What is budgeting?
Budgeting is the tactical implementation of a company’s strategy or strategic plan. To deliver the financial and operational goals in the strategic plan, an organization needs to translate its long-range plan into a detailed set of expected revenues and expenses that can be measured to track performance. These can be refined and adjusted along the way to keep on track with achieving the desired business outcomes.
Budgeting process
The typical budgeting process is translating a long-range plan or company strategy into annual operating plans that are pushed down to finance, lines of business, and operations. This communicates the financial targets across the organization in every line of business, from finance to operations. The targets can be financial and operationally aligned, such as revenue and expense budgets, HR costs, marketing expenses, project costs and revenues, capital expenses, and more.
The budgeting process requires analyzing and comparing actual versus expected financial performance to determine how to allocate expenditures for the organization to achieve the budget targets set.
Effective budgeting and forecasting helps you create goal-oriented plans that are continuously updated and analyzed. Elements include:
- Detailed manufacturing budgets
- Expense budgets
- Capital expenditure budgets
- Detailed revenue budgets
- Cash-flow budgets
Planning and budgeting software
Planning and budgeting software is designed to make the process of planning and budgeting as efficient as possible for finance and operations. Planning and budgeting software delivered in the cloud today allows finance and operational budget stakeholders to easily collaborate on one platform to ensure they are working a single, connected, enterprise-wide plan and budget.
Planning and budgeting software today must be intelligent, make use of predictive planning, and have embedded AI and data science to help budget stakeholders spend less time with low-value tasks and more time managing the business. When looking at selecting a planning and budgeting tool for your organizations, there are five major things you should consider:
1. Built-in planning intelligence and best practice planning and budgeting frameworks
A planning and budgeting solution should not only be a blank canvas for modeling, but it should contain planning intelligence and purpose-built capabilities for: predictive planning; driver-based budgeting; robust, “what-if” scenario modeling; sandboxing; top-down and bottom-up budgeting; and approvals and workflows as best practices that you can start using right away.
Also, you should expect purpose-built and supported modules—such as long-range planning, workforce planning, capital asset, and project financial planning—that are fully functioning modules, designed to work together and are seamlessly integrated with existing customer-specific planning processes.
2. Capabilities that span finance, operations, and line-of-business planning, and budgeting
You must look for a connected planning platform that is a truly comprehensive solution which provides not just financial planning, but also operational planning and modeling to address lines of business, such as HR, IT, supply chain, and sales. This should be developed and maintained by the vendor—not just an add-on available in a "marketplace."
3. Users have the ability to perform large-scale, free-form financial and operational modeling
The demands of today’s fast-paced, agile business models require the ability to model financial and operational scenarios easily. A key capability behind this is the system’s ability to take in and process large volumes of data to be used in free-form modeling.
It is critical to have a powerful back-end engine to handle the vast amount of data that businesses use for such analytics today. Also make sure that scalability across large volumes of data and users can be easily handled. Your planning and forecasting solution absolutely must be able to live up to the vendors’ promises about ad-hoc modeling.
4. Robust management and financial reporting
Reporting can be a catch phrase for doing a lot of different things. You might want to do ad-hoc analysis, slicing and dicing your data. You might just want to use a standard dashboard for status updates. You probably still require a standard pack of pixel-perfect reports that can easily be printed.
And most organizations are looking to modernize and streamline their management reporting by adding collaborative narrative elements when preparing their reporting packages. Make sure that planning systems can do all of these—not just as a demo, as with imposter planning systems.
A comprehensive EPM planning solution should be able to handle all your reporting requirements, including dashboards, ad-hoc analysis, pixel-perfect financial statements, and complete narrative reports, and all of this should be possible via browsers, mobile devices, and other familiar tools. All reporting requirements from complex budget books with narrative to ad-hoc analysis, should be available in spreadsheet interfaces that finance professionals are familiar with and can easily use. This kind of flexibility is important because the fast-changing nature of global business requires a lot of ad-hoc analysis and must not compromise data security.
5. Automated financial data analysis through embedded machine learning (ML)
Emerging technologies, such as machine learning, are quickly changing business practices. Through the use of data science, predictive analytics can uncover correlations, outliers, or exceptions that a person alone wouldn’t be able to recognize. It can materially improve the accuracy of planning and greatly reduce time spent in planning processes and also reduce the time spent on analyzing data.
Cloud budgeting and planning
Oracle Fusion Cloud Enterprise Performance Management (EPM) has embedded capabilities in the form of Intelligent Performance Management Insights (IPM Insights) that allow finance and operational budgeting and planning stakeholders to focus on taking action on anomalies and outliers and remove bias from your forecasts by leveraging built-in data science—without the need for data scientists.
