Two years ago Vicor Corp., a Massachusetts-based manufacturer of power supplies and other electronics components, was fairly sophisticated in most areas of business management. But its budgeting process was excruciating for the finance department and was considered a joke by managers companywide. The finance team turned to a relatively inexpensive, hosted performance management system for help — and was surprised by the result.
BPM Magazine: Can you describe for me what Vicor’s budgeting process looked like in 2006?
Doug Brunton: Well, first, let me explain what we were doing right in terms of financial management. We have roughly 20 independent business units, and about eight of those are overseas. Roughly 40 percent of our annual revenue is overseas business; we have a manufacturing facility in Japan and two major facilities in the USA. To manage our entire business, we use PeopleSoft. We have highly customized the core product, and we use it almost across the board: engineering, manufacturing, billing, receivables, A/P, general ledger, and planning. I don’t think there’s a component that we don’t use except for budgeting and the fixed asset suite. We do a lot of reporting in nVision, a tool that comes with PeopleSoft. It’s a very sophisticated and versatile tool. It uses the tree structure of the business account structure and business unit structure we set up inside of PeopleSoft, so we’re able to do a lot of detailed expenditure analysis at the top business-unit level, along with the obvious reports. We tend to take information straight to the business-unit level in nVision, then do consolidations in Excel. We have some minority interests in several of our companies in the U.S., so we don’t do a straight consolidation out of the PeopleSoft system. We have also developed Cognos data cubes, populated by constant uploads from our ledger systems, as well as executive dashboards. We had these systems in place in 2006, so we had a very wide range of information available on how we were performing. But we were delinquent in the gathering of our budget information. We used Excel to gather budget information, then imported it into PeopleSoft, but the process was a nightmare.
Brunton: People tended to do their own thing. We would send them a spreadsheet in a standard template, but for many people, it didn’t quite suit them. They had a different layout that they preferred. Some would send us their own, completely different file. Others would use our file, but they would insert new rows or change things. Obviously, you can’t easily consolidate a bunch of spreadsheets if the format isn’t the same throughout.
BPM: Were there any particular changes that managers felt they needed to make, or was the problem more that people were just set in their ways?
Brunton: I think sometimes people are so engrossed in what they’re doing they can’t see the forest for the trees. One engineer gave us a hard copy of his budget spreadsheet, when we wanted the electronic copy. We also have some people who are not highly proficient with spreadsheets. Although it seems pretty easy to most of us, there are people who aren’t comfortable with Excel.
BPM: How did the spreadsheet problems impact Vicor’s budgeting process?
Brunton: Well, we would send out the Excel templates in the fall and expect to get them back before year-end so that we had them by..
January 1st, when we started the new fiscal year. Invariably, because of budget managers’ lack of commitment, and because of the differences in formatting and problems with consolidation of the spreadsheets, we would be lucky if we completed the budget process before the end of the first quarter of the next year. Quite often, it would be May before we finished doing all the sums. When the process took that long, people didn’t have any belief in the numbers. We were presenting the budget halfway through the year. So the commitment wasn’t there at the front end, and then the acceptance at the back end wasn’t there either; they just thought it was a joke. And the more people think the budget is a joke, the less committed they are at the front end. It’s an ever-increasing circle.
BPM: What did you do to break that cycle?
Brunton: We started using Adaptive Planning for budgeting. We are hosting it on their Web site. Users log in, and they can see their departments’ budgets in a spreadsheet format. They go in and fill in their numbers, and instantly those numbers are updated at all the tree levels. Their boss, who has to approve it, sees it, and the boss’s boss can see it in process. Everyone has clear vision as to where each department’s budget is in the process. BPM: How have users reacted to having a clearer view of the budget? Brunton: We have had a lot of positive feedback. The difference is night and day. Our 2008 budgets were done before the end of the year. Between Christmas and New Year’s we put the final stamp on our numbers. BPM: How long did it take to complete the budget, from the time people started to enter their information? Brunton: Six weeks.
BPM: That’s a huge improvement. What has it meant for the finance department?
Brunton: The person who used to coordinate the spreadsheets would pull her hair out with frustration over not getting responses from people. Now it’s a breeze. It all just comes together. It’s very easy to see the status and the cause of any holdup. It may be that a manager who needs to sign off is on vacation, and then as the administrator I can step in and pass on the review authority to that manager’s boss. Even if there are rejections in the approval workflow, everyone can see a rejected value and that the budget has gone back down.
BPM: Are there benefits to this transparency other than saving time and frustration for the finance staff?
Brunton: Definitely. It makes us more agile. Vicor has three business segments. One is a company called VI Chip, which is in an evolving, constantly changing market. We’re ramping them up, so we have to meet the mood of the moment. And so we’ve got constantly changing budgets. Since last Christmas, when we made the budget, some expectations were brought forward while others were put back on the back burner. Because of the new budgeting process, we can adapt very quickly to accommodate those changes. It also gives managers a chance to see the bigger picture. A regional manager in Europe who is working on his budget might be able to see where he sits as far as the total contribution to the revenue for the whole company. We give people access so they can gauge themselves against their peers. Sometimes if they’re isolated, they may feel as if they’re not contributing to the total of the bottom line. But by seeing the bigger picture, they can understand their part of the exercise a little bit better.
BPM: How have the budgeting process improvements affected the company’s big picture?
Brunton: There have really been two major changes. The first is that the commitment of the staff is much more positive than it used to be. They are happy with the process, and they are all in support of the use of this software package.
BPM: By “the commitment of the staff,” do you mean their commitment to the budgeting process itself?
Brunton: Yes. And senior staff are now on board. In the past they may not have cracked the whip; they were too busy. But now that they see that it doesn’t actually take a lot of time, they are more committed to making sure their managers fulfill their obligations. The budget was done without anybody needing to be reminded. And then the second benefit has been that people now accept the budget because they’re getting it quickly. People now have confidence in the numbers. If there is an area that someone feels she can improve upon, there is time to make whatever strategic move needs to be made, and maybe that will impact the results in a future period.
BPM: What would you say to people who feel their company’s spreadsheet-based budgeting is cumbersome, but they just don’t have the time, the money, or the mental energy to change it?
Brunton: Well, if someone had told me how much impact a budgeting application would have on our company, I wouldn’t have believed them. I understand that people get stuck in a rut and that it’s very difficult to snap out of it. But biting the bullet is worth it just to have a process with fewer headaches. Of course, time management is easy to talk about, but it’s often very difficult to put in place. I also have to say that I wouldn’t have believed a package as inexpensive as the one we chose could offer such sophistication and be so easy to use. We were skeptical. We had quotations from a couple of vendors where we would have ended up spending six figures on a budget package. Adaptive Planning was very competitive from a cost point of view. I’ll be honest, one of the things that was said is, “Hey, if it doesn’t work out, we’re not breaking the bank. It’s not going to kill us.” But it met all of our expectations and more. It shows you don’t have to pay the Rolls- Royce figure to get the Model T that works like a Rolls-Royce.
BPM: So you have no regrets about going with a low-budget solution?
Brunton: The only regret is that we didn’t do it fast enough. We looked at software packages for 18 months before we pulled the trigger. We waited partly because we figured that if we didn’t have the new software in place before we started the 2007 budget we might as well wait another 12 months. But there is never a bad time to do this. I’m a great proponent of biting the bullet as quickly as possible. Get the process right, and if you’re concerned about the calendar, do it in the middle of the year so that you can fine-tune it before the first day of the year you’re expecting it to work.