Companies that focus on planning, budgeting and forecasting as a business strategy are higher performers in all areas than those that focus on cost accounting, control and cost management, as evidenced by a recent benchmarking survey by APQC (American Productivity Quality Center) and IBM Global Business Services.
The study found that high-performing businesses spend $0.29 per $1,000 in revenue on the process of planning, budgeting and forecasting; $0.25 per $1,000 in revenue on cost accounting, control and cost management; and $0.24 per $1,000 on evaluating and managing financial performance.
At the other end of the spectrum, low-performing companies spend their time and money very differently; they are focused on cost accounting and control. The largest spend within low performers surveyed was $2.47 per $1,000 in revenue in cost accounting and control, followed by $2.08 per $1,000 revenue on evaluating and managing financial performance process. Additionally, $1.81 per $1,000 of revenue went for planning, budgeting and forecasting.
The study also found a big gap between high and low performers in the number of days they need to complete the annual budgeting cycle. High-performing finance organizations complete forecasting cycles three times faster than low performers do. It takes low-performing companies 90 days to complete the annual budget, compared with 30 days for high-performing businesses.
The use of rolling forecasts within the budget and forecast process was a key practice found in high-performing organizations.
Other key findings of the benchmarking survey include the following:
• Organizations that perform risk assessments frequently take only nine days to report, investigate and implement steps to remediate control violations. Those that perform assessments annually typically take 23 days.
• More than half of participating companies perform formal risk assessment only once a year. These firms reported fewer violations per 1,000 employees than organizations that perform more frequent formal risk assessments.
• In terms of cycle time for remediation of control violations, there is a variance of 34 days between high performers and low performers from identification and reporting to remediation. Organizations that operate in a centralized structure and use technology to enable the process are more apt to clearly define accountability for the controls processes and have a significantly reduced cycle time in remediation of violations.
• While the study found that the presence of a formal risk assessment process in the organization helps to reduce the cycle time to report, investigate and remediate control violations, only 42 percent of survey participants indicate that their organization has formal controls processes in place.
• A wide variance between high performers vs. low performers was found in revenue accounting in both cost and productivity. It costs $0.07 to process receivables per $1,000 of revenue in top-performing businesses, compared to $0.99 in low-performing companies.
