Budgets provide the basis for a clear understanding among organizational levels. Budgets are realistic plans expressed in quantitative terms that support (senior) management in controlling divisions and business units. This blog describes common budgeting challenges and emphasizes the advantages of budgeting with SAP BPC.
Budgeting with SAP Business Planning & Consolidation
he traditional budgeting process starts with a mission statement formulated by the board of directors. The management then translates this mission statement into a strategic plan, which normally captures the next 3 to 5 years. Out of these long-term objectives, short-term goals and actions are determined and recorded in the annual plan, i.e., a budget.
SAP Business Planning & Consolidation (BPC) allows companies to plan, budget, forecast and consolidate in a single application. The fact that these financial applications are integrated in a unified system, among other things, improve data governance capabilities.
Budgets serve many corporate needs that can be divided in 4 main functions:
- Planning / forecasting function: A budget forces management to evaluate assumptions and objectives for future results.
- Control function: A budget enables companies to, for instance, control costs by setting cost guidelines. These guidelines reveal the efficient use of a companies’ resources.
- Motivational function: Realistic budgets motivate employees to work hard, to follow or stay within budget, especially in case recognition programs are established.
- Communication function: A budget helps the management to allocate resources efficiently. Moreover, it ensures that objectives across the organization are aligned and consistent with the overall strategy.
Common budget challenges, when establishing near-term future results for multinational companies, include the pursuance of an accurate and efficient budgeting process. Although the budgeting process between large and small companies does not significantly differs, the size of a company is strongly related to throughput time and the degree of complexity to establish annual plans.
The creation of budgets can be time-consuming. One of the main reasons for wasting productivity when it comes to annual plans, is the level of detail that should be applied for a budget. With the increased ability to disclose financial information from systems nowadays, management also requires more detailed information for the budget year after year. Implementing these changes in organizational processes can be very challenging and moreover is time-consuming.
The extent to which (traditional) annual plans are created in a static manner, determines the ease of applying revisions to these plans across multi-dimensional levels. Besides, traditional budgets lack integration among underlying plans, increasing budgetary slack.
Budgeting in SAP BPC
Focusing on the budget cycle, BPC is equipped with several tools ensuring an accelerated and accurate budget process.
Examples of value-adding functionalities in SAP BPC:
- Web-based business processes guide users through the budgeting process. Budget owners, herewith, have immediate access to the status of budget activities. It is also possible to facilitate different budgeting processes, for instance to distinguish between top-down and bottom-up budgeting.
- Budget spreadsheets no longer need manual efforts for maintaining since BPC is master data-driven. Master data additions are visible for all stakeholders and are automatically retrieved in the dynamic BPC templates.
- The Work Status feature in SAP BPC is used to lock data, preventing additional data changes after submitting the final budget.
- Budget proposals can easily be generated based on actuals or previous plan versions.
- Cross-version comparisons can be performed fast and easy. Besides, the version management tools in BPC allow for easy revisions that are directly visible to all stakeholders, ensuring data integrity.
- The application of control sets in SAP BPC significantly decreases lead time. The system calculates data inconsistencies by one push of a button and then generates an overview containing data deviations.
- The front-end of BPC is Excel-based. Drag and drop-functionalities enable stakeholders to easily analyze figures.
- Facilitating flexible budgeting processes, enabling integration of financial elements (revenue, capacity, demand, workforce, P&L- and cash flow planning).
- Load data from different source systems into SAP BPC.
- Automated data allocation is a feature in SAP Optimized Planning for SAP S/4HANA and allows to budget costs on an aggregated level. The aggregated costs will automatically be allocated towards the underlying levels (e.g., GL-accounts) based on historical patterns.
- Optimized Planning for SAP S/4HANA enables real-time data processing, reducing extract, transform and load (ETL) batch jobs and thus increasing system response. Herewith, when establishing for instance a companies’ sales budget, the outcome of the sales budget can have a real-time link with a companies’ production budget and/or purchase budget and/or expense budget etc.
Considering the common budget challenges, these challenges ask for a dynamic, easy-to-use Corporate Performance Management (CPM) software solution. SAP BPC provides strong and proven tools to capture these challenges. The above-mentioned functionalities contribute to an optimized and streamlined budgeting process.