XLerant Blog

Excel Error Impacts Millions

A recent headline stood out to me: “Argument for Austerity Based on an Excel Error.[1]” I was stunned when I saw it.  How could a spreadsheet error be so big that it could shape economic policy?  This story shows how drastic the results of a single miscalculation can be.

In 2010, Harvard Economists Ken Rogoff and Carmen Rienhart published a paper titled “Growth in a Time of Debt[2]” that became highly influential. Policy leaders from around the world cited this paper when debating economic plans. Reinhart & Rogoff claimed to show that economic growth normally slows when a government’s debt exceeds 90% of the country’s annual economic output.  Since the release of the paper, policy makers have used this data to support the argument for and the implementation of austerity measures to address this potential problem.

The term ‘austerity’ in this context refers to strict measures used by governments to reduce budget deficits during adverse economic conditions. One of the measures most frequently taken is a combination of spending cuts and tax increases, measures that by other schools of economic theory could stunt economic growth.  According to Euronews, the observations of Rogoff and Rienhart and the subsequent conclusion that countries must cut public spending have meant hardship for millions[3].  

The twist in this story is that the data supporting this theory was recently found to be flawed.  There was an error in an Excel formula. Thomas Herndon, a student at UMASS Amherst, could not replicate the results of Reinhart and Rogoff’s paper while working on a graduate assignment.  Not giving up, Herndon e-mailed Reinhart & Rogoff, who provided Herndon with the actual working spreadsheet used to obtain their results.[4] Herndon quickly noticed the basic spreadsheet error that had excluded data from Canada, New Zealand, and Australia – all countries that experienced solid growth during periods of high debt.  Consequently, in contrast to Reinhart and Rogoff’s paper, Herndon found [5] that countries with high economic debt did not see their economies shrink 0.1% but instead saw them grow by 2.2% over the time period covered by the study.

Many of us who have worked with spreadsheets have seen countless formula errors. No matter how simple the errors might be, we have learned that the results can be significant.  Analyzing bad data can influence an organization to form a misguided strategy which in turn can lead to a misguided budget.  While your budget may not shape global economic policy, it will be used to shape the direction of your organization.  So having a dependable budget process that removes many of the perils of common spreadsheet errors is crucial.

XLerant is a software solutions company that offers BudgetPak, a powerful budgeting system for mid-sized organizations and higher education institutions.  BudgetPak energizes A Culture of Budget Accountability with your non-financial department heads via its intuitive interface. Engaged people take more ownership of their budgets.  The result is higher quality budgets that achieve your strategy.

XLerant:  Energizing a Culture of Budget Accountability 

The 7 Personas of Budgeting

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…”

XLerant is a software solutions company that offers BudgetPak, a powerful budgeting system for mid-sized organizations and higher education institutions.  BudgetPak energizes A Culture of Budget Accountability with your non-financial department heads via its intuitive interface. Engaged people take more ownership of their budgets.  The result is higher quality budgets that achieve your strategy.

XLerant:  Energizing a Culture of Budget Accountability 

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.

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.

XLerant is a software solutions company that offers BudgetPak, a powerful budgeting system for mid-sized organizations and higher education institutions.  BudgetPak energizes A Culture of Budget Accountability with your non-financial department heads via its intuitive interface. Engaged people take more ownership of their budgets.  The result is higher quality budgets that achieve your strategy.

XLerant:  Energizing a Culture of Budget Accountability 

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.

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.

XLerant is a software solutions company that offers BudgetPak, a powerful budgeting system for mid-sized organizations and higher education institutions.  BudgetPak energizes A Culture of Budget Accountability with your non-financial department heads via its intuitive interface. Engaged people take more ownership of their budgets.  The result is higher quality budgets that achieve your strategy.

XLerant:  Energizing a Culture of Budget Accountability 

Hacking the Budget

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. 

XLerant is a software solutions company that offers BudgetPak, a powerful budgeting system for mid-sized organizations and higher education institutions.  BudgetPak energizes A Culture of Budget Accountability with your non-financial department heads via its intuitive interface. Engaged people take more ownership of their budgets.  The result is higher quality budgets that achieve your strategy.

XLerant:  Energizing a Culture of Budget Accountability 

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.

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. 

XLerant is a software solutions company that offers BudgetPak, a powerful budgeting system for mid-sized organizations and higher education institutions.  BudgetPak energizes A Culture of Budget Accountability with your non-financial department heads via its intuitive interface. Engaged people take more ownership of their budgets.  The result is higher quality budgets that achieve your strategy.

XLerant:  Energizing a Culture of Budget Accountability 

10 Problems Colleges & Universities Have With Budgeting

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?

XLerant is a software solutions company that offers BudgetPak, a powerful budgeting system for mid-sized organizations and higher education institutions.  BudgetPak energizes A Culture of Budget Accountability with your non-financial department heads via its intuitive interface. Engaged people take more ownership of their budgets.  The result is higher quality budgets that achieve your strategy.

XLerant:  Energizing a Culture of Budget Accountability 

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.

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.

XLerant is a software solutions company that offers BudgetPak, a powerful budgeting system for mid-sized organizations and higher education institutions.  BudgetPak energizes A Culture of Budget Accountability with your non-financial department heads via its intuitive interface. Engaged people take more ownership of their budgets.  The result is higher quality budgets that achieve your strategy.

XLerant:  Energizing a Culture of Budget Accountability 

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.

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. 

XLerant is a software solutions company that offers BudgetPak, a powerful budgeting system for mid-sized organizations and higher education institutions.  BudgetPak energizes A Culture of Budget Accountability with your non-financial department heads via its intuitive interface. Engaged people take more ownership of their budgets.  The result is higher quality budgets that achieve your strategy.

XLerant:  Energizing a Culture of Budget Accountability 

Budgeting to Strategy in Higher Education - A Recorded Webinar

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.

XLerant is a software solutions company that offers BudgetPak, a powerful budgeting system for mid-sized organizations and higher education institutions.  BudgetPak energizes A Culture of Budget Accountability with your non-financial department heads via its intuitive interface. Engaged people take more ownership of their budgets.  The result is higher quality budgets that achieve your strategy.

XLerant:  Energizing a Culture of Budget Accountability