The majority of financial executives are dissatisfied with how their organizations approach annual budgeting, according to a report from Grant Thornton LLP and the American Productivity and Quality Center (APQC), titled “Financial Planning and Analysis: Influencing Corporate Performance with Stellar Processes, People and Technology.”
The report finds that only 37 percent of chief financial officers (CFOs) and finance leaders say their organization’s approach to annual budgeting is valuable, and, of those, all think it needs improvement. An additional 25 percent say it is somewhat valuable but the annual budget quickly becomes obsolete. Seventeen percent of finance leaders say the annual budgeting process is very valuable, but, of those, none use the budget as an absolute baseline measure.
This widespread dissatisfaction could be due to the fact that nearly 70 percent of finance leaders use a “last year plus percentage” budgeting technique, which is based on prior year figures plus a percentage to take into account planned business growth and/or inflation. This method does not necessarily account for fast-moving business risks.
“With more and more finance resources dedicated to regulatory compliance, too many companies fail to supplement the annual budgeting process with planning activities that could make performance more agile,” said Graham Tasman, Grant Thornton Business Advisory Services principal. “The finance function must break away from over-emphasis on managing historical data and move to enterprise-wide solutions that enable forward-looking analysis and free up talent for higher-value activities.”
While 40 percent of finance leaders rate their current financial planning and analysis (FP&A) capabilities as effective, 62 percent say their staff is too buried in basic financial management duties to improve FP&A. In addition, 16 percent have a limited budget for talent development and 14 percent say their organization’s approach to talent recruitment and development is ineffective.
The report also reveals that companies are slow to adopt technology that enables more effective FP&A. Finance leaders primarily use data to report on what happened in the past: Sixty percent report on simple aggregation of exposures and losses, and 57 percent conduct basic cause-and-effect analysis. Just 24 percent of finance leaders report using predictive analytics techniques.
“Finance leaders without a comprehensive data management strategy risk falling behind,” said Mark Sims, Grant Thornton’s Enterprise Performance Management (EPM) leader and a principal in the Technology Solutions practice. “With a data management strategy in place, CFOs can focus on deploying an EPM solution, which allows them to collect, aggregate and synthesize information that will deliver relevant insight and help steer the business.”
The majority (56 percent) of finance leaders report using a combination of spreadsheets and dedicated software for FP&A and internal reporting, and nearly 39 percent use spreadsheets alone. In addition, one-quarter of finance leaders say that some work is currently enabled by cloud technology and 22 percent say their finance team is considering or planning a move to the cloud. However, one-third (33 percent) of finance leaders say they have no plans to move to the cloud.
The report is based on a survey fielded by APQC in late 2014, sponsored by Grant Thornton, to determine the current state of financial planning and analysis and decision support in the finance function, with a focus on corporate performance management. The 130 respondents work for organizations in a range of industries; two-thirds work for organizations with annual revenues of $1 billion or more. More than half of these are based in the United States with global operations. Most individuals have traditional finance executive titles; some are change management experts working on financial process improvement.
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Tags: Accounting, Advisory, Firm Management, Technology
