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Fix Broken Budgets Through Real-time Forecasts

Anyone involved in budgeting knows it’s sometimes a fire drill. It doesn’t always translate into better management, only broken budgets, says Ric Ratkowski, vice president of Host Analytics Inc.

(www.hostanalytics.com), a St. Louis-based vendor of business performance-management systems. This happens, he says, because higher corporate levels drive most budgets.

The budget breakdown begins when organizations collect basic budget assumptions and aggregate them, adds Chief Technology Officer Christian Gheorghe, at OSIsoft Inc. (www.osisoft.com), a software supplier based in San Leandro, Calif. “Then they try to figure out how various budgets align with the overall vision of the organization.” What typically then happens, says Gheorgehe, is an after-the-fact, rear-view mirror look at the organization or its parts. This leads to the difficulty of understanding how any part of the organization is affected by assumptions made elsewhere in the business.

A driver-based budget, in which users re-forecast monthly to update rolling 12-month or 24-month averages, is the best situation, Ratkowski believes. Such planning holds sales accountable and that drives better forecasting, he says. “You create a communications-and-tracking device between the different parts of the organization. You have the sales force putting out their demand plan each month. The operations people look at that and build their procurement schedules and production plans off that.”

Too fragile?

But one glitch he would avoid is over-reliance on Microsoft Excel. “You use it because it’s flexible, but it’s too flexible. It’s very fragile,” Ratkowski says. While acknowledging many corporate financials can be done on Excel, he asks, “How can you have assurance of internal control with Excel when you can easily point to the wrong cell?” Excel is vulnerable to security breaches from other users, Ratkowski contends. “No matter how I protect Excel, someone always finds a way to break into it.”

His company and OSIsoft provide performance-management technologies to improve enterprise budgeting and overcome these problems. Host Analytics systemized Excel. “We have database-driven templates in a Web browser using Excel-like components written by Microsoft. When you add new products, they appear,” Ratkowski explains. He notes that his company’s online analytical processing (OLAP)-based technology is designed so that information technology (IT) departments don’t own it, though the IT groups render support through the corporate infrastructure.

OSIsoft offers a predictive-analytics tool, says Gheorghe. It keeps users from playing catch-up by allowing them to consider real-time activities as they re-plan and forecast their budgets. “To be able to have business performance that is aligned with the corporate vision, you have to be able to proactively manage and understand, in real time,” he says. Managers must know how various parts of a company correlate and may be impacted in the future, and what companies can do about that, he adds.

The real benefit of performance-management budgeting software is strategic, Gheorghe says. “Because of competition, you must continuously reassess your assumptions so you can stay on the course associated with your goals.”

Ratkowski adds that it’s unfortunate that many companies buy software for corporate budgets, but not for the operations budgets that help run the businesses. That leads to disconnects when lower enterprise levels can’t react quickly or sufficiently enough to meet requests of the corporate budget owners, he says. “A budget should be a learning tool. So I budget and I’m wrong. I need to focus on doing better the next time,” he observes about the overall budget process.

C. Kenna Amos, ckamosjr@earthlink.net, is an Automation World Contributing Editor.

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