In our view, when planning software vendors come knocking, finance and IT managers may do well to answer the door. Our research doesn't necessarily mean that replacing spreadsheet-based processes with a more sophisticated BPM software package is a magic bullet for cutting cycle times, but it does indicate that the change can make a dramatic difference in a finance department's efficiency. In fact, if a BPM software vendor won't promise to cut at least 30 days off your budgeting cycle time, perhaps you should ask why.

Single-instance ERP. Running only a single instance of your company's ERP software can make a significant difference in the amount of time you require to prepare the annual budget. Companies with a single instance of ERP have a median budgeting preparation time of 62 days, whereas those with multiple instances (including both companies with multiple instances of the same software and those with implementations of different packages throughout the company) have a median annual budget cycle of 90 days.

In our experience benchmarking these processes, we have found that using a single instance of an ERP system greatly reduces the need for finance to spend time crunching numbers when creating the companywide budget. A company with a single ERP installation is much more likely to have a single chart of accounts, standardized definitions for calculations of values such as gross margin, and common reporting capabilities -- all of which serve to ease the work of the department in charge of compiling the corporate budgets.

Unfortunately, the finance department rarely has the authority to insist that the company run a single-instance ERP environment because it is only one of many stakeholders involved in ERP decisions. But when a company's ERP environment comes up for reevaluation, there is empirical evidence that reducing its complexity leads to a faster budgeting cycle.

Rolling forecasts. The practice of rolling forecasting -- preparing forecasts on a regular basis (typically quarterly) that always have the same time horizon, looking 18 months or so into the future -- forces a company to look beyond the end of the current fiscal year in its recurrent planning activities. Rolling forecasting is a hot topic often discussed at BPM-related conferences. In fact, it's popular enough that 44.6 percent of respondents to our survey said they are using it in one form or another. This makes sense; a rolling forecast should eliminate some of the problems shown in exhibit 1 -- namely, that budgets quickly become outdated in 46 percent of organizations and that only 40 percent of organizations' plans are updated regularly throughout the year.

Businesses contemplating implementation of rolling forecasting often interpret this practice to mean that every quarter they will have to go through the whole annual budgeting cycle again, a prospect which leaves them mortified. My personal favorite among our survey responses is a company that takes 40 days to prepare its new forecast each month. For 10 days each month, this organization is working on two separate plans. Fortunately, our research indicates that this company is the exception rather than the norm.

Companies using rolling forecasting spend a median of seven days working on their quarterly forecast, which is precisely the same length of time required by the median company that does not forecast beyond the current year-end. This shows that rolling forecasts do not require an organization to rehash the entire budgeting cycle each quarter. In addition to the qualitative benefits that our experience indicates companies achieve through improved planning outcomes, those that use rolling forecasting save a median of 25 days on their annual budgeting cycle.

Activity-based budgeting. We define activity-based budgeting (ABB) to be the use of operational, nonfinancial measures in the creation of the financial budget. Organizations using this practice may or may not have a full activity-based costing system. For example, a call center might base its budget on the number of calls it expects to receive during the year, rather than on expected staffing needs, standard salary increases, and so forth. The effect is to formally incorporate elements of a plan for business operations into the financial budget. This practice can move budgeting away from an exclusively financial exercise and toward the incorporation of key business drivers. A 2003 study by CFO Research Services indicated that only 27 percent of respondents felt their budgeting process focused mainly on key business drivers. The other 73 percent said they focused mainly on standard line items. Two years later, a similar question on our survey revealed a similar distribution: Only 26.4 percent said they are using activity-based budgeting.

It's worth noting that most respondents to the CFO study expected to change their processes within three years to focus mainly on key business drivers -- an expectation not yet realized according to our survey results. For those considering implementing activity-based budgeting, our survey reveals a strong business reason to do so: The budgeting cycle is around 20 days faster for companies that use ABB than for those that don't.

Alignment with strategy. In contrast to the four budgeting practices that we have examined so far, aligning a budget with corporate strategy is not so much a business practice as it is an outcome of successfully implementing other best practices. However, having consulted with many companies who feel that their strategic-planning process is disconnected from budgeting, we investigated whether companies take longer to prepare a budget that is aligned with corporate strategy than to prepare one that is not linked. Is there extra effort involved to achieve this end? The answer in our survey was a resounding "no." In fact, preparing a budget linked to strategy appears to take less time. There are several possible explanations for this; foremost among them is that beginning a budgeting process with clear business goals and outcomes in mind should reduce the amount of time spent arguing about and adjusting minor details. In other words, clearly linking strategy and budgeting likely reduces churn in the budgeting process.

Interestingly, though, we did not find a significant relationship between respondents' practices in the other areas of budgeting that our survey asked about and their budgets' alignment with corporate strategy. Whether they use spreadsheets extensively, use a single or multiple instances of ERP, use rolling forecasts, and/or use activity-based budgeting has no impact on whether they consider budgeting and strategy to be aligned. Companies looking to shorten their BPM cycles should consider the potential benefits of each of these practices, but none is a panacea for a strictly tactical budgeting process.

APQC Benchmarking

To benchmark your organization's finance and accounting processeswith those of our survey respondents, go to www.apqc.org/bpfsurvey. This is one of the APQC's Open Standards Benchmarking Collaborative databases, which are available free of charge and include more than 1,200 participants. APQC serves as the sole custodian of the data, and all collected data is blinded, normalized, and reported in aggregate.

Lisa Higgins is the chief operating officer of the APQC. She has led several APQC departments since she joined the organization in 1993. She has served on the APQC's executive team since 1995.