate these spreadsheets, they’re locked down!” Most of us have learned the hard way that a smart user will get around passwords and other lock down features.

The other problem with locked down spreadsheets is, by design, they limit choice and flexibility. End users are frustrated enough with the budget process and this only serves to irritate them and make them less willing to engage in the process.

The other common strategy is to spend hours validating spreadsheets, pouring over them to identify potential errors. This strategy is often deployed in conjunction with locking down templates; because hackers may gotten around the passwords, and because Finance itself may have inadvertently created some error (nobody’s perfect).

The “let’s check all the spreadsheets to make sure they’re right” is monstrously inefficient, and significantly limits the time Finance can spend on value added analysis. But it’s also impractical. There is no way to check every cell of every individual budget spreadsheet –and all the cells in all the consolidating spreadsheets. You might think you're doing a good job of this today, but just ask yourself, “Would I bet my house that even after Finance checks the budget spreadsheets, there isn’t an error buried somewhere?”

The bottom line is hackers – of both the intentional and non-intentional kind – undermine the credibility of the budget P&L. Since Finance runs the budget process, confidence in the Finance team itself is undermined.

What’s to be done?

If you’re using Excel for budgeting, the only answer is “work hard and cross your fingers.” But the longer term answer is to move to a real budgeting application, one built on a database (not spreadsheets) that is flexible enough to allow people to budget the way that they think -- in a well controlled environment. That’s exactly what I had in mind when I first envisioned a planning application as a FP&A Manager at Pepsi Cola International, and that an inspired and incredibly talented team brought to life at XLerant.

If you have personal experience with broken links and formula errors and other budgeting nightmares that wake you up in the middle of the night, please share them here.

Guest Post: RFP’s Don’t Work

Tue, 05 Feb 2013 21:58:00 GMT

We like to invite others to share what’s on their mind. Today Ted Dacko, the CEO of XLerant. Inc. speaks out on the topic of the inertia that can slow (or even stop) progress.

Here’s a brief but important Bio. Ted has been CEO of four other software firms prior to XLerant. Most recently, Ted was CEO of HealthMedia which he grew from zero to $40M before selling the company to Johnson & Johnson. Ted has extensive experience in budgeting as he has held senior positions with Hyperion, Orion Micro Systems, Comshare, Corporate Class Software, FAME Software and Interactive Data Corporation, all of which offered budgeting and planning software. Ted has an M.S. in Mathematics from The College of William and Mary and a B.S in Mathematics from Waynesburg University.

Many organizations still issue RFP’s for selection of software products. Issuing and RFP is an extremely poor way of evaluating software in today’s world, particularly end user software such as budgeting software. RFP’s are generally a generic wish list of historical features and functions that are also normally equally weighted. The process is outdated and the results often disappointing leading to poor choices that focus on past processes not new and better ones.

There are two fundamental problems with RFP’s.

The first problem is that RFP’s totally miss functionality that might make one vendor’s solution unique. That functionality could turn out to be hugely valuable and lead to a better future way of conducting business, but unknown and completely ignored in the RFP. Since the capability or philosophy is unique to that vendor, the general marketplace may be unaware of it, and therefore it is not given consideration in the RFP process. RFP’s offer a historical perspective, not a forward thinking one.

Think about it. An RFP for a portable music player 12 years ago, for instance would have asked, how many CD’s can be loaded into the device at one time? The answer, of course, is/was zero. With new functionality and innovative design introduced on a regular basis, the technology world moves way to fast for RFP’s to remain effective.

The second problem is that many of the features requested in the RFP either go unused (they were on a wish list, but not necessarily needed) or they turn out to be unusable in practice.

In the first case, wish lists tend to put too much emphasis on things that are checkmark items. These are nice to haves, not required. In the second case, an RFP has no way of determining whether any requested feature can be used by the company issuing the RFP. A brilliantly designed user interface that was developed specifically for a given market and a given user, is not identifiable in the RFP process since all vendors would state that they have a great UI.

Many times RFP’s are issued by either consultants attempting to justify a large contract for a selection of a product, or by a purchasing department that has no vested interest in the success of the solution and is normally wedded to a historical process for selecting products. Neither of these situations are good for the company.

Often times, consultants can charge an exorbitant fee to select a software product. They will then select a software product that also has exorbitant fees. Who in their right mind is going to pay an external consultant $50,000 to select a $20,000 product?

The best way to select software products is to open up your mind to what is happening in your industry right now. Listen to a vendor’s pitch and see if it matches your vision of the problems that you are trying to solve. Focus on your top 4 to 5 issues, not your top 100. Then, determine which vendor is truly effectively serving your industry. Mitigating the risk of a potential failed implementation or a disappointing one is far more important than a generic checklist of items that may, or may not have been extensively used in your industry. Ask for references and case studies and choose the vendor who has the best track record of success.

Your RFP checklist went the way of the Sony Walkman.

10 Problems Colleges & Universities Have With Budgeting

Thu, 13 Sep 2012 15:57:00 GMT

The problems that colleges and universities face when it comes to budgeting are significant. Given all the economic challenges higher education faces today and the need to do more with less, budgeting is clearly mission critical. That makes addressing the problems associated with budgeting a top priority.

One of my old bosses used to say that a problem well defined was already half solved. That’s certainly been my experience. So in this blog post I’m going to define the problem, and then briefly discuss what’s needed in response. Scan the list and zero in on what’s most important given the circumstances you face.

1. Faculty and staff do not enjoy the budget process and do not know and love Excel the way financial people do. They view this process as being “force-fed” from finance.

What’s Needed in Response?

A Turbo-tax like interface for faculty and staff. Faculty and staff want an interface that walks them through the budget process in a manner that is simple yet powerful.

They want to have the flexibility to budget the way they think about their areas and allows them to budget to the strategic plan of the organization including full disclosure and documentation of how and why they need what they are asking for.

2. The Finance staff in many higher education institutions is “bare bones” or close to it. They barely have the bandwidth to manage all the complex mechanical aspects of the budget process, much less provide analysis and decision support.

What’s Needed in Response?

Preparing budget templates, distributing those to the faculty and staff, collecting these spreadsheet templates, verifying their accuracy, aggregating and consolidating numbers and preparing for budget review sessions should not be a cumbersome and manual process for finance staff. Instead, the budgeting system should alleviate most of those time-consuming mechanics and allow finance staff to focus on value-added decision support and analysis.

3. The budget process in higher education often requires identifying spending for special initiatives or projects that cut across accounts or even departments. This is very difficult in Excel and presents many opportunities for human error; especially when a budget for a project is not approved and someone has to accurately strip all the spending out of all the impacted accounts and reconsolidate the results.

What’s Needed in Response?

A system that can easily create budgets for special initiatives and projects, facilitating an initiative-oriented budget review process.

The system needs to allow for faculty and staff to submit these initiatives and have the system automatically determine the impact on the account structure. Otherwise, if an initiative is not approved, someone in Finance has to go in to each of the associated accounts and try to remember how much of that account was attributed to that initiative. This can cause inaccuracies and lacks an audit trail.

4. Up to 70% of most higher education expenses relate to personnel, but salary and headcount planning are often disconnected from the rest of the budgeting process. This often leads to confusion, rework, and a lack of fiscal awareness and understanding on the part of the department heads who actually manage faculty and staff.

What’s Needed in Response?

Detailed budgeting for position control. Salaries are a special line item in budgeting. The budget system should easily handle half of the requirements with respect to “position control” – the budgeting half.

The system should allow for faculty and staff to plan for headcount down to the individual level and let the system handle additions, reductions, raises, FICA, benefits and other

5. Reporting is always a challenge. It seems that faculty and staff are heavily reliant on Finance for even the simplest of reports. Producing these reports can be time consuming and prone to error, especially if Excel linked spreadsheets are being used.

What’s Needed in Response?

Higher education requires both budget reporting and monthly management reporting. As such, a good system should have pre-packaged report formats, ad-hoc reporting and fully user customized production reporting that does not require the users to learn a new report writing environment

6. There are divergent needs across institutions in the way people think about and develop their budgets. This is a doubly complex issue. First, the needs of the English department do not match the needs of the Mathematics department, which do not match the needs of the music department. Each has a unique way of looking at their financial needs. This is all made more complex by the fact that higher education also has to consider diverse needs like housing, food services, athletics, facilities maintenance, alumni relations, admissions and other non-academic departments.

What’s Needed in Response?

Flexibility to deal with the challenges of diverse departmental needs so that each faculty member or staff involved in the budget process can budget the way they think, but do so in a well controlled environment.

7. Often budgets are prepared without full knowledge of what actual enrollments will be or what grants might be approved or what gifts are received. This presents a major challenge. Colleges and universities therefore often need to prepare multiple versions of the budget and then select the scenario in September that most closely matches the reality of the school year.

What’s Needed in Response?

Multiple Scenarios/Versions and a system that manages them. For example, a college might want to budget a Worst Case, Best case and Most Likely scenario. The system should accommodate that, and also make it easy for faculty and staff to then submit the “Final” budget which may incorporate elements of all those scenarios.

8. Senior executives expect fast answers to practical questions like “What’s the impact if we reduce tuition increases from 5% to 2%” but anyone working in Excel knows how hard it is to produce those answers with any real accuracy. And there’s a practical side to that “what if” line of questioning. Higher education users want to be able to achieve updated financial targets from the President without necessarily going in to make significant account changes. So, the budget process needs to allow for structured and practical “what-if” capabilities that allow users to test assumptions on high level strategies to determine their impact on the budget.

What’s Needed in Response?

Practical What-If capability that makes it easy for Finance to see the impact of changing key levers of the budget and indentify ways to “close the gap” quickly.

9. The operational review and approval process is inconsistent across the organization. Finance has no way of knowing which budgets have really been operationally scrutinized and scrubbed by Deans and VPs and which ones haven’t. This leads to an equally inconsistent quality of budgets being submitted and consolidated; and ultimately to rework.

What’s Needed in Response?

Budget workflow – Both finance and administrators want a budget process that allows for organizational budget review and budget approval of departmental budgets up the organization chain of command. This can dramatically reduce the time that it takes to get to a final budget, allows for greater ownership of the budget and can dramatically increase the quality of the budget numbers.

10. Faculty and staff really want everything that they need for a budget on one singular screen, but this is really impossible with Excel. They have to go to multiple files, multiple tabs, and this can lead to confusion, frustration and rework.

What’s Needed in Response?

A Budget Map. This map should lay out all the accounts I need to budget for and present them in a way that's easy to digest and understand. It should answer questions at-a-glance like: which department am I budgeting for, which version of the budget are we working on, which accounts am I responsible for, what options do I have to both create and spread my budget numbers, what is my current budgeted headcount for the year and what final targets am I being asked to achieve.

Wrapping Up

We’ve all seen the headlines. While operating expenses continue to rise, the days of simply passing on those increases in the form of rising tuition seem rather long ago. Students (and their parents) need leadership in higher education to find a way to do more with less – that’s the new normal. Budgeting, and effective resource allocation, is at the heart of addressing the new normal, and must be a priority. Yet the budgeting process in many colleges and universities is anything but effective, because of the problems outlined in this blog.

So the question really boils down to… are you going to live with these problems or are you going to step up and lead?

Someday is now... Somebody is you

Wed, 29 Aug 2012 20:58:00 GMT

Someday we’re going to make our budget process better… somebody should really do that.

How often have you thought that? How often have you discussed that with the people you work with? Well… that some day is now, and that somebody is you.

I know firsthand that leading an effort to redesign the planning process and getting internal support for the resources required to do that isn’t easy. Often times there is no money set aside for an effort like that, and nobody’s pulled together a formal project. You’re starting from scratch.

But it can be done. Rather than recount dry statistics or hypothetical situations, let me share a very personal story.

When I was a FP&A executive at Pepsi Cola International we were doing most of our budgeting/planning/forecasting in Excel. Sound familiar? We’d spend days taking data from our general ledger and re-purposing it in Excel for analysis and management reporting. We’d spend much more time than that during the Annual Operating Plan (AOP) process setting up templates, providing historical data, and validating that the spreadsheets were working as they were suppose to without error.

It’s a story you’re probably intimately familiar with. Too much time spent gathering data and crunching the numbers, and not enough time spent on value-added analysis. And as rigorously as we scrutinized the worksheets, the probability for human error was always there.

I was one of many that questioned why we were doing this, and I wasn’t alone in thinking there had to be another way. So why were we faced with a situation like that? Why hadn’t something been done before?

In part, the answer was we were all looking at each other to do something. It was like a crowd passing by litter and saying “Someone should really pick that up.” It was also in part because we simply didn’t know what else we could do; we didn’t know what the options were. And truth be told, we had a boss who wasn’t in the trenches with us every day and didn’t have an appreciation for what we were going through. So he was (at first) reluctant to make any investment to make it better.

What opened my eyes to the possibility of making life better for us was a conversation I had with a colleague in IT. Over lunch I asked him what would be required to produce a monthly variance report using the data directly available in our G/L without any need for Finance to manipulate the data, or reformat the report to meet the needs of what our management wanted. After some brainstorming we came up with a solution.

That one idea, that one change, saved considerable time for the Finance department and eliminated the chance for human error. But more to the point, it provide a proof point thast enhancing a financial process could deliver a significant return. It added credibility that future investments made in improving the process would clearly pay significant dividends.

So we developed a set of recommendations, and presented them to our executive team. We clearly contrasted “the old world” with the new. We detailed what would be different, how much time savings there would be, and how we could use the time for improved decision support.

The bottom line was we’d be able to do more with less, and be able to raise the bar on the type of analysis and decisions support we could deliver to our internal clients. The executive team didn’t make it easy on us, they asked hard questions, they probed our assumptions, and they made us defend our request. But in the end they agreed, and Pepsi made the investment.

When IT did an analysis a year after implementation to see if our projections held true, they found we had actually underestimated the time savings. That was a great outcome, but what earned the three of us who spearheaded the project a promotion, was the improved decision support Finance was able to provide to our clients. I actually think that wound up meaning more to the senior executives than the time savings.

I don’t know what type of formal or informal approval process you have in your company, but if it’s like anything we had at Pepsi, you need to be prepared. But the good news is that even if there is no current project underway, and no money set aside, you make it happen.

Someday is now, and Somebody is you.

Guest Blog Post: Why is my general ledger vendor not the best choice for budgeting?

Fri, 10 Aug 2012 16:00:00 GMT

Every once in a while we like to invite others to share what’s on their mind. Today Ted Dacko, the CEO of XLerant. Inc. speaks out on the topic of general ledger vendor offerings for budgeting, and why they so often come up short.

Here’s a brief but important Bio. Ted has been CEO of four other software firms prior to XLerant. Most recently, Ted was CEO of HealthMedia which he grew from zero to $40M before selling the company to Johnson & Johnson. Ted has extensive experience in budgeting as he has held senior positions with Hyperion, Orion Micro Systems, Comshare, Corporate Class Software, FAME Software and Interactive Data Corporation, all of which offered budgeting and planning software. Ted has an M.S. in Mathematics from The College of William and Mary and a B.S in Mathematics from Waynesburg University.

Do you wonder why everyone currently uses Excel for budgeting? One of the reasons is institutions believed that their general ledger vendor had a budgeting module that they could use. It turns out that many of these “budgeting modules” just don't work as advertised. So these institutions wind up falling back on Excel for budgeting.

The reason why people wind up disappointed is because G/L vendors lack expertise in budgeting. Think about it, there is a huge difference between financial transaction software vendors and non-financial and account balance needs. Transaction vendors don’t have a deep appreciation for the needs of non-financial people and their software applications are designed for transactional purposes like journal entries. Non-financial people do not use these financial, transactional systems. Also these vendors do not appreciate the usability needs of non-financial people.

So, as much as they try, their budgeting modules do not meet the end user flexibility needs of non-financial people. Very often, these modules do not even meet the budgeting needs of the financial people let alone non-financial users.

Budgeting is an art form. And while it is a financial application, it requires unparalleled end-user flexibility combined with financial controls. So transaction vendors simply will never get end user applications like budgeting.

So, organizations, disappointed with these budget modules from the general ledger provider take an almost as difficult path and end up programming Excel to be the budget application. Now think about this. Why would an organization put a mission critical application in a dumb two-dimensional spreadsheet? Spreadsheets are not programming languages and they certainly were not meant for data management purposes.

Also, non-financial people do not know and love Excel the way financial people do. There is simply not enough flexibility in these applications to meet the needs of the end users. And finally, and worse, the financial people become the database and end up manually managing the data that comes in from all these users, trying to check to see that the calculations still work, manually consolidating the results and then piecing together information for reporting purposes. Who wants to do that?

The only solution to this problem is to choose an applications that has built in budget intelligence, knows how and when to talk to the other transaction oriented applications like the general ledger, human resource and fixed asset systems, understands the budget workflow and is designed for non-financial and non-Excel people…like the common end user of a budget application.

Picking applications that emulate Excel does not solve the problem. A good metaphor is Turbo-Tax. The best way to solve this problem is to select a budgeting application that is like Turbo-Tax for budgeting. This will provide the end user with all the freedom and flexibility that they need and an interface that makes budgeting easy and fun.

Budgeting is as much a communication process as it is a financial one. This helps end-users communicate how they are supporting the strategic plan of the organization and allows them to justify and document their requests. So, choosing an application that improves communications is a must-have for institutions.

But budget systems should be able to be installed in a fraction of the time of other financial systems. A good budgeting system (and a good vendor) can be implemented in a few short weeks from soup to nuts.

In today’s tough economic world, there is more and more focus on the budgeting process. Selecting a product that meets the needs of both end-users and finance to maximize user flexibility and financial controls is imperative. Create a culture of budget accountability in your organizations.

Budgeting to Strategy in Higher Education - A Recorded Webinar

Wed, 01 Aug 2012 14:47:00 GMT

We ran a webinar last week that drew a lot of attention in higher education. If you work for a college (or if you’re planning on sending your children to college) you want to watch this. As one person attending the event commented afterward, “We’ve been struggling with financial issues since 2008, and this is the most important webinar I’ve been to since. My only regret is we should have put these ideas to work for us three years ago. Better late than never.”

Let me provide some perspective here. I know this is rubbing salt in the wound of every financial professional in higher ed, so forgive me.

As the financial crisis has festered, colleges and universities are feeling the pain of cratering state budgets, the collapse of the private student loan market, and declining endowments -- all in a period where Parents are tapped out – their houses and stock holdings may no longer be able to pay for a college education.

It is estimated that across the country, endowments will drop as much as 30% over the coming year. Endowments account for a portion of college income -- but for many schools State Funding is a much more important factor. In 1984 4.1% of state spending went to higher education; in 2008 that figure had dropped to just 1.8%. Yikes.

But wait, there’s more! The Georgetown Center on Education and the Workforce tells us that by 2018, 66% of new jobs will require a college degree. But today, only 40% of adults have completed college. This means that the U.S. needs to produce roughly one million more graduates per year to ensure that the US has the skilled workers it needs. According to a report published by McKinsey, to achieve this increase in degree production at the current cost per student, the U.S would need to increase educational funding by $52 billion a year… or increase productivity by 23%. Really? How are we going to do that?

Now you might not be feeling the full brunt of the crisis in higher ed in your particular college. But nonetheless you want to get out in front of this, and fast, because this has become a National issue – one that has drawn the attention of Washington. In fact, there was a US Senate hearing on college affordability in February this year.

So how are most colleges responding to these pressures? With spending cuts. That’s probably both a wise and necessary thing to do – but it’s going to take more than budget cuts to address this crisis.

Back at that senate hearing in February, secretary of education Arne Duncan said something I think really captures the mindset we all need to adopt, “Farsighted leaders in higher education and the states are helping to point the way to challenging the status quo… they are demonstrating how to do more with less.”

I interpret this to mean that “same old thinking” is not going to provide the answers. We need to think different. We need to find a way where we can build an institutional capability to do more with less. And not just as a once off, but as an ongoing capability.

But here’s the most important point -- you can’t do it alone.

I believe that to meet these challenges you need to actively engage faculty and staff in the solution. And by engaging them I don’t mean in a two day offsite retreat to think great thoughts that never get executed. I mean engaging them in finding the right solutions and making sure they’re properly resourced as an integral part of the budget process. Because let’s face it, if it ain’t in the budget it ain’t getting’ done. The budget is where the rubber meets the road, and the way out of this crisis is to make sure the right ideas are the ones that get funded.

The webinar focused on how MS University – a composite of many of the colleges we’ve worked with -- engaged faculty and set up a process to budget to strategy as opposed to history or politics. And in doing so, optimized the allocation of scarce resources and delivered the maximum value to their students.

At this point, I’m well over what all the experts say is the maximum word count in a blog (smile) so I’ll let the video do the talking and show you what MS University did.

http://www.screencast.com/t/JKvvePG9UX

As always, your thoughts and comments are welcomed.

The Moon Shot for Higher Ed - Make College Affordable

Wed, 06 Jun 2012 12:58:00 GMT

When President Kennedy challenged the country to put a man on the moon and return him safely to earth by the end of the decade, it became known as “the moon shot.” The challenge was bold, the mission was clear, and everyone knew sacrifices had to be made to accomplish a great goal.

The moon shot for Higher Ed is to make college affordable.

To achieve that goal, I believe fiscal accountability must be driven down to the department heads that actually spend the money. Making College affordable is an institution-wide goal requiring an institution-wide response. Keeping the challenge of fiscal accountability tucked inside the walls of the finance department or President’s office is a fundamental mistake that will preclude any real progress on sustainable college affordability.

I’ll have more on a recommended response to the crisis in Higher Ed later on, but first let’s take a look at what’s behind it.

The Crisis in Higher Education

Since this year’s high school seniors were born, the average tuition at colleges have more than doubled, far outstripping inflation or national averages for salary and wage increases. That’s attracted both White House and Congressional attention. Secretary Arne Duncan called on college and university officials to show more urgency in keeping down their prices and spending, the House subcommittee on postsecondary education has held hearings about college unaffordability, and President Obama summoned a select group of college presidents and higher education thought leaders earlier this year to consider what can be done.

There’s been a lot of speculation about how we got here, but let me share my own take.

A college degree has been an integral part of the American Dream since the GI Bill gave returning WW2 soldiers access to higher education that only privileged sons and daughters had enjoyed before. What had seemed out of reach for so many generations of Americans became attainable; all it took was hard work.

Then came baby boom generation, and both the sheer number of graduates swelled, and so did expectations about everyone having the opportunity to attend college. So by 1970 the number of students grew close to 300% from the time their parents were college age.

But here’s what’s even more surprising. The number of college students was 11.5 million in 1980. By 2009 it had nearly doubled. Everyone who could possibly send their child to college did, and parents would do nearly anything to give their children a shot at the American Dream. And by “anything” I mean take out a second mortgage on their home, something banks made easier and easier to do in the decade 1998 to 2008.

Colleges were not fiscally disciplined, and frankly there was little need for them to be. There was a lot of “keeping up with the Joneses” on college campuses. As Sushi bars and coffee houses were added on one campus, other colleges joined suit. You could even argue that if rising applicants and enrollment was the goal, colleges made the right decision to add amenities rather than manage costs. As long as parents and students could find a way to pay for increasing tuition, there was no real need to be fiscally disciplined.

But now there is.

Home equity as a source of funding for tuition has all but dried up. With millions of Americans out of work and unemployment viscously stuck at high levels, incomes have dried up too. Shifting the burden to students themselves is an unattractive answer. Unemployment is high among recent college graduates, and even at low interest rates it will takes years for many of them to repay their debt. And that’s with tuition being where it is today. We simply can’t afford tuition increases – not students, not their parents, not the nation.

The Challenge | The Inspiration

I mentioned at the start of this blog post that the goal is to keep college affordable. But a moon shot goal not only throws down a major challenge, but it makes it specific (hence Kennedy’s timeframe “by the end of the decade”). So I’d like to refine the moon shot challenge for Higher Ed as:

Make College Affordable by Holding Tuition Flat for Three Years.

Can you really hold costs flat, without letting quality suffer as a result? Is that even possible? That may appear to be an out-of-reach goal, but there are examples of organizations facing and conquering similar challenges. These inspiring examples are from industry, but the core, fundamental lessons carry over into Higher Ed.

I worked at PepsiCola International when the CEO of the company said a core strategy the company had to execute in order to sustain value for its customers and shareholders was to hold cost flat for five years – in the face of rising volumes. In other words, the company was challenged to lower costs on a per unit basis so every case of Pepsi was made for less money. If you think that quality was something that could be lowered as a way of achieving that goal, you know nothing about Pepsi. Nobody even suggested that.

The seemingly impossible goal mobilized the company from the top right down to the factory floor. Improvements in the manufacturing process were discovered, contracts were renegotiated with suppliers, and the workforce was trained in Total Quality / Continuous Improvement. The entire mindset of the company was changed. It worked.

Here’s another example. Mercedes Benz was the undisputed leader in mass produced luxury cars for years. In those days, market research would find out what people wanted in a luxury automobile, and the engineers would design it into the car; and the cost would be passed right along to the consumer. Pretty simple. Then Lexus and Infinity came along and ate their lunch. A complete mind shift was required of the engineers, and of the company as a whole. Yes, continue to find out what people want in a luxury automobile. But engineer it in a way that would deliver that car at $X – a price that was essentially set by competitors that had redefined the luxury market. At first the engineers objected. They had never in the company’s history ever had to consider cost, “We’re engineers, not bean-counters.” But when they understood the long term viability of the company was at stake, they embraced the challenge, and so did the rest of the company.

The lesson to take away is the challenge defines what’s possible.

Here’s a weak challenge. If you lay down the challenge that costs can rise only 5% a year, you’ll get a budget that reflects that. A budget that reflects pretty much business as usual. A budget that reflects a passing on of those costs to parents and students in the form of increasing tuition.

The moon shot challenge; however, changes everything. “Make College Affordable by Holding Tuition Flat for Three Years.” You can’t achieve that without a change in culture – one that makes department heads fiscally knowledgeable, capable, and accountable. You can’t achieve flat tuition with fundamentally rethinking how business is done on the college campus. You can’t reach the moon shot goal of three years of flat tuition without empowering people to make smart choices. And you can’t do it alone – it’s an institution wide imperative.

We face a challenge in Higher Ed. A challenge to make college affordable, to give kids a shot at a better life, to keep a crucial part of the American Dream alive.

What role will you play?

For Further Reading

For those of you who would like to read more on this topic, I would recommend:

Faulty Towers: The Crisis in Higher Education

http://www.thenation.com/article/160410/faulty-towers-crisis-higher-education

The Next Crisis: Higher Education

http://www.huffingtonpost.com/howard-schweber/the-next-crisis-higher-ed_b_146213.html

Crisis in higher education: tuition costs may be at tipping point

http://www.deseretnews.com/article/700207041/Crisis-in-higher-education-tuition-costs-may-be-at-tipping-point.html

Price Back in the Spotlight

http://www.insidehighered.com/news/2011/12/01/congress-duncan-focus-rising-college-prices

The Truth About the Crisis in Higher Education Finance

http://www.changemag.org/Archives/Back%20Issues/January-February%202010/full-the-truth.html

College Funding Down 18 Percent

http://mainstreamonline.org/full_stories/38/8/College%20Funding.php

Lost Momentum for Iowa's Community Colleges

http://www.iowafiscal.org/2012research/120322-IFP-commcoll.html

Obama to colleges: Keep costs down, or risk losing funding

http://www.ecampusnews.com/top-news/obama-to-colleges-keep-costs-down-or-risk-losing-funding/

Clark College President Bob Knight: State funding has gone down, but 'we're not sitting around whining about it'

http://www.oregonlive.com/clark-county/index.ssf/2012/01/post_19.html

Colleges can do more to cut costs

http://articles.philly.com/2012-05-18/news/31766309_1_college-education-college-spending-higher-tuition-and-fees

Time to look beyond tuition to balance college budgets

http://www.tri-cityherald.com/2012/05/16/1941280/time-to-look-beyond-tuition-to.html

Why Forecasts Fail. What to Do Instead.

Thu, 10 May 2012 19:00:00 GMT

I was very intrigued by a recent MIT Sloan School of Management Whitepaper, “Why Forecasts Fail. What do to Instead.” Authored by Anil Gaba, Robin Hogarth and Spyros Makridakis.

http://sloanreview.mit.edu/the-magazine/2010-winter/51214/why-forecasts-fail-what-to-do-instead/

As you probably know, MIT’s Sloan School is among the top quantitative business schools in the country. It’s the bastion for better business through data analysis. So I was surprised that they would publish a whitepaper with such a title, and I simply had to read it. I found the authors made a compelling case for why forecasts fail. They make a less compelling case for what to do about it, but more on that later.

The authors do a great job of looking back at history and highlighting forecast follies, some recent, some in the distant past. They discuss the fact that noted experts didn’t see the sub-prime mortgage collapse and the ensuing economic recession in 2008; just like experts back in the 17^th century failed to predict the collapse of the Tulip market that just about brought down the entire economy of Europe. It’s a really a fascinating account of failure after failure of predictive analysis. They draw some interesting conclusions about the root cause of these failures, among them:

The future is often a bit like the past, but never exactly the same. That means that extrapolating patterns and relationships from the past to the future can’t provide accurate predictions

There are plenty of statistically sophisticated models that can fit — and thus “explain” — past data almost perfectly. However, these complex models don’t necessarily predict the future quite as well

Human beings are often extremely surprised by the extent of their forecasting mistakes.

What to do about it? The authors devote little space for that, but do say “Exactly how you deal with uncertainty is for you and your team to decide. Perhaps you’ll use a hedging strategy or develop a plan B for evolving your business model.”

Really?

My own conclusion is a little different. I’ve never seen a company or organization “predict” its way to success. It’s only when management sets clear objectives and the people on the front lines commit --really commit -- to delivering those results do expected outcomes become a reality. In other words, it’s not about models, it’s about people. And as long as the focus remains instead on inputs and outputs, variables and drivers, scenarios and models, then the organization itself will continue to be “surprised” by reality.

Or, as a former CEO of Pepsi use to say, “Stop predicting the future -- drive it.”

Webinar Event: Budget Strategies for Non-Profits in an Uncertain Economy

Tue, 10 Apr 2012 20:01:00 GMT

In a previous blog we talked about the unique challenges of budgeting in the not for profit sector (http://blog.xlerant.com/Blog/bid/74824/Unique-Challenges-of-Budgeting-in-Not-for-Profit )

We were overwhelmed by the response, and decided to follow it up with a live webinar. Join us on April 19^th 2012 to hear directly from two leading CFOs who will share their experience in overcoming the many challenges in budgeting for a not for profit institution. Jill Larsen is the CFO of The Baptist General Convention of Texas and Steven Meisberger is the CFO of American Youth Soccer Organization. Both have tremendous experience and real insight to share.

They’ll explain why they believe budgeting is mission critical for non-profit organizations; especially in today’s economy and how budgeting should be tied to strategy. They will talk about the needs of the various stakeholders in the budget process – users, finance team and executives - and why their participation and ownership is crucial for a solid plan.

Date: Thursday, April 19th at 2PM EST

Duration: 60 minutes

Fee: Waived

Registration Link: https://www4.gotomeeting.com/register/890852175

About The Baptist General Convention of Texas

The BGCT encourages, facilitates and connects its 80 local Texas Baptist associations and 5,700 local churches to facilitate worship, fellowship, stewardship, evangelism, missions and discipleship. Read their case study here.

About the American Youth Soccer Organization

AYSO’s mission is to develop and deliver quality youth soccer programs which promote a fun, family environment for its more than 50,000 teams and 600,000 players, based on the AYSO philosophies.

Budgeting: Steve Jobs or Bill Gates?

Fri, 23 Mar 2012 12:48:00 GMT

According to a recent survey (multiple surveys in fact) most organizations are still using Excel for budgeting. Part of the explanation for that, of course, is “it’s free”. But it’s also because we in Finance have a bias for spreadsheets. No self respecting accountant or finance professional would back down from the challenge of building a budgeting process using Excel (Bill Gates is smiling, I can feel it).

But the key question, if you are planning on involving people outside the finance organization, is “what does everyone else want?” The knee jerk reaction is to say they’d like a spreadsheet look and feel just as much as anyone in Finance would. But take a step back for a moment and think.

People are surrounded in their daily lives with technology that make truly complex tasks look easy – iPhones, booking a trip on Expedia, using satellite navigation in a car. Or here’s another one... think about about how easy the benefits enrollment process is today if your company uses an online service. In the old days, say before 2002, someone from Human Resources would come by with a clip board and ask you a bunch of questions, then enroll you in a family plan even though you’ve never been married. Today you go online, answer a few questions, and get just what you want (or at least what you asked for).

Since we’re talking about an inherently complex financial task (budgeting) let’s look at an analogy that’s closer to home – completing your tax return. In the old days, you had to fill out a paper form which required looking up a lot of formulas and giving your calculator a real workout. If you think you know where I’m going with this – hold on.

Some clever accountants came along and devised an electronic 1090 Tax return that replicated exactly what you saw on the tax form itself, but had built in calculations. The paradigm was simple. Give people what they are already familiar with -- the 1090 tax form -- just make it electronic. They were convenced they’d become millionaires. Instead they went broke. Accountants may have liked an electronic 1090 tax Form, but apparently nobody else did.

Michael Chipman had a different idea. A graduate from the U.S. Air Force Academy with a degree in Computer Science, Chipman spent five years in the basic research arm of the Air Force, attaining the rank of Captain. Following that, he spent a number of years as a research scientist working in the area of computational physics, principally at Science Application International in La Jolla, Calif.

Smart guy. And smart enough to know that while accountants might be familiar with the 1090 tax form, nobody else was (or even wanted to be). So rather than just replicate the form electronically, he threw it away and replaced it with plain English prompts and selections. He brought a Steve Jobs mindset to the problem when everyone else was channeling Bill Gates.

The application he developed is TurboTax, which he eventually sold to Intuit. Now Michael is the owner of the Arizona Diamondbacks (not a bad job if you can afford it).

So, getting back to budgeting. Do your users want a spreadsheet to do their budgets… or would they prefer something more along the lines of TurboTax?

Comments are welcomed.

PS Okay, want to know what Bill Gates and Steve Jobs really thought of each other?

Gates: Steve Jobs was "fundamentally odd," and "weirdly flawed as a human being"

Jobs on Gates: “He’d be a broader guy if he had dropped acid once or gone off to an ashram when he was younger"

Gates on Jobs (again): "He really never knew much about technology, but he had an amazing instinct for what works"

A Shout Out to Linda Murphy Church

Mon, 12 Mar 2012 18:19:00 GMT

Every once in a while the sun and the moon and the stars all align just right to deliver an exceptional webinar. Such was the case recently when Linda Murphy Church presented how she used the rigorous Malcolm Baldrige Award criteria to access a critical decision the Rhode Island School of Design was facing. In her case, that decision was around the budgeting process and some enabling technology. But she was able to generalize her example in a way that made the whole approach accessible, even to those few that never even heard of Malcolm Baldrige.

We had a tight timeframe – just 30 minutes – so we had very little time to provide a primer. Instead, we took a “learn from example” approach and it worked (the feedback’s been great). Interested? Just click on the video above.

As always, your feedback and comments are welcomed.

The Malcolm Baldrige Award Criteria and Better Software Purchasing

Wed, 29 Feb 2012 20:30:00 GMT

You’ve been through the drill before. Some process in your organization needs fixing and a team is formed to address it. Before you know it, you’re looking at software as a solution. That’s not a bad thing, but the way we go about it often is.

The team comes up with a requirements grid (often referred to as “wish lists”). Where do these lists come from? Well, some of them are dreamed up by team members. But surprisingly, many of these “requirements” come indirectly from software providers. Someone on the team does a Google search and, unbeknownst to him or her, a lot of the content they read originates from vendors or firms that vendors pay retainers to.

The result? Well, as a Deloitte Consulting Partner I used to work for once said, “It’s like people are told that when they’re shopping for a new car, it’s all about the number of ash trays. So people wind up buying the vehicle with the most number of ash trays and bragging, ‘Hey, my new car has six ash trays, how many does yours have?’”

We all like to think it’s the other guy who will get fooled by shiny objects. But really solid, 3^rd party criteria will make sure you make wise choices. That’s what the Malcolm Baldrige Award Criteria is all about. It’s the nation’s highest Presidential award for performance excellence, and it’s an effective framework to evaluate any initiative, including software purchases.

XLerant recently hosted a webinar event on this topic. The Budget Director from the Rhode Island School of Design shared how she used the Malcolm Baldrige Award Criteria to evaluate an initiative and investment to the budget process. While the example used is a specific one, the presentation will generalize the framework so you can apply it to your own situation.

If you would like to see the video of the event, or download the PowerPoint document, just click here.

Unique Challenges of Budgeting in Not for Profit

Sat, 11 Feb 2012 20:10:00 GMT

Budgets matter in the not-for-profit world to a degree I rarely see in the for-profit world. In the for-profit world, the budget is just a snapshot in time. It can be forgotten about the first time the company produces a reforecast (which, incidentally, can be forgotten with the second reforecast). It’s not that for-profit organizations are wrong to put less credence in the budget than non-profit organizations, it’s just that they operate in different worlds.

Not-for-profit organizations live and die by their budgets. Most of them don’t have a cash cushion to absorb any unplanned increase in spending. And with the level of donor scrutiny these days (especially around the ratio of total expenses spent on charitable programs vs fundraising and overhead) they can’t afford to be wrong. Not-for-profits often derive their revenue from low margin programs and events; and from limited donor appeals. There’s simply not the same opportunity to go out and generate revenue that so many for-profit companies enjoy.

And last but not least, budgets really matter in not-for-profit because they are a way of making the least financially oriented people fiscally responsible. Many not-for-profit program managers don’t have business training. That’s hardly a criticism. Many of them are making contributions to the world that will impact generations. The fact that they can’t recognize a credit from a debit doesn’t matter.

So budgets are deployed as a basic but effective tool to help communicate “stay within these boundaries” to program managers. They get that, even without an MBA.

With all that being said, budgets are mission critical for not-for-profits. I don’t think anyone would argue with that. The question then is what’s required to facilitate an effective budget process?

The Baptist General Convention of Texas was the first non-profit I worked with as a client of XLerant (back in the early days when my partner and I did all client implementations of our budgeting solution). Jill Larsen, the CFO of BGCT taught me more about not-for-profits than could ever fit on this post. But let me highlight a few of the observations she shared with me here:

Since many program managers do not have a business background, they are not nearly as familiar with Excel as people in the Finance organization are.
Program managers find the budget process stressful and intimidating. Being sensitive to that is vital to serving them and creating an effective budget process.
Program managers would much rather work with something that looks and feels more like, say TurboTax, than a spreadsheet.
Program managers don’t think like accountants, especially when it comes to budgeting. Unlike accountants (who tend to think strictly in terms of G/L accounts and amounts) program managers think in terms of the programs or events they’ll be running, and the resources required to make them happen.
Taking to heart all the observations listed above, the budget process needs to reflect programs, events, projects and initiatives – all developed by the program managers who will be delivering them through the year.

As I mentioned, I learned a lot from Jill (in fact we all continue to learn from her). If you’d like to read a case study about the Baptist General Convention of Texas, which can provide further insight, you can access it here.

Solving Ambiguous Problems – What Successful Companies Get That the Rest of Us Don’t

Wed, 01 Feb 2012 15:23:00 GMT

I’ve had the distinct pleasure of working with some of the best run companies over the years and I’ve come to appreciate what really separates them from “the merely good”. Some of what makes great companies so successful, like hiring great talent, is quite obvious. But in this blog I’d like to share one of their lesser known secrets to their success.

Every company has to deal with complex problems, and many organizations become adroit in dealing with them. Here’s an example of a complex problem, “How can we forecast Revenue by SKU?” Another might be “How can we extract data from our G/L and get it into our reporting package?” Another might be “How can we identify our most profitable Product Lines?”

What complex problems have in common is they do have answers… you just know they’re solvable. If you’re willing to burn the midnight oil (or get someone else to work late) you can deliver an answer. Solving complex problems involves a lot of “sweat and stamina”, as one of my old boss’s use to say… there is an answer at the end of the rainbow.

By contrast, ambiguous problems can’t be addressed by brute force. Here’s an example of an ambiguous problem, “Morale is down in the Finance department, what should we do about it?” Another example might be, “How do we get willing participants in our annual planning process, especially from those people outside of Finance?”

Ambiguous problems can’t be solved by an excel model, they can’t be addressed by formulas or by putting in more hours at work. And that’s the chief reason why average organizations shy away from dealing with them. They’re perpetually stuck at the “Where would we even start?” stage.

But the best run companies recognize the enormous value of effectively dealing with ambiguous problems. They don’t shy away from them, instead they call them out. If morale is down in the Finance department they’ll find out why. And they won’t not stop at a superficial understanding, but dig deeper. When they find out the fundamental reasons why morale is down, they’ll work to address the root issues and won’t waste time with window dressing.

What’s the payoff to addressing an ambiguous problem? Well, in the case of turning around the problem of low morale, you can attract and retain the talent the organization needs to succeed. It could even be the key to being able to beat your competition, rather than being beat by them.

The best run companies get that. Sure, they tackle complex problems every day. But unlike everyone else, they go out of their way to name and frame ambiguous problems – and attack them head on.

Now, what does all this mean for you? Let’s take an example. Say you’re contemplating a redesign of your budget process. One of the complex problems you’ve identified is that management wants to get a better grip on Benefits expenses. An important step they want to take is to separate out Payroll Taxes (a big number) from the rest of the benefits expenses. The complex problem is how to (accurately) calculate Payroll Taxes, both Federal and State, applying the appropriate cap and rate. Oh, and calculate it by individual employee, for increased precision and accuracy.

Figuring out how to address this complex problem requires thinking through the math involved and translating that into necessary formulas. Hard, complex work, but you’ll get it done.

But let’s say the redesign of the planning process also includes the goal of getting more willing participation from front line managers. That’s going to require putting yourself in their shoes, and delivering budgeting solution that allows them to “think like a manager”. It’s an ambiguous problem that requires empathy and understanding; not formulas and models.

While the payoff of addressing the complex problem of modeling Payroll Taxes by employee can be big, effectively dealing with the ambiguous problem of getting more willing participation in the process is huge. And what’s more, Senior Management will value the Finance department much, much more, if they can find a way to get willing participants in the planning process. Senior Management knows that particular ambiguous problem is harder to solve, and has a larger payoff to the business, than say, finding the right formulas and models to project payroll taxes.

As Finance professionals we are trained to solve complex problems, but as managers we need to learn how to solve the ambiguous ones.

As usual, your thoughts and comments are welcomed.

What a National Survey on Budgeting Reveals

Thu, 26 Jan 2012 18:23:00 GMT

XLerant recently completed a survey on budgeting and I wanted to share some of the highlights with you here. We will be publishing a whitepaper on the results as well, and if you’d like to reserve a copy, just click here or use the URL below:

http://blog.xlerant.com/budgeting-survey

The whitepaper will provide all the details and statistics, today I just want to highlight some of the major highlights (from my perspective anyway) of the approximately 150 people to date that have participated. You’ll notice I’m not including pie charts and graphs here, apart from the one atop this page, which seems to indicate there's some room for improvement, to put it mildly. We’re saving the catchy graphics for the whitepaper itself, but in this blog post we’ll share the headlines and some key take-aways:

Budgeting is mission critical. You probably already knew that, but isn’t it comforting to know that a majority (over 90%) of your peers agree with you?

Budgeting is getting more scrutiny than in the past. Given the economic downturn, and the need to do more with less, again, that might not be surprising to a lot of you. On the other hand, misery loves company. You’re not the only one feeling the heat… more than 2/3 of survey respondents are feelin’ it too.

It’s a matter of Control AND Flexibility. Survey respondents said that they want to improve financial control in the process… and they wanted to improve end user flexibility to prepare a better budget. Overwhelming they said they wanted both. Now before you conclude that you can’t have your cake and it eat too; I think the underlying desire is to provide flexibility in a controlled environment – and that is an achievable goal.

Excel is the most widely used application for budgeting. Approximately two thirds of respondents said they’re using Excel for budgeting; about 10% are using whatever their ERP system has to offer, and the rest are using a combination of purpose-built third party tools or something home grown.

Now since the majority of organizations surveyed are using Excel for budgeting, we filtered the results so we could see exactly what’s going on there. For example, the survey revealed that among those organizations using Excel for budgeting:

The Chief Complaint of Finance: "The mechanics take too much time, and they don’t have enough time for analysis." A close second was “Department heads hate the budget process. They simply do not put enough thought into it”.

The Chief Complaint of Department Heads : “I do not recognize the final budget number as mine.” That was followed very closely by “The budget templates do not let me budget the way I think.” These complaints are the flip side to Finance’s complaint that the department heads hate the process and don’t put enough thought into it.

The Chief Complaint of the Sr. Executives: “The budget does not tie to the strategy”. Forgive me, but if the budget doesn’t tie to the strategy, what does it tie to? Scary thought.

What does it all mean? That’s what the whitepaper is all about. You’ll get the demographics of who participated; see the detailed results for each specific question, and a clear headed assessment of the implications for redesigning the budget process. You can use the link at the top of the page, or simply click here to pre-order your copy.

Now, if you’d like to add your voice, we’d welcome you to take the survey yourself. It takes less than 10 minutes to complete, and you’ll even get a chance to win an iPad 2 if you do.

https://www.surveymonkey.com/s/XLerantBudgetSurvey

As always, your comments are welcomed, please feel free to post them below.

Who is Raymond Panko... and why should you care?

Mon, 05 Dec 2011 17:58:00 GMT

Raymond Panko, a professor at the University of Hawaii, is the leading expert on spreadsheet errors. Who makes them, why they happen, what rate they’re seen in the average spreadsheet, you name it. He wrote a paper on the subject called What We Know About Spreadsheet Errors first published in the Journal of End User Computing.

You can download a copy of the condensed version here: What We Know About Spreadsheet Errors

In the meantime, here’s an excerpt.

In recent years, we have learned a good deal about the errors that people make when they develop spreadsheets. In general, errors seem to occur in a few percent of all cells, meaning that for large spreadsheets, the real issue is how many errors there are, not whether an error exists.

Most studies looked at errors at the end of the development stage, when subjects said that they were finished developing their spreadsheets. Cell Error Rates (CER) across these studies were similar, despite the fact that subjects ranged from novices to highly experienced spreadsheet developers. One study even compared undergraduate business students, with little spreadsheet developing experience, and MBA students with more than 250 hours of spreadsheet development experience. Their Cell Error Rates were very similar.

Even when a task was selected to be very simple and almost completely free of domain knowledge requirements, the Cell Error Rate was about 2%.

Respondents were keenly aware of the dangers of error and spent considerable time working to reduce errors, including the creation of cross-footings, doing spot checks of formulas with calculators, and having others look at output. However only 1 of the 11 interviewees said that they had done a complete code inspection of a spreadsheet; and in that case it was a spreadsheet given to that person by someone else!

Later, Hendry and Green did a similar study, this time with 10 spreadsheet developers. They added a phase in which the subject walked through a spreadsheet with an author. They found that subjects often had a difficult time explaining parts of the spreadsheet that they had themselves built.

They also found that some of the spreadsheet developers had run into serious problems trying to make parts of the spreadsheet analysis fit the row-and-column layout of spreadsheet program.

We are overconfident about the accuracy of spreadsheets, despite the large amount of information to the contrary. One study gave three spreadsheet development tasks to nine highly experienced spreadsheet developers, all made at least one error, not all of which were caught and corrected. In fact, 63% of the final spreadsheets overall had errors. Yet when asked about their confidence in the correctness of their spreadsheets, their median score was "very confident."

Overconfidence is corrosive because it tends to blind people to the need for taking steps to reduce risks.

Whatever specific techniques of improvement are used, one broad policy must be the shielding of spreadsheeters who err from punishment because a climate of blaming will prevent developers from acknowledging errors. Quite simply, although the error rates seen in research studies are appalling, they are also in line with the normal accuracy limits of human information processing. We cannot punish people for normal human failings.

To read more, including the author’s suggestions for mitigation, please review the article >>>

What We Know About Spreadsheet Errors

Rolling Forecast – A False Choice?

Fri, 02 Dec 2011 22:02:00 GMT

Instead of debating the relative merits of rolling forecasts over annual budgets, the right question to ask is “What’s the best way for us to plan in our organization?” Because maybe the answer involves elements of both.

There’s an annual budget process that’s approved by Management and/or the Board of Directors, and it’s used among other things to set performance targets. Few organizations lock away the budget in a drawer. Instead, every month they compare Actual vs Budget and complete a variance analysis. That analysis can, and often does, lead to a reforecast.

So an Annual Budget and Rolling Forecast can co-exist.

Rather than debating the good and bad of budgeting versus rolling forecast, you’re much better off devoting your time to answering the question “What is the best way for us to plan in our organization?” Here are some common objectives people have in improving their planning process:

Improve the reliability of our financial projections
Build a greater sense of ownership and accountability of the numbers
Align the goals of the organization and line up the proper resources behind them
Minimize the non-value added mechanics of the process
Improve the decisions made in the process to maximize the benefit of planning to the organization

If these are the goals, then what changes do you need to make to your planning process? And if you are considering a move to Rolling Forecast, or Zero Based Budgeting, or Value Planning, or Activity Based Budgeting anything else; you need to determine how the changes to your process will get you closer to any of your goals.

As Finance professionals we’re usually pretty detailed oriented, and rigorous in our thinking. We need to apply those same skills when it comes to assessing any recommendation for changing your budget process… and recognize a false choice when we see one.

15 Things You Can’t Do in Excel for Budgeting #4

Mon, 28 Nov 2011 17:35:00 GMT

You can’t have a "watch box" -- an on screen running total comparison of the budget versus other benchmarks.

Most of the organizations we talk to tell us that even before the budget process begins, the President or Senior Staff has some type of target in mind. It might be as simple as keeping costs flat versus the last year… or taking a 1% haircut from last year’s Budget or whatever it might be. What you want to do is put that target right on the screen so people won’t forget about it, and so that can see – in real time – the impact of the decisions they’re making against that target. They might want to increase spending in one area, but take it down elsewhere all the while keeping track of the target.

Having more than one comparison on the screen in Excel just isn’t practical. The screen gets too busy and confusing. Apart from that, loading those comparisons in and setting up the variance calculations run a high risk of human error. So that’s why this type of “watch box” isn’t normally part of a budget template – although it should be.

To see a “watch box” in action, click on the video. As always, comments are encouraged.

Business Officer Magazine: Self Service Budgeting at Drew

Sun, 20 Nov 2011 20:33:00 GMT

I was honored to work with Howard Buxbaum on “Self Service Budgeting at Drew University” which appears in the November 2011 issue of Business Officer Magazine. Here’s an excerpt:

In a meeting with Drew University's president, we not only reviewed the points outlined in this article but also talked about the higher-level issue of accountability, of getting department heads to really understand—and own—their budgets. We discussed the importance of "willing participants"—department heads who truly engaged in and thought about their resource requirements as they went through the budget process.

At the end of the meeting, the president looked me in the eye and asked, "Do we really need this?" It was a moment of truth.

I had walked into the meeting fully confident that I had a firm grasp of the challenges we faced. I also knew that our president responds to straight talk. So when he asked me that question, I looked right back at him and responded, "We damn well need it. We do a poor job of budgeting today, and that needs to change." And with that, I won his support.

Read Article Now>>>

The Missing Link: Budgeting and Execution

Sat, 19 Nov 2011 17:48:00 GMT

There are two primary purposes of budgeting. The one most people think of first is to put a cap spending. But that’s only one reason why organizations (and people) budget.

The other reason why organizations budget is to ensure what’s important gets done. And let’s face it, just because something is important doesn’t mean it will get done. Unless it’s properly resourced and funded, it won’t happen. So let’s examine that crucial link between budgeting and execution.

A good friend of mine is the President of a well known, not-for-profit institution. He’s got a strong strategic background (he helped Jim Kilts turn around Gillette and subsequently sell it to Proctor & Gamble). Here’s his story:

“We had an amazing three day strategic retreat that ended with some very actionable initiatives to drive our enrollment membership and donations. This wasn’t some pie in the sky strategy, but a series of projects that all had concrete action steps. I can’t tell you how good I felt about it as the new President stepping in to lead this organization.”

But alas, that feeling wasn’t going to last long. A while after that strategic retreat they entered their budget cycle. Everyone went back to the way budgeting had always been done… taking last year’s spending and adding X%... haggling over dollars… negotiating and horse trading.

The well crafted strategy and action plans they worked so hard on became victims of the budget process.

“When the CFO handed me the budget, the first question I had was, ‘Where’s the strategy’? All I saw was a P&L with a list of accounts in it. There was a column for the budget, and other columns for last year and the latest forecast and all these comparisons. Lots of numbers… but no projects, no initiatives, no strategy.”

The truth was there was no way of reviewing the budget and seeing if the initiatives were all properly funded. In fact, many of them weren’t funded at all. Ouch. The President concluded he didn’t have the right CFO. Double ouch.

I don’t want to get into all of the mechanics of setting up Excel budget templates with tabs for initiatives, and how you need to write linked formulas to overlay that spending on the master template, but I can sympathize with anyone who’s tried to do it.

It ain’t easy. But here’s what happens when we don’t link the strategy to the budget. We don’t budget what’s important. And if we don’t budget what’s important, the entire value of the planning process gets destroyed. We should put our pencils down and refuse to do it. It’s little more than a mechanical exercise. I don’t even think it actually accomplishes its secondary purpose (to cap spending).

So here’s the bottom line. Figure out how you’re going to budget projects and initiatives (and overlay them on base spending). Build your budget review sessions around them. Make sure that what’s important is what gets budgeted.

If you’re already struggling with Excel hell and a complicated nest of spreadsheets, then maybe it’s time to ask for help.

If you want a visual example, take a look at this video clip. If you’re going to build something on your own (perhaps with the help of your IT department) this might be what to aim for. The theme of the video is “budgeting like managers think” and the example given is a strategic marketing campaign.

As always, comments and suggestions are welcomed.

15 Things You Can’t Do in Excel for Budgeting #3

Fri, 11 Nov 2011 17:41:00 GMT

You can’t create an Interactive BudgetMap in Excel

Here’s a fundamental problem with the budget process we wanted to address. People don’t like budgeting. That’s really the elephant in the living room we’re all trying to navigate around, isn’t it? Here are some of the words I’ve heard line managers and department heads use to describe budgeting: Stressful… Intimidating... Frustrating… Confusing. I’ve heard more but they aren’t appropriate for a G Rated blog.

One response some people in Finance have is to simply jump in there and do it for them. But that creates problems of its own – like miscommunication and misinterpretation between the person with their hands on the keyboard doing the budget, and the person they’re doing it for. And it frequently results in “That’s not MY number.”

So stepping in to do it for them is expedient and tempting, but it’s not really the right answer.

The options with Excel are pretty limited. You can color code cells and do other things to dress up the spreadsheet, but it’s still a spreadsheet. If it walks like a duck and quacks like a duck…

And here’s some surprising news – people outside of Finance don’t love Excel the way that we do. Shocking, I know. So when we hand them a “pretty” spreadsheet we’re not really scoring points.

These people are surrounded by technology in their daily lives like Apple’s iPhone and their cars’ dashboard navigation that have completely redefined “ease of use.” So when we hand them a budget template that’s essentially a grid of general ledger accounts and time periods, their reaction is “You’ve got to be kidding”.

What would be far better is if we could hand them a visual map of their budget, one that’s intuitively obvious to navigate and use. Rather than take words to describe it, click the video above and have a look.

As always, comments and suggestions are welcomed.

Chocolate and inspiration found in Hershey, PA

Fri, 04 Nov 2011 18:06:00 GMT

video platform video management video solutions video player

ABC News Clip on the Freedom Writers Story

I was privileged this week to attend the annual EACUBO meeting in Hershey, PA. The event began with a keynote address from Erin Gruwel, author of Freedom Writers Diary and the founder of Freedom Writers Foundation. Erin’s remarkable story was turned into a feature film in 2007 starring Hilary Swank.The video clip above is from an interview Hilary Swank did for ABC News describing this unique story.

For those of you who are not in Higher Ed, there is an exceptionally well run National Association of College and University Business Officers (NACUBO) that does remarkable work. The meeting in Hershey was for the Eastern association. I attended the event because our company has a number of Higher Ed clients, in addition to all of the users we have in industry.

Back to Erin’s inspiring story. As a young (and some would say, very naïve school teacher) Erin taught underprivileged students at a high school in Long Beach, CA. These kids were much more likely to wind up in a gang than to get into college. They experienced a level of hardship that is hard to imagine exists in a developed country.

The odds were stacked against these kids, and against Erin. Even the school had lost faith. There were some school administrators who lamented that these kids had not already dropped out, because they were pulling down school test scores. In many respects, at 14 years old these kids were written off.

But they weren’t written off in Erin’s mind. They had the same raw potential as anyone else. That’s what she saw that nobody else did. The result was these kids were saved, many went on to college and beyond to their Ph.Ds.

So why mention this here, in this blog?

Because many of us struggle with something we want to change at work or at home, but the forces arrayed against change appear insurmountable at times. Giving in, accepting the way things are today as the way they always will be, is easy. But let people like Erin Gruwell inspire you to do more.

XLerant Blog

The 7 Personas of Budgeting

Zombie Spreadsheets

Zombie spreadsheets should be dead – for all intents and purposes they should have been put in the ground long ago – but they refuse to die.

The Best Time to Replace Your Excel-Based Budget

We like to invite others to share what’s on their mind. Today Ted Dacko, the CEO of XLerant. Inc. speaks out on the topic of the inertia that can slow (or even stop) progress.

Hacking the Budget

Guest Post: RFP’s Don’t Work

We like to invite others to share what’s on their mind. Today Ted Dacko, the CEO of XLerant. Inc. speaks out on the topic of the inertia that can slow (or even stop) progress.

10 Problems Colleges & Universities Have With Budgeting

Someday is now... Somebody is you

Someday we’re going to make our budget process better… somebody should really do that.

How often have you thought that? How often have you discussed that with the people you work with? Well… that some day is now, and that somebody is you.

I know firsthand that leading an effort to redesign the planning process and getting internal support for the resources required to do that isn’t easy. Often times there is no money set aside for an effort like that, and nobody’s pulled together a formal project. You’re starting from scratch.

But it can be done. Rather than recount dry statistics or hypothetical situations, let me share a very personal story.

Guest Blog Post: Why is my general ledger vendor not the best choice for budgeting?

Every once in a while we like to invite others to share what’s on their mind. Today Ted Dacko, the CEO of XLerant. Inc. speaks out on the topic of general ledger vendor offerings for budgeting, and why they so often come up short.

Budgeting to Strategy in Higher Education - A Recorded Webinar

The Moon Shot for Higher Ed - Make College Affordable

The Crisis in Higher Education

The Challenge | The Inspiration

The lesson to take away is the challenge defines what’s possible.

For Further Reading

Why Forecasts Fail. What to Do Instead.

Webinar Event: Budget Strategies for Non-Profits in an Uncertain Economy

Budgeting: Steve Jobs or Bill Gates?

A Shout Out to Linda Murphy Church

The Malcolm Baldrige Award Criteria and Better Software Purchasing

You’ve been through the drill before. Some process in your organization needs fixing and a team is formed to address it. Before you know it, you’re looking at software as a solution. That’s not a bad thing, but the way we go about it often is.

If you would like to see the video of the event, or download the PowerPoint document, just click here.

Unique Challenges of Budgeting in Not for Profit

Solving Ambiguous Problems – What Successful Companies Get That the Rest of Us Don’t

What a National Survey on Budgeting Reveals

Who is Raymond Panko... and why should you care?

Rolling Forecast – A False Choice?

Improve the reliability of our financial projections

Build a greater sense of ownership and accountability of the numbers

Align the goals of the organization and line up the proper resources behind them

Minimize the non-value added mechanics of the process

Improve the decisions made in the process to maximize the benefit of planning to the organization

15 Things You Can’t Do in Excel for Budgeting #4

Business Officer Magazine: Self Service Budgeting at Drew

I was honored to work with Howard Buxbaum on “Self Service Budgeting at Drew University” which appears in the November 2011 issue of Business Officer Magazine. Here’s an excerpt:

The Missing Link: Budgeting and Execution

15 Things You Can’t Do in Excel for Budgeting #3

You can’t create an Interactive BudgetMap in Excel

Chocolate and inspiration found in Hershey, PA

ABC News Clip on the Freedom Writers Story