Companies have embraced business performance management (BPM) in response to today's challenging business environment, in an effort to optimize business processes and better align them with corporate strategy. Planning and budgeting are critical components of any BPM initiative because they're a means of translating strategy into a coherent set of initiatives and objectives, as well as a basis for objective assessment and alignment. Yet most people describe the budgeting process as a cumbersome exercise that adds little value. To shed light on what those involved in budgeting and planning think about the process and what they actually do, Ventana Research conducted an in-depth study of planning and budgeting in the summer and fall of 2003.

Our research found that a majority of people in Global 5000 companies believe they spend too much time on budgeting and planning, and most expect to make significant changes to the process over the next two years. But they want those changes to do more than just save time. Respondents are concerned about making the process more effective. They want to improve budgeting and planning procedures so that they gain greater insight into where their business is going, increase the accuracy of their budgets, and achieve closer alignment between corporate objectives and resource allocations throughout their business.

What is preventing companies from being more effective in this critical area of finance? Ventana Research found that in a majority of Global 5000 companies, managing the complexity of the process has crowded out time better spent on getting more out of budgeting and planning. This complexity makes budgets less accurate and prevents corporations from quickly revising plans and budgets in a coordinated fashion in response to changes in the environment.

What, then, drives process complexity? In a word -- spreadsheets. When they were first introduced two decades ago, spreadsheets were an important innovation for finance departments for numerous processes, including budgeting and planning. Ventana contends that spreadsheets played a major role in the substantial increase in the efficiency of finance departments over the past two decades. However, although spreadsheets are great for ad hoc analysis that involves only one or a few people, they're fundamentally unsuited for enterprisewide collaborative efforts such as budgeting and planning at the level of detail corporations require. The spreadsheet's defects are behind the difficulties organizations have with the process. We therefore advise organizations to eliminate spreadsheets if they want to budget and plan more effectively. We recommend CEOs, CFOs, and company directors all ask whether their existing budgeting and planning systems are delivering sufficient accuracy, agility, and responsiveness.

Throughout our research on budgeting and planning, we found that while deploying dedicated software does improve process efficiency, the real payoff from better software is achieved only when the time saved is directed toward better analysis of the budget and greater coordination of objectives and resources both within and across business units. Companies that are able to increase participation in the process -- either by driving participation to the lowest level of budget authority, or increasing the degree of collaboration -- tend to increase "buy-in" to the budget and often achieve greater accuracy in forecasts. Organizations that can take more time looking at operating plans are better able to coordinate efforts among business units and functional silos and allocate resources more intelligently. CFOs who want to implement best practices such as driver-based planning and rolling quarters budgeting are better able to implement these with dedicated software.

Saving time may not be the most important concern for our survey respondents, but it certainly isn't irrelevant since time is often related to the quality of the process. Companies that allocate either too much time or too little time to the planning process reported that their budgets are less accurate. Ventana Research believes that those companies which spend too much time on planning and budgeting waste effort on inefficient and ineffective processes that prevent them from concentrating on the main purposes of those activities. Spending too much time could be a symptom of poor methods generally, so we advise assessing the process to determine the root causes of the problems. Similarly, those companies not diligent enough in using the process to set workable objectives wind up with greater variability in their outcomes. In both cases, the goal shouldnot be merely to save time, but to make the time spent on budgeting and planning more valuable to corporate performance.

How Companies Plan and Budget

The Ventana study included 778 qualified participants; to qualify, respondents had to be very involved in the budgeting process. Most of the participants -- 73 percent -- were finance people, 21 percent were in line-of-business roles, and 6 percent were IT personnel (see exhibit 1). Only 17 percent of the respondents worked in corporations with over 10,000 employees, while 35 percent worked in companies with 500 to 9,999 employees and 48 percent worked in firms with fewer than 500 employees (see exhibit 2). We also analyzed the results based on industry vertical (there was a wide range represented) and location (71 percent were from North America and 13 percent were from Europe), but we did not find consistencies in answers across business types or geographies.

Among all survey respondents, we found a high degree of conformity in how companies plan and budget. A large majority of companies plan/budget on an annual basis, review results monthly, and use spreadsheets as the means of collecting, consolidating, and analyzing their plans/budgets. Exhibit 3 shows that nearly two-thirds (62 percent) of all companies are on an annual cycle. However, there is a growing consensus that regards rolling quarters (either a four-, five-, or six-quarter basis) as best practices. Ventana Research contends that the annual budget is a relic of a bygone age when limitations to the speed of communications and computation made annual plans the most feasible approach. The pace of business change was also limited by these factors, so there was no competitive disadvantage to an annual approach.

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