For a leading-edge semiconductor company, eSilicon's financial planning, forecasting and budgeting processes were anything but.
In fact, until recently, the Sunnyvale, Calif.-based company had no standard, enterprise-wide forecasting and budgeting processes at all, according to Larry Peyton, director of finance at eSilicon.
At the end of each month, all of eSilicon's departments would calculate their financials in Excel spreadsheets or PDF files in formats that made the most sense to them, Peyton said. They would then send the results on to the finance department, which had the unenviable job of reconciling them all into a company-wide budget forecast.
The result, Peyton said, was a lengthy, mostly manual, error-prone process that led to more than one embarrassing boardroom encounter.
"You say revenue is going to be this, and the VP of sales says, 'No, that's not my number!'" he said. "That's quite embarrassing."
Excel spreadsheet still financial budgeting and planning king
This predicament is not uncommon, according to Robert Kugel, senior vice president and research director for financial performance management at Ventana Research in Pleasanton, Calif.
Most companies still eschew dedicated corporate performance management (CPM) software in favor of spreadsheets and manual processes when it comes to financial budgeting and planning, Kugel said.
"It is one of the most common ways companies do budgeting," he said in an interview.
Among companies with 10,000 or more employees, only about half have invested in CPM software, Kugel said. That percentage dwindles even lower for companies with fewer employees, with the majority of small and medium-sized businesses (SMBs) still doing their budgeting the way it was done 20 years ago -- with spreadsheets and email.
CPM tools include planning, budgeting and forecasting software, which helps companies manage their financial operations. Companies also use CPM software for financial reporting to meet government and industry regulations, for strategy and performance measurement against predefined goals, and for cost and profitability management to improve profit margins.
Paul Hamerman, an analyst with Cambridge, Mass.-based Forrester Research, predicts that the CPM market will grow to $3.2 billion in 2012, an increase of more than 50% from $2 billion in 2008. By comparison, that's still a far cry from the $8 billion+ business intelligence (BI) software market.
Cost, culture in the way of widespread CPM software adoption
Kugel said the lack of adoption of CPM software is due to a number of factors.
"The thing about finance departments is that people tend to be trained as accountants," he said. "In accounting, doing the same thing over and over again in the same way is a good thing."
Also, as recently as the 1990s, CPM software was too expensive and complex for companies with fewer than around 10,000 employees to justify the investment, Kugel said. CPM deployments required significant dedicated IT resources, a luxury many SMBs couldn't afford.
The alternative – spreadsheets and email – while less efficient and unwieldy, is simply less expensive. And CFOs, Kugel said, "are cheap."
But the use of rudimentary technology like spreadsheets and email for such a complex and important job as financial budgeting and planning, while inexpensive, has a number of downsides.
It obviously puts a heavy burden on finance departments, which must consolidate multiple spreadsheets, often with different rows and column values, into a single, enterprise-wide budget. But it also makes it more difficult to adjust planning assumptions and to test "what if" scenarios as conditions change.
"Mostly, what you're putting into spreadsheets are dollar figures. These are hard to manipulate more than two or three dimensions when you're playing around in a flat file like a spreadsheet," Kugel said. With manual processes, changes to financial budgeting and planning assumptions can take weeks or months, he said, and data errors are difficult to catch.
With CPM software, companies can more easily add new metrics, tweak existing ones, and react to changing market conditions. A common CPM platform also ensures that different departments are using the same formats for financials and makes collaboration and communication between the finance department and the rest of the company simpler.
CPM software market is growing, giving companies more choices
Having had enough of the manual budgeting process, eSilicon purchased CPM software from Oracle in 2009, according to finance chief Peyton, and eSilicon's entire financial budgeting and planning process is now carried out via Oracle Hyperion's CPM suite, supported by Essbase databases and Oracle data integration software.
Departments use the platform to enter financials in a common format and with common data definitions, Peyton said. The finance department can access financial budgeting and planning data in close to real time and can easily make requests to particular departments for changes when needed.
Most importantly, the time it takes finance to close the end-of-the-month books has been reduced by nearly 50%, from 15 to eight days, Peyton said. It has also eliminated the need to hire more financial analysts to keep up with what was a labor-intensive process.
"A financial analyst in the Bay Area is pretty expensive," he said.
Not that Oracle's CPM software was cheap. While Peyton declined to say what eSilicon paid, CPM software from mega-vendors like Oracle can run into the high six figures, no small fee for a company like eSilicon with only 130 employees.
"It was a tough decision because we are a small company. And Hyperion, I considered to be a big system," Peyton said. As eSilicon was already an Oracle customer, using the vendor's ERP 11i system among other applications, the company was able to negotiate what it considered an acceptable price.
While that is not the case for every company, the CPM landscape has changed significantly in recent years, with a number of software-as-a-service (SaaS) CPM vendors offering software that is less expensive and requires less IT involvement than more complex systems from the likes of Oracle.
These vendors include Redwood City, Calif.-based Host Analytics, which "has an attractive [SaaS] offering for midsized companies that want to deploy BPS rapidly and cost-effectively," according to Forrester's Hamerman. Ventana's Kugel also identified another SaaS CPM vendor, Adaptive Planning, as an affordable alternative to on-premise software.
With more affordable CPM options now available for companies with as few as 100 employees, Kugel encourages finance directors to explore their options and leave spreadsheets behind.
"[With CPM software] it's faster to put the stuff together and faster to redo it," he said. "It gives your budgeting and planning process more agility."