Aligning Financial Consolidation With Budgeting and Planning

Aligning Financial Consolidation With Budgeting and Planning

By Sonia Johnson on Aug 28, 2017

Aligning financial consolidation with budgeting and planning is critical

There are a lot of reasons why an enterprise might choose to invest in enterprise performance management (EPM) solutions, but it's often driven largely by challenges in the budgeting and planning process. Streamlining this complex aspect of operations is one of the core reasons behind the development of EPM tools, with functionality that greatly improves workflow and process management.

For many organisations, financial consolidation has often been detached from the overall budgeting and planning process, demanding a different set of skills and requirements. Under traditional operating models, various departments across the enterprise functioned with a higher level of separation, meaning consolidation was often difficult - or unnecessary except in certain circumstances.

As new tools have broken down silos and allowed elements of enterprise operation to become more closely aligned, including financial consolidation in the budgeting and planning process has become more relevant. BPM Partners has recently published a whitepaper -"How to Leverage Consolidation Functionality in Budgeting and Planning" - breaking down the value of bringing the two areas of financial management together, with six key takeaways.

1. Improving intercompany eliminations

At the budgeting and forecasting level, intercompany eliminations - a process where transactions between companies within a wider group are removed - have traditionally been handled manually. As we have seen with other legacy financial processes that rely on heavy human input, the chances of inaccuracies creeping in are high.

Ensuring all of your numbers add up is a key concern when conducting budgeting and planning, so bringing the organisation into closer alignment through intercompany eliminations is critical. The technique is also relevant at a product level, and accurately planning revenues is dependent on having the right data. Manual elimination of products is similarly fraught with accuracy challenges

2. Planning for multiple scenarios with alternative roll ups

Even the most conscientious finance team can't foresee every outcome ahead of time, and it's not uncommon for enterprises to be caught unawares by turbulence in their respective market. Financial analytics tools - including EPM solutions - can provide more options for the finance team when it comes time to planning out the next phase of their business.

Having correctly consolidated financial data makes the process of planning for alternative scenarios easier, providing a strong foundation from which to launch a variety of different strategies and plan for multiple situations. These may be comparative - with alternative roll ups based on location or different product lines, for example.

Should enterprises be preparing for more in-depth financial activity such as restructuring or a merger, having alternative budgets may offer even greater value. When planning a structural shake-up - for whatever reason - an entirely new budget will need to be formulated to take into account the changes, while the existing budget must remain relevant until such time as the restructure comes into effect. 

Aligning financial consolidation with budgeting and planning through EPM solutions allows for the support of alternative roll ups, preparing the enterprise for a smooth transition.

3. Allocating more effectively

While much of an enterprise budget can be cleanly distributed across individual, relatively autonomous departments, there are cases where finances for a division of the business will impact multiple areas.  This is the case with marketing, an expense that is shared across the wider organisation, contributing to the revenue for each department.

Allocation of a budget for the marketing department, therefore, comes with unique challenges. Regardless of how many areas of the enterprise are touched by marketing, the finance team will need to accurately consolidate the overall spending to have a clear understanding of the budget and be able to effectively allocate in the future. 

BPM Partners found that a large portion of the enterprises they spoke to in their 2017 Pulse Survey continue to consolidate finances using legacy solutions such as spreadsheets. The same survey found that allocations are amongst the most important tasks carried out in the budgeting process, so the reliance on tools that have been proven to have problems with accuracy is concerning.

4. Dealing with multiple currencies

For companies that operate in multiple locations, there's often little consistency in terms of currency. While there's likely a base of operations with a particular currency you primarily choose to work with, a large amount of conversion will be necessary to get an accurate picture of revenues and your overall financial position. 

You may already be using a budgeting application with some form of currency conversion functionality - or rely on manual conversions as required - but often these solutions are capable of only basic consolidation processes, again raising the spectre of inaccuracy.

Choosing a modern, more robust consolidation platform will ensure all of the currency conversion intricacies you may require, ensuring your funds are accurately accounted for no matter where they were sourced from. Read our earlier article on managing multiple currencies and foreign exchange risk.

5. Easing top-side adjustments

Very rarely will an enterprise budget be perfect from the get-go - making adjustments from time to time is a necessary and often beneficial part of the job. That said, being able to tweak elements of the budget without compromising the overall goals has traditionally been difficult. This can be even more of a challenge when making top-side adjustments, when the finance team in question may not be the actual owners of the budget.

Financial consolidation is valuable in this context when mapping out the impact of top-side adjustments, offering visibility over data from both before and after changes are made. Generally top-side adjustments are made as journal entries, which allow for close tracking of any suggested alterations, including reasons for the change, who is making it and when. Obviously to access this more convenient way of making top-side adjustments, your budgeting application must have the functionality, which many legacy systems lack.

6. Providing a clear chain of accountability

Finally, a critical part of financial operations is auditability - allowing the finance team to look back on everything that happened as part of the budgeting and planning process and learn what was effective and what may need some adjustment. 

Having a historical record of changes to data, calculations, accounts and other elements is vital for effective and accurate financial consolidation, and it's a core component of modern EPM solutions.

Getting the right platform for financial consolidation

According to BPM Partners, "financial consolidation functionality can play a key role in making corporate budgets more accurate, faster, and easier to create ... Organisations that require these capabilities should select a vendor that has depth of experience in financial consolidations, and an EPM or Corporate Performance Management (CPM) platform that combines planning and budgeting with mature, detailed consolidation functionality. The result will usually be a faster, more accurate budgeting and planning process."

Far from being a solution designed to address specific financial issues, Host Analytics was developed to provide a unified solution for budgeting and planning - including financial consolidation and reporting. Recognised as a leader in both of Gartner's 2017 Magic Quadrants for Strategic & Financial Cloud CPM, Host Analytics has evolved into a powerful tool giving finance teams the functionality they need to streamline processes.

To learn more download the BPM Partners whitepaper on How To Leverage Consolidation Functionality In Budgeting & Planning.

Download Whitepaper

sonia's picture

Written by

Sonia Johnson

Sonia Johnson heads Inside Info's Marketing team, as an experienced B2B marketer, having launched and built both the Qlik and Host Analytics brands in the Australian market. Sonia has 20 years' experience working within the IT and telco industries, having worked for IBM and Vodafone, the last eight years have been focused within the business intelligence and corporate performance management sectors.

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