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The Ventana study included 778 qualified participants; to qualify, respondents had to be very involved in the budgeting process. Most of the participants -- 73 percent -- were finance people, 21 percent were in line-of-business roles, and 6 percent were IT personnel (see exhibit 1). Only 17 percent of the respondents worked in corporations with over 10,000 employees, while 35 percent worked in companies with 500 to 9,999 employees and 48 percent worked in firms with fewer than 500 employees (see exhibit 2). We also analyzed the results based on industry vertical (there was a wide range represented) and location (71 percent were from North America and 13 percent were from Europe), but we did not find consistencies in answers across business types or geographies.
Among all survey respondents, we found a high degree of conformity in how companies plan and budget. A large majority of companies plan/budget on an annual basis, review results monthly, and use spreadsheets as the means of collecting, consolidating, and analyzing their plans/budgets. Exhibit 3 shows that nearly two-thirds (62 percent) of all companies are on an annual cycle. However, there is a growing consensus that regards rolling quarters (either a four-, five-, or six-quarter basis) as best practices. Ventana Research contends that the annual budget is a relic of a bygone age when limitations to the speed of communications and computation made annual plans the most feasible approach. The pace of business change was also limited by these factors, so there was no competitive disadvantage to an annual approach.
Today, the pace of business change can be rapid, and thus a sluggish planning and budgeting process can be a competitive disadvantage. We have found that companies that can replan and rebudget more nimbly are better able to keep costs in line in difficult economic times, and then are in a better position themselves to take advantage of a recovery. Companies may measure business performance on a calendar basis, but business events reliably happen at random times. Significant, unforecastable changes to the environment (e.g., severe weather, stock market crashes, strikes, a competitor's new product announcement) can happen anytime. Any company can respond to events haphazardly, but those that have the right planning processes in place can respond faster and in a more coordinated fashion.
More than two-thirds (69 percent) of the participants are on a monthly review cycle, which we believe is best practice (see exhibit 4). Reviews are an important component of BPM. Ideally, the time spent should provide valuable feedback to organizations and individuals, as well as an opportunity to align/realign objectives and resources in response to events as they actually unfold. However, many companies waste time going over nonessential results. We estimate reviews consume an average of five to six hours per month in the typical organization that reviews on a weekly or monthly basis (a bit more than 77 percent of the total sample). Compared with others in the company, finance staffers devote the most time to reviews, and larger companies spend more time than smaller ones. We think exception-based reviews are best practices because the focus is on information that can be acted upon. We found companies that use this method spend approximately 30 percent less time than those that do full reviews.
A majority (61 percent) of the research panel stated that their company uses an approach to budgeting that combines both top-down and bottom-up planning. While this implies a more collaborative approach compared with a strictly top-down or bottom-up approach, we've found companies either do not allow enough interaction, limit the scope of participation, or both. Frequently, the root cause of this is the use of spreadsheets for budgeting and planning.
Budgeting and planning consume a big chunk of employees' time: As indicated in exhibit 5 on page 13, 82 percent of respondents spend more than 10 percent of their time in this area, and 26 percent devote over 30 percent. Budgeting and planning take up a significant portion of the finance organization's time as well.
Ventana Research also found that 43 percent of the respondents rated the time they spend on budgeting and planning as "about right," whereas almost the same proportion -- 40 percent -- rated the time they spend as "too much" and 17 percent rated the time they spend as "too little."
However, there is a marked difference between small and large companies. Almost as many organizations with fewer than 500 employees believe they spend too little time (22 percent) as too much (26 percent) on budgeting and planning (see exhibit 6 on page 13). Companies with over 50,000 employees responded overwhelmingly that they spend "too much" (61 percent). (Only 3 percent responded "too little.")
Time for Change
People who are closely involved in budgeting and planning are open to changing the process. We asked participants whether their companies are planning to change their budgeting and planning methods "significantly," and 71 percent responded that they are. Of those who are planning to change, we asked their reasons for doing so. The most frequent answers were not about saving time, but rather about using budgeting and planning more effectively as a BPM tool. The three most frequently cited responses were to achieve better insight into performance, to attain higher budget accuracy, and to improve alignment between companywide objectives and individual business units or individuals. Shortening the process came in fourth, followed by improving responsiveness. In other words, it's not just about saving time -- it's about what you do with the time saved.
