Best Practices For Planning Budgeting and Forecasting Online

Best Practices for Planning, Budgeting and Forecasting
Alan Whitehouse
True Sky Inc.
www.TrueSky.com
Best Practices for Planning, Budgeting and Forecasting Copyright 2013 True Sky Inc.
All Rights Reserved
True Sky is a trademark of True Sky Inc. Microsoft, Excel, SharePoint and Yammer are trademarks of Microsoft Corporation. All other brand and product names are trademarks of their respective owners. This document may not be reproduced or transmitted in full or in part in any form or by any means electronically, verbally or mechanically without the express written consent of True Sky Inc. NOTE: The information contained in this document is subject to change without notice. True Sky shall not be liable for errors or omissions contained herein or any damages that may arise in connection with the use of this material. True Sky Inc. 140 Renfrew Drive Unit 120 Markham, ON L3R 6B3 1-855- TRUE-SKY 1-855-878-3759 1-905-752-3355 www.TrueSky.com
Publication Date: May 1, 2013
Table of Contents
Table of Contents
Chapter 1 Introduction .............................................................................................................5 Purpose of this White Paper ....................................................................................................5 Some Notes about Terminology .............................................................................................5 A Focus on Excel as the Primary Tool ......................................................................................5 More Information ................................................................................................................... 6 Chapter 2 Why Do We Budget in the First Place ...................................................................... 7 Because We Have To ............................................................................................................... 7 For Financial Predictability ...................................................................................................... 7 To Understand the Business Drivers....................................................................................... 8 To Manage Peoples Performance ......................................................................................... 8 The Million Dollar Question ................................................................................................... 8 Chapter 3 The Elements of a Budget ....................................................................................... 9 The People ............................................................................................................................. 9 The Data ................................................................................................................................ 9 The Process ........................................................................................................................... 10 The Typical vs. Ideal Budget Cycle ........................................................................................ 11 People + Data + Process = Accuracy or Lack Thereof ............................................................ 12 Chapter 4 Creating Your Input Templates .............................................................................. 13 Remember That No One Likes Budgeting ............................................................................. 13 Give the Users Some Guidance ............................................................................................. 13 Keep the Templates Simple .................................................................................................. 14 Tailor the Templates to the User and/or Process................................................................... 17 Connect to Your Data and Stop Copying It In ........................................................................ 19 Validate the Data Up Front ...................................................................................................20 Think About Your Naming Conventions and Distribution Methods ...................................... 21 Chapter 5 Inputting Data........................................................................................................22 Eliminate the Divide by 12 Mentality.....................................................................................22 Budget the Drivers and Calculate the Dollars ........................................................................22 Budget the Underlying Detail................................................................................................ 23 Budget the Knowledge ......................................................................................................... 23 Want Budgets on Schedule then Consider Fake Deadlines .................................................. 24 Pursue Zero Based Budgeting .............................................................................................. 24 Collaboration Means Success ............................................................................................... 24
Copyright 2013 True Sky Inc.
Table of Contents Chapter 6 Merging Data ........................................................................................................ 26 Storage and Retrieval........................................................................................................... 26 Use Formulas to Link Workbooks Not Copy/Paste ............................................................... 26 Protect the Workbook to Protect Your Sanity ...................................................................... 26 Use a Planning, Budgeting and Forecasting Application ....................................................... 27 Chapter 7 Reviewing the Data ............................................................................................... 28 Leave Yourself Enough Time................................................................................................ 28 Dont Sweat the Small Stuff ................................................................................................. 28 Decide Who Owns the Numbers .......................................................................................... 29 Make Sure You Understand the Context .............................................................................. 29 Surprises in Review Means You Have Failed ......................................................................... 29 Chapter 8 Analysis ................................................................................................................. 31 This is the Whole Point of Budgeting .................................................................................... 31 Analysis is Strategy not Review............................................................................................. 31 Analyze All the Content ........................................................................................................ 31 Use Tools Youve Already Have and May Not Know It........................................................... 32 Chapter 9 Wash, Rinse, Repeat .............................................................................................. 33 Transform Budgeting into Corporate Performance Management ........................................ 33 Investing in a Budgeting Application ..................................................................................... 35 The Final Word ...................................................................................................................... 35 Chapter 10 Reference Links.................................................................................................... 37 Product Links ........................................................................................................................ 37 Excel Functionality Links ....................................................................................................... 37 Chapter 11 About True Sky .................................................................................................... 39 What Is True Sky ................................................................................................................... 39 For More Information Contact ............................................................................................. 40 Chapter 12 About the Author ................................................................................................. 41
Chapter 1 Introduction
Chapter 1 Introduction
Purpose of this White Paper
This white paper is a companion piece to a live learning event that has been presented numerous times to financial and accounting professionals across a wide variety of industries and sizes. The information within is based on real-life experiences gathered over 20 years of helping organizations successfully implement financial, business intelligence and planning/budgeting solutions.
Some Notes about Terminology

The words budget/budgeting, plan/planning and forecast/forecasting are used interchangeable throughout this white paper. Whereas the data being captured, the level of detail and the time horizons may be different, the concepts in this document apply to all. These concepts equally apply to financial, product, sales, capital expenditure, compensation or pretty much any other type of planning process. The word template is used as a generic term for any sort of input sheet used to collect data from end-users. A template could take the form of an Excel worksheet or be an input screen associated with your ERP/accounting or a screen in your budgeting software solution. The budget cycle is a reference to the time horizon over which you budget. The cycle starts from the time you begin creating templates and ends when the final numbers are presented and locked down. A contributor is someone who inputs numbers into your budgeting system. A reviewer for this document is the same as an approver and is someone who reviews, approves and possibly edits the numbers.
A Focus on Excel as the Primary Tool

Do a search and depending on the source you choose, you will see estimates stating that anywhere from 60% to 80% of all organizations use Microsoft Excel as their main planning, budgeting and forecasting tool. This includes small mom and pop businesses all the way up to Fortune 500 size companies. The rest either use a home-grown application, functionality found in their ERP/accounting system or a commercial budgeting software solution. 5
Chapter 1 Introduction Therefore, this white paper has a heavy focus on optimizing Excel in the budgeting process. However, many, if not all, of the practices mentioned are transferable to other solutions. Also keep in mind that many commercial budgeting software solutions such as True Sky natively support or make implementing many of these best practices far easier.
More Information
Throughout this white paper there are numerous tips and tricks and mentions of different software products. You will find a table at the end of this document with URL links to help you quickly find more information.
Chapter 2 Why Do We Budget in the First Place

In order to improve on any process, you need to understand why that process exists in the first place. So the starting question is why do we budget?
Because We Have To
Ask any budget contributor why they budget and because we have to is probably the first response you will get. For many, this isnt a smart-alecky answer as from their point of view this really is an exercise in doing what they are told to do, and they would be just as happy to never have to do it again. However, from an organization point of view because we have to does carry some validity. Maybe you have industry or government regulatory reporting requirements and have to report back certain specific pieces of information in order to stay certified. Maybe you have certain covenants with your bank or lending institution that require you to provide future forecasts to keep lines of credit available. And maybe you have ownership or a board of directors that are not involved on a day-to-day basis but need specific information to make decisions about the future of the organization.
For Financial Predictability

In life, some surprises are good and some surprises are bad. Surprise birthday parties are generally good, surprise trips to the emergency room are generally bad. If you are a publically traded company, investors see hitting your earnings per share estimate as good and missing your earnings per share estimate as bad. However, without some sort of planning process, financial predictability is impossible. This concept doesnt apply only to publically traded companies. Without some sort of process, planning your future costs or revenue is nearly impossible. As an example, lets suppose that your business relies heavily on sugar as one of your main ingredients and your sales manager is predicting a huge client acquisition 6 months from now that will necessitate an increase in production by 30%. Since sugar is a commodity item, the opportunity exists for you to hedge against the risk of a price increase by purchasing sugar futures today. However, without any sort of insight into the future, you are left at the whim of the spot market and the extra revenue brought in by the sale could easily be eaten up by the higher costs at the time.
To Understand the Business Drivers

Running a business successfully requires more than knowing just the top line numbers. You might know instinctively that sales are going to be roughly $1,000,000 per month based on past trends. But to make that million each month what needs to happen? How many employees will you need? What happens if your new labor contract increases wages by 3%? How many tons of raw materials will you need? What happens if your cost of shipping doubles? What is your overhead? And when all those come together in the end will you actually make a profit or do you need to approach things differently? These are all questions that can be answered with a proper budgeting process.
To Manage Peoples Performance

How do you hold people accountable for performance without something to compare them to? In most organizations you are going to compare peoples actual performance to a targeted performance. Those target numbers need to come from somewhere and most often those targets come directly from or are facilitated by the budget process.
The Million Dollar Question

Before you read any further, take a minute and ask yourself why your organization budgets and what you hope to accomplish by budgeting. That answer should then be the foundation of your entire budgeting process. However, if you cant answer the question, then all you are doing by budgeting is wasting time and wasting money.
Chapter 3 The Elements of a Budget
Chapter 3 The Elements of a Budget

A successful budget must bring together three major pillars people, data and process. A breakdown in any of these areas will produce substandard results
The People
People is the human element that is required to do a budget. It consists of the following four components: Involvement. Obviously, the more engaged a person is with the process the better the end product. However, to be successful, involvement needs to be both physical as well as mental/emotional. People need to be given a reason to care about the quality of the budget. Accountability. At the end of the day, if people are never held accountable for the numbers they provide, then you will find that in the end no real thought or effort goes into the numbers. Yes this sounds cynical, but it is the truth. You need to make people accountable for the quality of their numbers. But dont forget that accountability is a two way street. If you are holding people accountable for the numbers and you routinely change those numbers without their knowledge or consent, then you risk building an environment of what does it matter, they are just going to change them anyway which will affect the quality of the end product. Time. Time is finite and there are only so many hours in the day. If a user wants to put in accurate numbers, but doesnt have time, then the end product is rushed and substandard. You have to give people enough time if you want a quality budget. You do this by either increasing the time it takes to submit the budget or by reducing their other tasks during the budget cycle.
The Data
Data refers to the raw numbers you get out of the budgeting process. Notice how the term information is specifically not used here. What you collect during the budgeting process tends to be data and not information. It is only information after you have had a chance to process it, analyze it and determine the effect it will have on your organization. The data element of a budget consists of the following four components: Detail. Detail refers to the level of detail collected from the users. To make life simpler, organizations will often build templates that capture data at a high level. This forces
Chapter 3 The Elements of a Budget users to create their own spreadsheets with the detail in them to build up this higher level. The problem here is that after the user finishes cutting and pasting this data into the main form, all that fantastic detail is lost. It is easy to summarize too much detail, but you cant drill into details where none exist. Capture as much detail as possible. Drivers. The easiest way to understand the concept of drivers is with the formula R = P x Q or Revenue equals Price multiplied by Quantity. What most people budget is the revenue, however revenue is driven by your sales price and the quantity sold, each of which are in turn driven by other factors. Whereas you might get the revenue component right, being dramatically off on the sales price and/or the quantity sold can have severe consequences in your profitability and ability to deliver. Budgeting the drivers and then doing the math is the first step in turning data into information. External Information. External Information is any outside information that might be useful to the contributors or reviewers during the budget cycle. This includes such items as economic trends, regulatory rules, expected exchange rates and commodity costs. These things need to be taken into account when producing the budget. Timeliness. Not to be confused with time as mentioned above, timeliness is a measure of how up-to-date the data is that is being presented to the users. In most cases, this relates to input templates being populated with actuals that come from an ERP/accounting system. Due to the outdated methods many people use to populate actuals, such as generating reports and then either manually typing or performing copy/paste, by the time all the input templates are ready to go, the actuals are already out of date by weeks - if not months. You are asking people to budget in September for the next year but all you can provide them is January through April actuals to help guide them. Data needs to be timely in order to be useful.
The Process
The process element is how the people and the data come together and consists of the following components: 1. Accessibility. Accessiblity relates to how easily the people involved in the budget process can access the system, data and components they need to do their job. The more difficult you make it for the user, the worse the end product will be. You need to develop mechanisims that make the budget process as accessible as possible 2. Security. Is the data secure enough? Is the data too secure? Who can see which pieces of data? Are you avoiding providing critical, yet needed pieces of informaton due to
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Chapter 3 The Elements of a Budget security concerns? You need to walk a fine line between providing the data the users need to do their job while not providing too much confidential data that can cause issues if disseminated widely or publically. 3. Visibility. Visibility comes into play on many levels. Approvers need visibility into the data they are going to review. Contributors need visibility into your business strategy to ensure their numbers are in line with the directions the company desires to take. And managers of the budget need to have the visibility into the state of the budgeting cycle so they can ensure that the process runs smoothly. 4. Confidence. People need confidence in the numbers. They need to know that what is being presented to them is correct. A lack of confidence in the numbers will undermine the best budgeting process in the world. 5. Duration. Duration goes hand in hand with timeliness. The ideal budgeting process needs to move quickly enough so that by the time you are finished, you can actually use the data collected to make business decisions, rather than lament the fact that the data is so outdated that using it would be useless. 6. Frequency. How many times a year are you budgeting? Once? Four? Twelve? Fiftytwo? The more frequent you can budget, the more accurate your numbers will be and the more useful the data will be to your organization to make quick business decisions. The once a year budget is no longer enough in todays world.
The Typical vs. Ideal Budget Cycle

The following diagram shows a typical yearly budget cycle compared to a more ideal yearly budget cycle. Odds are your current cycle resembles the first image below.
Diagram 1 Typical Budget Cycle
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Chapter 3 The Elements of a Budget If you follow the advice in this white paper, hopefully over time you can begin to resemble the second image. The key concept being you not only shorten the budget cycle but you give yourself more time for analysis and strategy.
Diagram 2 More Ideal Budget Cycle with Analysis and Strategy Time
People + Data + Process = Accuracy or Lack Thereof

Accuracy is quality of the data you receive back from the people involved in the process. A comprehensive and accurate budget requires a bringing together of the people, data and process elements. Gaps in any of these areas will decrease the accuracy of the final budget numbers and the greater the number of gaps the worse the final accuracy. The rest of this white paper will attempt to provide you with tangible things you can do to help reduce or eliminate any gaps you may have in the three elements and increase the accuracy and quality of your budget.
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Chapter 4 Creating Your Input Templates

Any planning process requires capturing of data. The better you are at capturing data the better the end results. This section provides some insights on the creation of data input templates that help facilitate the collection process.
Remember That No One Likes Budgeting

The biggest error that organizations make when preparing for and performing budgeting related activities is forgetting the simple fact that NO ONE LIKES DOING BUDGETS! Really. Think about it. What does the typical contributor to a budget get out of the process? They lose a lot of time out of their day/week/month trying to get the numbers into the system while still having to find time to get all their other regular work done. Then once the numbers are in, they face the looming threat of them being rejected and then having to go back and do more work. They deal with the nagging fear that their numbers will be changed without their knowledge. Plus, if you are doing it right, the contributors to the budget are somehow held accountable to the numbers, either in terms of performance review or allowable spending. So in the back of their minds they worry that if they dont hit these numbers something bad is going to happen. So is it any surprise that when budgeting season comes around, nobody stands up and cheers in excitement? Keeping this in mind when managing the process will help things run smoother, be less stressful and ultimately more successful.
Give the Users Some Guidance

Most organizations create an input template in Excel and simply email it out to the contributors with a subject line entitled something like here is you budget form and a due date in the body and pretty much nothing else. They are then surprised when they get flooded with questions and comments about the process. Probably the quickest return on investment you can make during the budgeting cycle is to take a couple of extra minutes and write up instructions on how to use the particulate input template in question, as well as any budget guidance you can provide such as allowable increases or mandatory decreases in certain categories. Be sure to use terminology that the end-users understand. If you are using Excel, make the first tab an Instructions tab. It wont stop the questions, confusion and complaints entirely, but it will help reduce them.
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Screen Capture 1 User Instruction Example
Keep the Templates Simple

Remember the KISS principal. In this case, it refers to Keep It Simple Stupid and not the makeup-wearing rock band. The following image is a screen shot of an actual Excel budget template. Although the data has been changed to protect the confidentiality of the company, the layout has been untouched.
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Screen Capture 2 A Complex Template
Now at first pass this template doesnt seem so bad. It is only when you realize that you have to zoom out to 12% of the original size to be able to actually fit the entire budget template onto a single screen that you see what kind of a beast this template really is.
Screen Capture 3 A Complex Template at 12% Zoom
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Chapter 4 Creating Your Input Templates This template is insane and unless you have super human vision it is virtually impossible to digest the information being presented. You will spend all your time scrolling left and right and up and down and by the time you get to the end you have forgotten what was at the start. Below is a copy of a cleaner template that is more user friendly.
Screen Capture 4 Ideal Input Template Design
One of the reasons that people procrastinate doing their budget is because they become visually overwhelmed by the templates they are interacting with. In order to make things easier on the user, try to build templates that keep the following in mind: Reduce the amount of data presented to the contributor to the bare minimum required to get the job done. Use the Excel Group function to hide groups of rows or columns that users might need to see but dont need to see initially or all the time. Shade cells different colors to differentiate between cells requiring input from the user and cells that contain formulas or that are read-only.
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Chapter 4 Creating Your Input Templates Use indicators and visual clues to warn users when their numbers are outside of acceptable ranges. Know the most common screen resolutions used in your organization and build accordingly. Try to build templates that fit on one screen without vertical or horizontal scrolling. If that is not possible, try to design such that you just scroll vertically as most modern mice have scroll wheels built in making this quicker for the end user. Instead of one huge worksheet, consider breaking it into multiple worksheets each covering a specific area. For instance, have one tab for office expenses, one for travel expenses, one for marketing expenses and so forth. This has the dual effect of making the templates easier to understand and helps the user focus since they are only dealing with one particular area at a time. Remember that data input is not the same thing as data reporting. Make sure you build input templates that are optimized for data entry and you build reports that are optimized for analyzing and reading. The formats might be the same, but usually not.
Tailor the Templates to the User and/or Process

Most people that create budget templates are accountants and they think like accountants. However, most people participating in the budget process and contributing to the budget are not accountants and dont think the same way. They dont think in terms of debits and credits or GL accounts they think in terms of what they need to spend to get the job done, and not how that spending flushes out on a financial statement. The problem is that most input templates are designed to facilitate use by accountants. The image below highlights a typical budget input template related to travel expenses. As you can see it has categories for Airfare, Hotels, and Meals each of which equate to a different general ledger account.
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Screen Capture 5 Template Designed for Accountants
The problem with this format is that while it is fine for accountants, it is not intuitive for nonaccounts. For instance, if you were to ask a sales executive to budget for their yearly travel expenses related to visiting clients, they are most likely going to think first in terms of which client they need to visit, how many trips they need to make to that client and then they will estimate what the major costs are with each trip. So what will they do? Most likely they will create their own spreadsheet and use it to calculate the total costs based on all of their trips and then just copy the aggregated numbers into the main template. You have created extra work for the contributor, you have increased the risk of bad data due to the user creating calculations and the extra step of cutting and pasting the data. Plus that spreadsheet is only known about by the person who created it and nobody else can use that data for budget versus actual comparisons later on.
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Chapter 4 Creating Your Input Templates You might want to think about creating something similar to what is shown below.
Screen Capture 6 Template Designed for Non-Accountants
As you can see the trip is the main focus, but it still captures all the information accounting needs to complete the budget. This format in Excel adds a little additional complexity to the data merging process, but can be accomplished if designed and linked correctly. However, investing in a commercial budgeting software solution might also make this easier.
Connect to Your Data and Stop Copying It In

When working with clients and prospects and discussing their current process for getting actuals into their budget templates, the following scenario presents itself time and time again. The organization run a report from their host (ERP/accounting/CRM/whatever) system and then either copy/paste that raw data into Excel, or worse yet re-key it by hand. Then they manually manipulate the data into the format useful for the budget and then copy/paste it into
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Chapter 4 Creating Your Input Templates the budgeting workbooks. The problem with this is that it is a slow process that is labor intensive and prone to error. Now imagine the value pushing a button and getting instantly updated actuals from your accounting system or up to the minute exchange rates from a bank website. What many people dont know is that you can connect to your data directly from within Excel. Excel has built in functionality to allow you to connect to numerous types of data including SQL Server, Access, text files, XML and even web pages. Granted the initial setup may require some special knowledge or outside help and the first time setup will take more time. However, from then on, the ability to refresh your data instantly will more than make up for it. To make this concept easier, look at investing in a commercial budgeting application that has this type of functionality as a standard feature.
Validate the Data Up Front

Apart from the merging of the data, one of the most tedious aspects of doing the budget is confirming if the numbers provided by contributors are reasonable. Did that user mean to type in $1,000,000 for new sales or did they really mean to type in $100,000? Is your payroll for January really going to be $40,000 or is it $400,000? Why are you forecasting hiring #DIV/0! new employees for January and bob$$%12 for June? A huge amount of time is wasted tracking down typos in the budget process. However, there is a solution that can help you out. Excel has a built in data validation function that allows you to create rules for reasonableness for different fields. If you know that certain fields should never be below or above certain thresholds, then you can put those rules in place and catch the issues up front. You can also ensure that values entered are dollars when you want dollars and text when you want text.
Screen Capture 7 Data Validation Message
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Think About Your Naming Conventions and Distribution Methods

When it comes time to roll out the different budgeting workbooks make sure you put some time and effort into your distribution method and use a formalized naming convention. For instance, if you create individual workbooks for each department, for each location and by budget type, the naming convention might be something like: Toronto_Finance_OfficeExpenses_Budget_2015.xlsx Seattle_Finance_OfficeExpenses_Budget_2015.xlsx Toronto_Production_MaterialsExpenses_Budget_2015.xlsx
In regards to getting the workbooks into the contributors hands, avoid emailing out the workbooks if at all possible. The reason for this is two-fold. First, people are inundated with email and an email saying here is your budget template is sure to go to the bottom of the to-do list. Secondly, people often open a spreadsheet directly from an email and begin working on it. When they try to save the document they will be prompted for a save location and a save name, and then they can rename the workbook to whatever they like - and now your naming convention has gone out the window and your merging has become far more difficult. In addition, the location they are saving to may not be getting backed up which is a recipe for lost data. Instead use a network file share and email each user a link to their workbook, asking them to save only that workbook to only that location. Better yet, consider implementing and using a collaboration and document management solution such as SharePoint. Among the many things a solution like that handles, is security by document by user, as well as version control and check in/check out to prevent multiple copies of the same workbook being edited at the same time.
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Chapter 5 Inputting Data

Now that your data entry templates have been created it is time to move on to the data collection portion of the process. Below are some tips to help you get the best data out of the people who are working on the budget.
Eliminate the Divide by 12 Mentality

So you take the time to prepare a budget input template and give people spaces to put in monthly numbers and what do they do? They come up in their heads what they are going to spend during the year, and divide that amount equally by twelve and put one-twelfth into each cell. The problem with this, is that with a few exceptions such as rents, leases and insurance payments, expenses and revenue are seldom the same even amount month by month. Yet the budget is. So you go to compare budget to actual and what do you get big variances each month and you fall back on the it will work itself out next month excuse. But how do you plan for cash flow this way? Yes, at the end of the year the actuals might match the budget, but unfortunately you ran out of cash in September.
Budget the Drivers and Calculate the Dollars

Earlier in this document, the concept of budgeting drivers was mentioned, and this section expands on that. Lets say you are budgeting product sales and a user enters in $5,000,000 of sales revenue for the year. Even though they are not being budgeted, this sales number consists of a number of units to be sold and a sales price per unit. For this example, say traditionally you have a $10,000 per unit list price, and by doing the math that means you are expecting to build and ship 500 units. The year finishes and actuals have come back at $5,000,000 but you havent made any profit. Why? Well, maybe unit prices were cut to $5,000 and that drove units sold to 1,000 units. However, because of the extra demands on manufacturing you have had to buy more equipment, hire more labor, outsource some production and fly in (at a far greater expense), extra raw materials due to deadlines rather than ship them from overseas at a lower cost. So the person budgeting $5,000,000 hit his or her numbers, but not in the way you were expecting. The next year they budget $5,000,000 again, but due to changes in the market the sales price is $10,000 this year and quantities drop. Now you have excess capacity on the production floor and all the extra raw materials are taking up valuable space in your plant.
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Chapter 5 Inputting Data Budgeting the drivers rather than the end product would have helped you plan better. Build your templates such that people put in the drivers and the end result is calculated for them. That way you can look at all the factors and plan accordingly.
Budget the Underlying Detail

Financial budgeting often is driven by an organizations general ledger account structure. Unfortunately, the accounts in the GL do not always match how people budget. A good example are marketing expenses. In the GL, it is common to have a single bucket to capture all marketing expenses. However, when putting in their budgets, the people responsible for marketing probably have multiple different marketing campaigns in mind, each with different timing and each with different costs. Odds are they are keeping their own spreadsheet somewhere that lists out each marketing event/activity for the year and the cost, and all they are entering into the budget template are the final aggregated numbers. The problem with this setup is that budget reviewers may not have access to this important detail or even know it exists. And six months later when you are doing budget to actual comparisons and the numbers are dramatically different, you have no way of knowing why. You now have to find the person who initially put in the numbers, and hope they remember or hope they have saved a copy of their initial detailed spreadsheet. Design templates that allow your users to build-up their detailed entries into the matching high-level buckets in your general ledger. This can mean extra design work in Excel and is one of the many advantages of using a commercial budgeting application, as this type of functionality should be a standard feature.
Budget the Knowledge

This is where you begin turning your budget numbers from just data into information. You need to get people to input not just numbers, but also their thoughts behind the numbers. Why are they increasing the sales forecast? Why are they decreasing head count? Answers to these types of questions are critical for the Analysis phase of the budget cycle. In Excel, many people will use the Comment feature to add notes about a particular cell and this is a good start. However, the challenge with this is while you can easily merge the data in the workbooks/worksheets, the comments do not merge and are traditionally lost. Again, this feature is available in most commercial budgeting applications.
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Want Budgets on Schedule then Consider Fake Deadlines

Remember that nobody likes doing budgeting. It is a fact of life and nothing will probably every change it. Because of this, many people tend to fall behind by leaving it to the last minute, and then ask you to extend their deadlines, which then throws off everyone else involved in the process. Although it may sound simplistic, if you have problem users who cant get their numbers in on time, give them fake deadlines. Just be prepared for the inevitable questions/concerns/complaints when the problem users find out that their deadlines are different from everyone elses.
Pursue Zero Based Budgeting

For those of you unfamiliar with zero based budgeting, the concept is that users have to justify their budgets from the ground up each and every time, and one way you accomplish this is by providing them limited or no information on prior period actuals or budgets. The theory behind this is that when doing budgeting, many people simply take last years figures and apply an inflation factor to them. So over the course of time, the numbers keep getting larger and larger whether or not they logically need to increase. By not providing prior figures you force contributors to really think about what they are going to spend and why. Zero based budgeting is a contentious topic and many people object to the concept. They will say that zero based budgeting is too difficult on users and that it takes more effort and way more time. Agreed. It is more difficult on the users, and it does take more effort and more time. However, the end result is far better. So if full zero based budgeting is not possible in your organization, then consider a blended model where you go zero based for certain major categories and budget as usual for other less important items.
Collaboration Means Success

Nobody should work on their budget in a vacuum. First of all, it is hard to breath and secondly, you get substandard data. Contributors and reviewers should work together on the budget as it is being developed. Contributors should collaborate across different areas, sharing knowledge and even sharing data where it makes sense. By doing the budget in this fashion there should be fewer surprises. The review process should go smoother and the quality of the data should increase.
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Chapter 5 Inputting Data As a side note, try to avoid using email as your collaboration tool. All the emails flying back and forth and the dreaded reply all can quickly overwhelm inboxes. Instead, take a look at some different collaboration platforms. SharePoint is one option as it has the ability to host discussion boards. There is also Yammer which is a private social network just for your organization which, as a bonus, has a free version which is very robust.
Screen Capture 8 Yammer Discussion Board
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Chapter 6 Merging Data
Chapter 6 Merging Data

Now that users have inputted their numbers, somehow you have to bring everything back into one single comprehensive budget. Here are a few ideas that might help make that process go smoother.
Storage and Retrieval

The previous section mentioned the importance of having a structured naming and distribution method for your budget templates. The same concept is just as important, if not more so, when trying to merge everyones data together when they are done with the input. Make sure people have not changed workbook names and that they are stored in the proper place. The actual format and structure you use is up to you, but put some thought into it. More importantly, make sure whatever structure you are using whether it is a network share, local hard drive or document management solution is backed up religiously. Nothing is worse than having people spend weeks on their budget only to accidentally delete a file or have file corruption and having to start over again from scratch.
Use Formulas to Link Workbooks Not Copy/Paste

Most people who are skilled with Excel know that you can link data in different worksheets within the same workbook. However, did you know you can also use formulas to link data in different worksheets in different workbooks? This can be a huge time saver. The mechanism is similar to linking cells across different worksheets, but there is some slightly different syntax. Follow the link found at the end of this document for more information on how to do this. A key thing to remember is to try to avoid using physical drive letters (e.g., C:\Libraries\Documents\MyWorkbook.xlxs) and use shared network folders using a UNC naming conventions (e.g., \\ServerName\ExcelDocuments\MyWorkbook.xlsx) instead.
Protect the Workbook to Protect Your Sanity

If you are going to use Excel as your front end for the budgeting process, then enabling Excels protect function on both the worksheet and the workbook level is of paramount importance. The protect function allows you to lock down certain portions of the spreadsheet, so you no longer have to worry about users adding rows, deleting columns or changing formulas all things that make merging the data and make comparisons across workbooks far more difficult.
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Chapter 6 Merging Data IMPORTANT NOTE: Protecting a workbook or a worksheet will require you to enter a password. Giving this password out to end uses will defeat the purpose of locking things down. Also, make sure you have a logical schema for the format of your passwords and that you store them someplace safe; and ensure that more than one person responsible for the budgeting process knows where the passwords can be found.
Use a Planning, Budgeting and Forecasting Application

From a contributor and reviewer point of view, Excel is probably the best tool possible for working with budgets. However, from a managing the process point of view, the more users you have involved, the more workbooks you are juggling and the more onerous it is to merge the data. This merge pain is possibly the single biggest thing you can eliminate by using a budgeting application.
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Chapter 7 Reviewing the Data

After you have compiled all the data it is now time to review it. Here are some things to keep in mind about the review process.
Leave Yourself Enough Time

Reviewing takes more than five minutes. Implementing these best practices allows time to be spent predominantly on reviewing and ensuring the numbers make sense and not checking if the merge worked successfully or if the numbers actually add up correctly. You want to be looking for business issues and not process issues in the review and these all take time. Did someone predict a huge increase in sales but forgot to also increase costs of goods sold? Does the person really think they dont need additional marketing funds this year? Did this user justify a 25% increase in salary costs? Make sure you give yourself enough time to do this properly.
Dont Sweat the Small Stuff

Look at the table below and while doing the one of these things is not like the other, one of these things doesnt belong song should be running through your head.
Budget 2014 Account Salaries Rents Postage Taxes Total $ $ $ $ Jan 1,200,000 500,000 2,000 320,000 $ $ $ $ Feb 1,300,000 500,000 2,000 290,000 $ $ $ $ Mar 1,150,000 500,000 2,000 280,000 $ $ $ $ Jan 1,140,000 495,000 2,310 276,000 Actual 2013 $ $ $ $ Feb 1,235,000 498,000 1,859 301,000 $ $ $ $ Mar 1,092,500 502,000 1,992 280,000
$ 2,022,000 $ 2,092,000 $ 1,932,000
$ 1,913,310 $ 2,035,859 $ 1,876,492
Screen Capture 9 Focusing on the Wrong Item
In this scenario, postage accounts for 0.10% of the total budget. Yet believe it or not, some people would spend time debating the amount. Even if the amount was twenty-five times as large, it is irrelevant in the big picture. In fact, it doesnt become relevant until it is fifty or one hundred times larger. The message here is when it comes to reviewing, be sure to focus on the big ticket items that make a difference.
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Decide Who Owns the Numbers

When you start the budgeting cycle you need to decide who owns the numbers. Think back to the earlier discussion of accountability in the budgeting cycle. The front-line contributors to the budget and those who are accountable to those numbers should be the only ones who can change them. Reviewers should only be able to give a thumbs up or a thumbs down and make suggestions on what needs to be changed. By doing so, you avoid the problems associated with people complaining about other people changing their numbers on them. However, if you do allow reviewers to change the numbers, then it is absolutely critical that those who are being held accountable to the budget know what changes were made, who made the changes and why the changes were made.
Make Sure You Understand the Context

Lets say that you sell an item with a sales price of $5,000 and last year you sold 1,000 units which equates to $5,000,000 in revenue. But this year your sales manager is forecasting sales of $7,500,000 a jump of $2.5 million! But what does that truly mean to your organization? Well, if your sales manager is planning on just increasing your sales price by 50% and believes the number of units you produce wont drop off, then that extra revenue goes right to the bottom line and there really is no extra thought needed. However, if your sales manager is thinking of decreasing the sales price by 25% and because of the price drop he expects to double the number of units that you sell to 2,000, then what does that mean? Can your current manufacturing facility handle the extra volume or do you have to buy additional machinery and put in more production lines? Do you have to find additional sources for raw materials? Do you have to hire more people? Each of these questions carry financial ripples to your organization. Even if you get perfect budget figures, but you dont understand the context of the numbers, then you are still behind the eight ball.
Surprises in Review Means You Have Failed

At the end of the day, the final budget figures should be of no surprise to anyone. During the review, if you are truly surprised then try to work into your budget cycle more of the concepts discussed in this document.
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Chapter 8 Analysis
Chapter 8 Analysis
Analysis is the process of turning data into information; and it is information that you need to make informed business decisions. The following are key analysis takeaways.
This is the Whole Point of Budgeting

For most organizations, true analysis happens well after the budget cycle has been completed and the numbers have been reviewed, merged and submitted to their final destination if it ever happens at all. Why does this happen? Usually because so much time has been spent on creating templates, inputting data, merging data and reviewing data that no time (or energy) is left to actually analyze the data. The whole point of doing a budget is so you can prepare for the future. Dont forget this!
Analysis is Strategy not Review

What most people call analysis during the budget cycle ends up just being additional review with people spending time correcting data, questioning the numbers and adding additional missing data. What they need to do is start questioning what happens next and what they should do if the projected numbers actually come to fruition. If sales double as your sales manager is projecting, how can you possibly hire enough new service technicians? If the price of electricity increases by 25%, should you scrap your old production line and invest in energy efficient machines, and if so, what is your payback time? If your sales and costs line up as predicted how are you going to cover your cash flow requirements? These are all examples of strategic thinking questions that determine the fate of your organization. These types of questions add value to your organization and are what justifies going through the pain and effort of budgeting.
Analyze All the Content

When performing your deep dives and your analysis, make sure you include all the content you have collected during the budgeting process and not just the numbers. Use the notes people have added, and confirm you have all the backup spreadsheets, business cases and the marketing plans. This additional collateral will help you answer many of the what if type questions you should be asking.
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Chapter 8 Analysis
Use Tools Youve Already Have and May Not Know It

When it comes to analysis there are numerous tools available. Again, this is where a commercial planning solution can add a huge amount of value. However, if that is not an option then look at the following two features of Excel. PowerPivot for Excel. PowerPivot for Excel is a free add-on that is designed for analyzing very large data sets. On the desktop, you can use it against data sets containing many millions of rows of data and performance is excellent. You can also integrate data from various sources, as well as web services and web sites, along with other data sources and link them together fairly easily.
Excel Compare Files. Excel Compare Files is a new feature added to Excel 2013. It allows you to compare two different workbooks and see what is different between them. This is ideal for comparing different versions of the same data, maybe because someone went back and did edits or maybe because you have separate workbooks for separate departments. It will show you what fields are different, which formulas are different and more. This feature can also be used to visually see all the other workbooks that are linked to the workbook in question.
Screen Capture 10 Comparing Two Workbooks
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Chapter 9 Wash, Rinse, Repeat

Transform Budgeting into Corporate Performance Management
For many organizations the budget is a once a year endeavor. However, in todays fast paced world, budgeting once a year just doesnt cut it. Things change too quickly. Ideally, you should be taking steps to turn your budgeting into full blown corporate performance management. You do this by incorporating ongoing monitoring of budget vs. actuals, analysis of variances and reporting back to users the current situation. Ultimately you move to a process of constant review and updating of your plan. By doing so, you will find that your organization has become much more agile and can change direction quicker as market forces dictate.
Diagram 3 The Corporate Performance Management Cycle
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34
Investing in a Budgeting Application

None of the best practices discussed in this white paper require using a commercial budgeting application. However, implementation of many of them becomes far easier if you have deployed planning software within your organization. So when does it make sense to invest in a solution? Investing might make sense for your organization when one or more of the following is true: You budget individually for multiple departments, locations, divisions, cost centers or business units at the same time and require consolidation of the numbers. Twenty-five or more users are involved in your budgeting process. Your user base is geographically distributed across locations and/or time zones. Rolling forecasts on a quarterly or monthly basis are important. You currently create, manage and merge more than two dozen individual Excel workbooks through any single budget cycle. Capturing back-up documentation or narratives along with the actual budget values is of value. Your budget process utilizes a complex approval routing with branching approvals rather than a straight forward pyramid style approval hierarchy. Adherence to specific regulatory or compliance rules related to either your internal systems or your external reporting is required.
The Final Word

This white paper has presented a lot of ideas, and therefore the recommendation is to pick and choose the ones that will have the greatest return on investment for your organization. Implement them over time. In the end, for the best possible results you should be striving for the following: Simplicity in the end-user interface Increased functionality and validation Capture of detailed data and notes Direct integration with source data Designs that facilitate what if type modeling
35
What you should receive in return is: Increased control Reduced administration Faster turnaround Greater accuracy Useful information Strategic answers More time to think
Hopefully you have found the information in this white paper useful. If you have any suggestions or comments please use the contact information found on the last page. Good luck with your budgeting!
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Chapter 10 Reference Links

The following tables provides useful links to more information about the products, features and functions discussed in this white paper. Please note that these links were valid as of the publication date of this paper and may change over time.
Product Links
Page 05 06 21 Topic (Clickable Link) Excel Home Page True Sky Web Site SharePoint Home Page URL http://office.microsoft.com/en-us/excel/ http://www.TrueSky.com http://office.microsoft.com/en-us/comparesharepoint-options-collaboration-toolsFX103479517.aspx https://www.yammer.com/ http://www.microsoft.com/enus/bi/powerpivot.aspx
25 31
Yammer Home Page PowerPivot for Excel
Excel Functionality Links

Page 16 Topic (Clickable Link) Grouping Excel Rows or Columns URL http://office.microsoft.com/en-us/excelhelp/outline-group-data-in-a-worksheetHA102749557.aspx?CTT=1 http://office.microsoft.com/en-us/excelhelp/apply-or-remove-a-cell-shading-formatHA102749057.aspx?CTT=1 http://office.microsoft.com/en-us/excel-help/addchange-find-or-clear-conditional-formatsHA102749062.aspx?CTT=1
16
Shading Cells in Excel
17
Excel Conditional Formatting
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20
Connect Excel to External Data
http://office.microsoft.com/en-us/excelhelp/connect-external-data-to-your-workbookHA103790967.aspx?CTT=1 http://office.microsoft.com/en-us/excelhelp/apply-data-validation-to-cellsHA102749059.aspx?CTT=1 http://office.microsoft.com/en-us/excel-help/adda-comment-HA102749060.aspx?CTT=1 http://office.microsoft.com/en-us/excelhelp/connect-data-in-another-workbook-to-yourworkbook-HA103791160.aspx?CTT=1 http://office.microsoft.com/en-us/excelhelp/consolidate-data-from-multiple-worksheetsin-a-single-worksheet-HA102749046.aspx?CTT=1 http://office.microsoft.com/en-us/excelhelp/password-protect-worksheet-or-workbookelements-HA102748990.aspx?CTT=1 http://office.microsoft.com/en-us/excelhelp/what-you-can-do-with-spreadsheet-inquireHA102835926.aspx?CTT=1
20
Excel Data Validation
23
Insert Cell Comments
26
Connect Excel to Data in Other Workbooks
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Consolidate Different Workbooks
26
Protecting an Excel Workbook
31
Compare Two Workbooks
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Chapter 11 About True Sky
Chapter 11 About True Sky

What Is True Sky
True Sky is a powerful and flexible Corporate Performance Management (CPM) Solution that helps your organization manage and streamline the planning, budgeting and forecasting process by allowing you to: Eliminate the need to manually create, maintain and merge dozens or hundreds of individual budget spreadsheets Create planning models that are specific to your business and your needs Budget or forecast not only expenses but revenue, compensation, capital expenditures or any other process you require Automatically roll-up and consolidate data without having to create specialized reports Quickly collaborate with other users without having to resort to endless emails Integrate data from almost any electronic source Have instant insight to the planning process at any point in time Perform robust What-if analysis to see the effect caused by changes in items such as wages, fuel costs or any other key drivers in your organization Build and deploy almost any type of report imaginable, including sales reports, inventory reports, income statements, balance sheets and cash flow statements Empower your management team by providing them real-time information enabling better business decisions Spend more time on the analysis and strategy necessary to drive your business forward
Some of the many features of True Sky include: An easy to use Excel-based interface that dramatically reduces training time and costs Dynamic rendering of data to ensure that users see only what they are allowed to see Approval workflows that support simple organizational structures or structures with complex branching and dotted line approvals Attachment of notes and electronic documents to help approvers review not only the what but the why Unlimited versioning with the ability to compare versions side-by-side 39
Chapter 11 About True Sky A series of robust and easy to use tools to assist end-users with the data entry process in order to get more accurate figures quicker The ability to integrate with unlimited electronic data sources for access to up-to-theminute data Integrated business intelligence with support for the creation of charts, graphs, scorecards and complete dashboards
True Sky gives you more time to think!
For More Information Contact

If you would like to get more information on True Sky please use one of the contact methods listed below: Toll Free Phone: Toll Free Phone: Email: Web Site: 1-855-TRUE-SKY 1-855-878-3759 info@TrueSky.com www.TrueSky.com
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Chapter 12 About the Author
Chapter 12 About the Author

Alan Whitehouse has spent the last 20 years helping organizations solve their business pains. He has worked with a variety of organizations across numerous industries from small startups to multi-billion dollar multinational corporations. Most recently, Alan has spent the last 3 years leading the effort around the development and bringing to market a revolutionary and exciting planning, budgeting and forecasting solution called True Sky. And no, the words revolutionary, exciting and budgeting are not mutually exclusive. In addition to True Sky, he has had hands on experience designing and implementing solutions based around: Microsoft Office Microsoft SharePoint Server Microsoft SQL Server Microsoft PerformancePoint Server Microsoft FRx Forecaster Microsoft Dynamics ERP Microsoft Dynamics CRM Oracle Siebel CRM IBM Clarity CPM IBM Cognos FSR
Alan was awarded the exclusive Most Valuable Professional (MVP) designation by Microsoft four times for his work in the Business Intelligence space. His education includes a Bachelors Degree in Economics and a Masters Degree in Business Administration with a formal accounting concentration. How he got into the software industry is anyones guess. Alan is devilishly handsome, unbelievably witty and exceptionally modest. He currently resides in the Toronto area where he is Chief Software Architect for True Sky Inc. You can stalk him at the following sites: Linked-In: http://www.linkedin.com/in/alanwhitehouse Twitter: http://www.twitter.com/alanwhitehouse True Sky: http://www.truesky.com
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Best Practices for Planning, Budgeting and Forecasting

True Sky Inc.

Publication Date: May 1, 2013

Copyright 2013 True Sky Inc.

Copyright 2013 True Sky Inc.

Some Notes about Terminology

A Focus on Excel as the Primary Tool

Copyright 2013 True Sky Inc.

Copyright 2013 True Sky Inc.

Chapter 2 Why Do We Budget in the First Place

Chapter 2 Why Do We Budget in the First Place

For Financial Predictability

Copyright 2013 True Sky Inc.

Chapter 2 Why Do We Budget in the First Place

To Understand the Business Drivers

To Manage Peoples Performance

The Million Dollar Question

Copyright 2013 True Sky Inc.

Chapter 3 The Elements of a Budget

Chapter 3 The Elements of a Budget

Copyright 2013 True Sky Inc.

The Typical vs. Ideal Budget Cycle

Diagram 1 Typical Budget Cycle

Copyright 2013 True Sky Inc.

People + Data + Process = Accuracy or Lack Thereof

Copyright 2013 True Sky Inc.

Chapter 4 Creating Your Input Templates

Chapter 4 Creating Your Input Templates

Remember That No One Likes Budgeting

Give the Users Some Guidance

Copyright 2013 True Sky Inc.

Chapter 4 Creating Your Input Templates

Screen Capture 1 User Instruction Example

Keep the Templates Simple

Copyright 2013 True Sky Inc.

Chapter 4 Creating Your Input Templates

Screen Capture 2 A Complex Template

Screen Capture 3 A Complex Template at 12% Zoom

Copyright 2013 True Sky Inc.

Screen Capture 4 Ideal Input Template Design

Copyright 2013 True Sky Inc.

Tailor the Templates to the User and/or Process

Copyright 2013 True Sky Inc.

Chapter 4 Creating Your Input Templates

Screen Capture 5 Template Designed for Accountants

Copyright 2013 True Sky Inc.

Screen Capture 6 Template Designed for Non-Accountants

Connect to Your Data and Stop Copying It In

Copyright 2013 True Sky Inc.

Validate the Data Up Front

Screen Capture 7 Data Validation Message

Copyright 2013 True Sky Inc.

Chapter 4 Creating Your Input Templates

Think About Your Naming Conventions and Distribution Methods

Copyright 2013 True Sky Inc.

Chapter 5 Inputting Data

Chapter 5 Inputting Data

Eliminate the Divide by 12 Mentality

Budget the Drivers and Calculate the Dollars

Copyright 2013 True Sky Inc.

Budget the Underlying Detail

Budget the Knowledge

Copyright 2013 True Sky Inc.