XLerant Blog

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 

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 

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 

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 

The Moon Shot for Higher Ed - Make College Affordable

 

When President Kennedy challenged the country to put a man on the moon and return him safely to earth by the end of the decade, it became known as “the moon shot.” The challenge was bold, the mission was clear, and everyone knew sacrifices had to be made to accomplish a great goal.

The moon shot for Higher Ed is to make college affordable.

To achieve that goal, I believe fiscal accountability must be driven down to the department heads that actually spend the money. Making College affordable is an institution-wide goal requiring an institution-wide response. Keeping the challenge of fiscal accountability tucked inside the walls of the finance department or President’s office is a fundamental mistake that will preclude any real progress on sustainable college affordability.

I’ll have more on a recommended response to the crisis in Higher Ed later on, but first let’s take a look at what’s behind it.

The Crisis in Higher Education

Since this year’s high school seniors were born, the average tuition at colleges have more than doubled, far outstripping inflation or national averages for salary and wage increases. That’s attracted both White House and Congressional attention. Secretary Arne Duncan called on college and university officials to show more urgency in keeping down their prices and spending, the House subcommittee on postsecondary education has held hearings about college unaffordability, and President Obama summoned a select group of college presidents and higher education thought leaders earlier this year to consider what can be done.

There’s been a lot of speculation about how we got here, but let me share my own take.

A college degree has been an integral part of the American Dream since the GI Bill gave returning WW2 soldiers access to higher education that only privileged sons and daughters had enjoyed before. What had seemed out of reach for so many generations of Americans became attainable; all it took was hard work.

Then came baby boom generation, and both the sheer number of graduates swelled, and so did expectations about everyone having the opportunity to attend college. So by 1970 the number of students grew close to 300% from the time their parents were college age.

But here’s what’s even more surprising. The number of college students was 11.5 million in 1980. By 2009 it had nearly doubled. Everyone who could possibly send their child to college did, and parents would do nearly anything to give their children a shot at the American Dream. And by “anything” I mean take out a second mortgage on their home, something banks made easier and easier to do in the decade 1998 to 2008.

Colleges were not fiscally disciplined, and frankly there was little need for them to be. There was a lot of “keeping up with the Joneses” on college campuses. As Sushi bars and coffee houses were added on one campus, other colleges joined suit. You could even argue that if rising applicants and enrollment was the goal, colleges made the right decision to add amenities rather than manage costs. As long as parents and students could find a way to pay for increasing tuition, there was no real need to be fiscally disciplined.

But now there is.

Home equity as a source of funding for tuition has all but dried up. With millions of Americans out of work and unemployment viscously stuck at high levels, incomes have dried up too. Shifting the burden to students themselves is an unattractive answer.  Unemployment is high among recent college graduates, and even at low interest rates it will takes years for many of them to repay their debt. And that’s with tuition being where it is today. We simply can’t afford tuition increases – not students, not their parents, not the nation.

The Challenge | The Inspiration

I mentioned at the start of this blog post that the goal is to keep college affordable. But a moon shot goal not only throws down a major challenge, but it makes it specific (hence Kennedy’s timeframe “by the end of the decade”). So I’d like to refine the moon shot challenge for Higher Ed as:

Make College Affordable by Holding Tuition Flat for Three Years.

Can you really hold costs flat, without letting quality suffer as a result? Is that even possible? That may appear to be an out-of-reach goal, but there are examples of organizations facing and conquering similar challenges. These inspiring examples are from industry, but the core, fundamental lessons carry over into Higher Ed.

I worked at PepsiCola International when the CEO of the company said a core strategy the company had to execute in order to sustain value for its customers and shareholders was to hold cost flat for five years – in the face of rising volumes. In other words, the company was challenged to lower costs on a per unit basis so every case of Pepsi was made for less money. If you think that quality was something that could be lowered as a way of achieving that goal, you know nothing about Pepsi. Nobody even suggested that.

The seemingly impossible goal mobilized the company from the top right down to the factory floor. Improvements in the manufacturing process were discovered, contracts were renegotiated with suppliers, and the workforce was trained in Total Quality / Continuous Improvement. The entire mindset of the company was changed. It worked.

Here’s another example. Mercedes Benz was the undisputed leader in mass produced luxury cars for years. In those days, market research would find out what people wanted in a luxury automobile, and the engineers would design it into the car; and the cost would be passed right along to the consumer.  Pretty simple. Then Lexus and Infinity came along and ate their lunch. A complete mind shift was required of the engineers, and of the company as a whole. Yes, continue to find out what people want in a luxury automobile. But engineer it in a way that would deliver that car at $X – a price that was essentially set by competitors that had redefined the luxury market. At first the engineers objected. They had never in the company’s history ever had to consider cost, “We’re engineers, not bean-counters.” But when they understood the long term viability of the company was at stake, they embraced the challenge, and so did the rest of the company.

The lesson to take away is the challenge defines what’s possible.

Here’s a weak challenge. If you lay down the challenge that costs can rise only 5% a year, you’ll get a budget that reflects that. A budget that reflects pretty much business as usual. A budget that reflects a passing on of those costs to parents and students in the form of increasing tuition.

The moon shot challenge; however, changes everything. “Make College Affordable by Holding Tuition Flat for Three Years.” You can’t achieve that without a change in culture – one that makes department heads fiscally knowledgeable, capable, and accountable.  You can’t achieve flat tuition with fundamentally rethinking how business is done on the college campus. You can’t reach the moon shot goal of three years of flat tuition without empowering people to make smart choices. And you can’t do it alone – it’s an institution wide imperative.

We face a challenge in Higher Ed. A challenge to make college affordable, to give kids a shot at a better life, to keep a crucial part of the American Dream alive.

What role will you play?

 

For Further Reading

For those of you who would like to read more on this topic, I would recommend:

Faulty Towers: The Crisis in Higher Education

http://www.thenation.com/article/160410/faulty-towers-crisis-higher-education

The Next Crisis: Higher Education

http://www.huffingtonpost.com/howard-schweber/the-next-crisis-higher-ed_b_146213.html

Crisis in higher education: tuition costs may be at tipping point

http://www.deseretnews.com/article/700207041/Crisis-in-higher-education-tuition-costs-may-be-at-tipping-point.html

Price Back in the Spotlight

http://www.insidehighered.com/news/2011/12/01/congress-duncan-focus-rising-college-prices

The Truth About the Crisis in Higher Education Finance

http://www.changemag.org/Archives/Back%20Issues/January-February%202010/full-the-truth.html

College Funding Down 18 Percent

http://mainstreamonline.org/full_stories/38/8/College%20Funding.php

Lost Momentum for Iowa's Community Colleges

http://www.iowafiscal.org/2012research/120322-IFP-commcoll.html

Obama to colleges: Keep costs down, or risk losing funding

http://www.ecampusnews.com/top-news/obama-to-colleges-keep-costs-down-or-risk-losing-funding/

Clark College President Bob Knight: State funding has gone down, but 'we're not sitting around whining about it'

http://www.oregonlive.com/clark-county/index.ssf/2012/01/post_19.html

Colleges can do more to cut costs

http://articles.philly.com/2012-05-18/news/31766309_1_college-education-college-spending-higher-tuition-and-fees

Time to look beyond tuition to balance college budgets

http://www.tri-cityherald.com/2012/05/16/1941280/time-to-look-beyond-tuition-to.html

 

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: Steve Jobs or Bill Gates?

According to a recent survey (multiple surveys in fact) most organizations are still using Excel for budgeting. Part of the explanation for that, of course, is “it’s free”. But it’s also because we in Finance have a bias for spreadsheets. No self respecting accountant or finance professional would back down from the challenge of building a budgeting process using Excel (Bill Gates is smiling, I can feel it).

But the key question, if you are planning on involving people outside the finance organization, is “what does everyone else want?” The knee jerk reaction is to say they’d like a spreadsheet look and feel just as much as anyone in Finance would. But take a step back for a moment and think.

People are surrounded in their daily lives with technology that make truly complex tasks look easy – iPhones, booking a trip on Expedia, using satellite navigation in a car. Or here’s another one... think about about how easy the benefits enrollment process is today if your company uses an online service. In the old days, say before 2002, someone from Human Resources would come by with a clip board and ask you a bunch of questions, then enroll you in a family plan even though you’ve never been married. Today you go online, answer a few questions, and get just what you want (or at least what you asked for).

Since we’re talking about an inherently complex financial task (budgeting) let’s look at an analogy that’s closer to home – completing your tax return. In the old days, you had to fill out a paper form which required looking up a lot of formulas and giving your calculator a real workout. If you think you know where I’m going with this – hold on.

Some clever accountants came along and devised an electronic 1090 Tax return that replicated exactly what you saw on the tax form itself, but had built in calculations. The paradigm was simple. Give people what they are already familiar with -- the 1090 tax form -- just make it electronic. They were convenced they’d become millionaires. Instead they went broke. Accountants may have liked an electronic 1090 tax Form, but apparently nobody else did.

Michael Chipman had a different idea. A graduate from the U.S. Air Force Academy with a degree in Computer Science, Chipman spent five years in the basic research arm of the Air Force, attaining the rank of Captain. Following that, he spent a number of years as a research scientist working in the area of computational physics, principally at Science Application International in La Jolla, Calif.

Smart guy. And smart enough to know that while accountants might be familiar with the 1090 tax form, nobody else was (or even wanted to be). So rather than just replicate the form electronically, he threw it away and replaced it with plain English prompts and selections. He brought a Steve Jobs mindset to the problem when everyone else was channeling Bill Gates.

The application he developed is TurboTax, which he eventually sold to Intuit. Now Michael is the owner of the Arizona Diamondbacks (not a bad job if you can afford it).

So, getting back to budgeting. Do your users want a spreadsheet to do their budgets… or would they prefer something more along the lines of TurboTax?

Comments are welcomed.

PS Okay, want to know what Bill Gates and Steve Jobs really thought of each other?

Gates: Steve Jobs was "fundamentally odd," and "weirdly flawed as a human being"

Jobs on Gates: “He’d be a broader guy if he had dropped acid once or gone off to an ashram when he was younger"

Gates on Jobs (again): "He really never knew much about technology, but he had an amazing instinct for what works"

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 

A Shout Out to Linda Murphy Church

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 Malcolm Baldrige Award Criteria and Better Software Purchasing

 

You’ve been through the drill before. Some process in your organization needs fixing and a team is formed to address it. Before you know it, you’re looking at software as a solution. That’s not a bad thing, but the way we go about it often is.

The team comes up with a requirements grid (often referred to as “wish lists”). Where do these lists come from? Well, some of them are dreamed up by team members. But surprisingly, many of these “requirements” come indirectly from software providers. Someone on the team does a Google search and, unbeknownst to him or her, a lot of the content they read originates from vendors or firms that vendors pay retainers to.

The result? Well, as a Deloitte Consulting Partner I used to work for once said, “It’s like people are told that when they’re shopping for a new car, it’s all about the number of ash trays. So people wind up buying the vehicle with the most number of ash trays and bragging, ‘Hey, my new car has six ash trays, how many does yours have?’”

We all like to think it’s the other guy who will get fooled by shiny objects. But really solid, 3^rd party criteria will make sure you make wise choices. That’s what the Malcolm Baldrige Award Criteria is all about. It’s the nation’s highest Presidential award for performance excellence, and it’s an effective framework to evaluate any initiative, including software purchases.

XLerant recently hosted a webinar event on this topic. The Budget Director from the Rhode Island School of Design shared how she used the Malcolm Baldrige Award Criteria to evaluate an initiative and investment to the budget process. While the example used is a specific one, the presentation will generalize the framework so you can apply it to your own situation.

If you would like to see the video of the event, or download the PowerPoint document, just click 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 

Unique Challenges of Budgeting in Not for Profit

 

 

Budgets matter in the not-for-profit world to a degree I rarely see in the for-profit world. In the for-profit world, the budget is just a snapshot in time. It can be forgotten about the first time the company produces a reforecast (which, incidentally, can be forgotten with the second reforecast). It’s not that for-profit organizations are wrong to put less credence in the budget than non-profit organizations, it’s just that they operate in different worlds.

Not-for-profit organizations live and die by their budgets. Most of them don’t have a cash cushion to absorb any unplanned increase in spending. And with the level of donor scrutiny these days (especially around the ratio of total expenses spent on charitable programs vs fundraising and overhead) they can’t afford to be wrong. Not-for-profits often derive their revenue from low margin programs and events; and from limited donor appeals. There’s simply not the same opportunity to go out and generate revenue that so many for-profit companies enjoy.

And last but not least, budgets really matter in not-for-profit because they are a way of making the least financially oriented people fiscally responsible. Many not-for-profit program managers don’t have business training. That’s hardly a criticism. Many of them are making contributions to the world that will impact generations. The fact that they can’t recognize a credit from a debit doesn’t matter.

So budgets are deployed as a basic but effective tool to help communicate “stay within these boundaries” to program managers. They get that, even without an MBA.

With all that being said, budgets are mission critical for not-for-profits. I don’t think anyone would argue with that. The question then is what’s required to facilitate an effective budget process?

The Baptist General Convention of Texas was the first non-profit I worked with as a client of XLerant (back in the early days when my partner and I did all client implementations of our budgeting solution). Jill Larsen, the CFO of BGCT taught me more about not-for-profits than could ever fit on this post. But let me highlight a few of the observations she shared with me here:

• Since many program managers do not have a business background, they are not nearly as familiar with Excel as people in the Finance organization are.

• Program managers find the budget process stressful and intimidating. Being sensitive to that is vital to serving them and creating an effective budget process.

• Program managers would much rather work with something that looks and feels more like, say TurboTax, than a spreadsheet.

• Program managers don’t think like accountants, especially when it comes to budgeting. Unlike accountants (who tend to think strictly in terms  of G/L accounts and amounts) program managers think in terms of the programs or events they’ll be running, and the resources required to make them happen.

• Taking to heart all the observations listed above, the budget process needs to reflect programs, events, projects and initiatives – all developed by the program managers who will be delivering them through the year.

As I mentioned, I learned a lot from Jill (in fact we all continue to learn from her). If you’d like to read a case study about the Baptist General Convention of Texas, which can provide further insight, you can access it 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 

Solving Ambiguous Problems – What Successful Companies Get That the Rest of Us Don’t

I’ve had the distinct pleasure of working with some of the best run companies over the years and I’ve come to appreciate what really separates them from “the merely good”. Some of what makes great companies so successful, like hiring great talent, is quite obvious. But in this blog I’d like to share one of their lesser known secrets to their success.

Every company has to deal with complex problems, and many organizations become adroit in dealing with them. Here’s an example of a complex problem, “How can we forecast Revenue by SKU?” Another might be “How can we extract data from our G/L and get it into our reporting package?” Another might be “How can we identify our most profitable Product Lines?”

What complex problems have in common is they do have answers… you just know they’re solvable. If you’re willing to burn the midnight oil (or get someone else to work late) you can deliver an answer. Solving complex problems involves a lot of “sweat and stamina”, as one of my old boss’s use to say… there is an answer at the end of the rainbow.

By contrast, ambiguous problems can’t be addressed by brute force.  Here’s an example of an ambiguous problem, “Morale is down in the Finance department, what should we do about it?” Another example might be, “How do we get willing participants in our annual planning process, especially from those people outside of Finance?”

Ambiguous problems can’t be solved by an excel model, they can’t be addressed by formulas or by putting in more hours at work. And that’s the chief reason why average organizations shy away from dealing with them. They’re perpetually stuck at the “Where would we even start?” stage.

But the best run companies recognize the enormous value of effectively dealing with ambiguous problems. They don’t shy away from them, instead they call them out. If morale is down in the Finance department they’ll find out why. And they won’t not stop at a superficial understanding, but dig deeper. When they find out the fundamental reasons why morale is down, they’ll work to address the root issues and won’t waste time with window dressing.

What’s the payoff to addressing an ambiguous problem? Well, in the case of turning around the problem of low morale, you can attract and retain the talent the organization needs to succeed. It could even be the key to being able to beat your competition, rather than being beat by them.

The best run companies get that. Sure, they tackle complex problems every day. But unlike everyone else, they go out of their way to name and frame ambiguous problems – and attack them head on.

Now, what does all this mean for you? Let’s take an example. Say you’re contemplating a redesign of your budget process. One of the complex problems you’ve identified is that management wants to get a better grip on Benefits expenses. An important step they want to take is to separate out Payroll Taxes (a big number) from the rest of the benefits expenses. The complex problem is how to (accurately) calculate Payroll Taxes, both Federal and State, applying the appropriate cap and rate. Oh, and calculate it by individual employee, for increased precision and accuracy.

Figuring out how to address this complex problem requires thinking through the math involved and translating that into necessary formulas. Hard, complex work, but you’ll get it done.

But let’s say the redesign of the planning process also includes the goal of getting more willing participation from front line managers.  That’s going to require putting yourself in their shoes, and delivering budgeting solution that allows them to “think like a manager”. It’s an ambiguous problem that requires empathy and understanding; not formulas and models.

While the payoff of addressing the complex problem of modeling Payroll Taxes by employee can be big, effectively dealing with the ambiguous problem of getting more willing participation in the process is huge. And what’s more, Senior Management will value the Finance department much, much more, if they can find a way to get willing participants in the planning process. Senior Management knows that particular ambiguous problem is harder to solve, and has a larger payoff to the business, than say, finding the right formulas and models to project payroll taxes.

As Finance professionals we are trained to solve complex problems, but as managers we need to learn how to solve the ambiguous ones.

As usual, 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