Business Intelligence (BI) is in essence Performance Analysis. With the increased popularity and awareness of Business Intelligence many businesses are looking to implement BI systems to help assess business performance. More recently BI has come to be associated with ‘self-service’ visualisation type tools, where the end user generates their own graphical representations of their own data, almost like an excel charting wizard. This has led to simplification of what BI actually means, and what an effective BI system should be able to do.
Any good manager understands the need to have a budget/forecast (‘Budget’ will be used to refer to both budget and forecast from here on), be it financial or operational, strategic or rolling. They will also understand their importance and use in performance analysis.
These two, budgets and performance analysis, are often incorrectly thought of as two entirely independent processes and systems. Without measures of performance there is nothing to compare budget to, without a budget there is nothing to compare performance to.
The recent simplification of what BI means, and what BI systems ‘do’, has pushed budgets to the background in terms of performance analysis (and BI). This omission of budgets, or reduced importance of them, in the performance analysis process has resulted in BI implementations not delivering the benefits that ought to be achieved from BI.
Despite the popularity of basic BI visualisation tools, there are some BI products out there that are what we like to call ‘Integrated’ systems. Ones that combine BI with Corporate Performance Management (CPM), which incorporates budgeting and forecasting.
It is our view that to make best use of any Business Intelligence system you need an efficient, reliable and robust budget system, and the best way to do this is with an integrated system.
Below we explain our reasons why we believe an integrated BI and Budget system is beneficial to ALL businesses.
With an integrated BI and Budget and Forecasting solution you will be able to budget, forecast and report more efficiently.
With a separate BI and budget system, any change in your budget or forecast numbers will require these to be brought through to your BI system for actual/budget reporting. Similarly, any amendments you wish to make to your forecast arising from analysis of your recent performance will require you to revert back to your budget system to make the changes, and then bring these back into your reports.
These processes are often manual and as such are time consuming to make, and also time consuming to check, a step that is often overlooked.
With an integrated BI and CPM system these issues are overcome. With your budget and actual values in the one place, any change to your budget or forecasts will automatically flow through to any report which utilises them. Similarly, your updated forecast is done in the same system that contains your actual data, making it a more seamless and efficient process.
Anytime manual intervention is required in a business process there is a greater likelihood of human error. This can be through manual entry of data, errors in copy/paste, accidental data entry, or in the case of Excel spreadsheets, hardcoded number from previous ‘adjustments’ or a non-dynamic formula.
By modernising and ‘systemising’ your reporting and budgeting process with an integrated system this manual intervention is removed. This leads to a reduction in risks and errors, and a subsequent reduction in time spent checking numbers and answering queries on them.
Generally, budgets and forecasts are done at a lower level of detail than actuals are recorded. If we think about this in terms of an income statement, a budget income statement may be done by P&L line, whereas actuals will be recorded by account code.
With budget and actual data split across two systems, it often becomes a manual process to combine these into one report. In such situations it is only the most aggregated level of detail that is combined (i.e. P&L Line in the example above), meaning the ability to drill down to more detail and further analyse reported values is limited.
The drill down required could be either by detail, such as seeing the underlying accounts on a profit of expense line, or drilling down on a period to see a breakdown by week or day or even hour. The level of detail available is only limited by the level of detail of your raw data.
This ability to drill down, achievable within in an integrated system, enables more detailed analysis of your performance, and lets you see exactly where things are going right or wrong.
Often businesses opt for a Business Intelligence system on its own, without considering the need for a budget system. This often results in a self-service ‘data visualisation’ style BI tool being selected. It is not until further down the track when they realise short comings of the solution they start considering a budget and forecasting system. Implementing a new system will obviously mean more license fees, more maintenance fees, and another round of implementation and development.
By selecting an integrated system at the beginning, a business can prevent this double up. Using only one system means only a single license fee, with less implementation and development, and also less systems to learn for end users.
With most integrated systems, BI and Budget solutions do not need to developed at the same time. Either system can be developed and rolled out independently. Then once the business is ready the other system can be developed within the same package, utilising the same data structures that have already been set up, and helping to speed up the development process and reduce costs.
It goes without saying that a dedicated budget system would improve budgeting. These improvements could be in reduced manual intervention stemming from a ‘systemised’ budget process, to the increased ease with which budgets can be rolled out across the organisation. There are many benefits associated with implementing a dedicated budgeting system.
But how does integrating this Budget system with your Business Intelligence system improve budgeting? Budgets are not static, an initial budget will be continually updated to give a rolling budget (sometimes called forecast, target, projection etc). The information used to determine the movement from the initial budget comes predominantly from recent performance. If recent performance has been below budget, is it expected this will continue, in which case the rolling budget needs to be adjusted down. Or will performance be clawed back over the coming months, in which case future monthly budgets need to be increased.
Similarly, with static/strategic budgets, these often start with prior actual performance numbers, before adjustments are made to arrive at a final budget.
It is this reliance on recent performance in generating a rolling budget where the benefits of an integrated system are most pronounced. With these recent performance numbers and budget numbers available within the same system, it makes for a more efficient (and safer) process to flow recent performance through to rolling budget numbers.
Finally, being able to have a ‘single source of the truth’ for your business intelligence and budget system is one of the most comforting reasons for an integrated system. With all your data in one place, and with everyone generating reports based on the same data, you will no longer have conflicting reports, and people questioning why numbers between reports don’t match.
In an integrated system you can view historical reports at the click of a button, by simply selecting the time period(s) you wish to see. This removes the common practise of having folders full of historical reports, with hardcoded/saved values, values which don’t update as retrospective/backdated changes are made (without manual intervention).
With an integrated business intelligence and budget system providing a single source of the truth, not only will you be able to get your hands on reports faster, you will also have more confidence in the numbers they are showing.
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