Consultants talk perpetually about best practices. For managers listening to them, the obvious response is to ask, "But what is the business value of these practices?" It's not logical to undertake a major software upgrade or process reengineering project if you're not confident that you'll achieve tangible returns from your investment. So the APQC, an independent nonprofit dedicated to corporate performance benchmarking, conducted a survey with the help of IBM and Business Finance to find out whether today's most popular business performance management (BPM) "best practices" are yielding results.

What's Wrong With BPM?

Many companies are highly dissatisfied with both the processes involved in and the results derived from their planning, budgeting, and forecasting efforts. Our survey asked respondents to evaluate their processes through a series of quantitative and qualitative questions. Some of their answers are compiled in exhibit 1, below. A large proportion of respondents leveled fairly harsh criticisms at their BPM processes, saying that budgeting is mainly a number-crunching exercise (47 percent), that the plan is not clearly linked to strategy (56 percent), or that technology makes the process neither faster nor more effective (63 percent).

Many respondents are also dissatisfied with the timeliness of their budgets and plans. Forty-six percent said that their budget quickly becomes outdated, yet only 40 percent said that the plan is regularly updated during the year. This isn't surprising in light of the amount of time companies are spending on the budgeting process. When we asked each respondent how long it takes his or her company to prepare its annual budget, the median response was 78 days (see exhibit 2 below). That means that only half of respondents finish the process within two and a half months. The fastest companies -- those in the first quartile -- prepare their annual budget in less than 45 days, but those in the slowest quartile dedicate more than 90 days to each annual budget cycle.

In the APQC's experience collecting benchmark data, we've seen extensive evidence that decreased cycle times in planning, budgeting, and forecasting processes lead to better business outcomes. For one thing, decreased cycle time is naturally associated with decreased process costs. For another, time is often of the essence in a budgeting process. Assumptions about the business environment or market behavior made 90 days before a budget is completed are much more likely to be incorrect than assumptions made only 30 days in advance.

Because we believe that reducing BPM-process cycle times is crucial to improving corporate performance, we used the survey to examine the relationships between a company's budgeting cycle and its advancement in the areas of several popular focuses for performance management initiatives today: reduction of reliance on spreadsheets; usage of a single instance of enterprise resource planning (ERP) software, rather than multiple instances; rolling forecasts; activity-based budgeting; and the alignment of the organization around corporate strategy.

As exhibit 3 summarizes, we asked questions to identify which respondents use what we consider to be leading practices in each area, and which respondents still use lagging practices. Then we compared the budgeting cycle times of those using leading practices in these areas with those whose practices are lagging. Here's what we found.

Spreadsheet usage. Only 37 percent of respondents said that the technology they use to support planning, budgeting, and forecasting processes makes those processes either faster or more effective. This means that 63 percent are giving a thumbs-down to their BPM systems.

One likely reason for this result is the prevalence of spreadsheet usage in corporate budgeting processes. While we don't mean to disparage the use of spreadsheets by individuals, Excel is much less effective than specialized budgeting and planning software at managing the quantities of data required by BPM processes in a company of any size. In addition to the management challenge of keeping up with which data resides where, a challenge that arises anytime a company relies on a plethora of spreadsheets for BPM, these tools cannot provide version control functionality, and they frequently experience broken data links. Nevertheless, 64.4 percent of our survey's respondents said that they rely heavily on spreadsheets in their budgeting, planning, and forecasting processes. Only 5.3 percent said that they rely on spreadsheets lightly or not at all; 30.3 percent stood the middle ground and said they rely moderately on spreadsheets.

The impact on cycle time is telling. If we break survey respondents into two groups -- the first being those who rely heavily on spreadsheets and the second being those whose spreadsheet reliance is moderate or less -- we find that heavy spreadsheet usage substantially increases the budgeting and planning cycle time. Those who use spreadsheets extensively take a median of 30 more days to complete their annual budget than do the people who rely less on Excel.

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