INTRODUCTION - Determine, Inc....Closing the Budget Loop Report INTRODUCTION 50% of respondents using a purchase to pay solution report tracking their budgets in real-time. 41% of

Closing the Budget LoopHow to Drive Better Budget Management

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Closing the Budget Loop Report

INTRODUCTION

50%of respondents using a purchase to pay solution report tracking their budgets in real-time.

41%of respondents report using 2 budget levels.

75%of respondents using a purchase to pay solution report budget preparation takes less than 3 months in their organization

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For purchase to pay softwarethat delivers results: [email protected]+1.877.712.9560

Budgeting is one of the main aspects within your control to in�uence pro�ts and avoid maverick spend. Budgeting and planning help your organization invests resources to best bene�t, based on cautious consideration rather than the urgency to make a short-term decision. Budgets are essential to sustain your company’s economic growth and implementing best practices will guarantee a bright future to your company.

So how do you implement the best practices for budget management? How do you close the loop between budget preparation, execution and forecast? This can be a challenge. William Feather said, “A budget tells us what we can’t a�ord, but it doesn’t keep us from buying it”. This quote might have been relevant in the past but should not be in our time.

To better understand how organizations forecast, plan and execute their budget, Determine created a survey to assess current budget management practices from businesses of all kind. In this report, you will discover the best practices from companies of diverse industries and sizes, leading to better spend management as well as greater control and visibility. This survey covers di�erent topics such as budget structure, execution, planning and budget control.


CONTENTS

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55778

99101112

131314141515

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Methodology

Budget Structure• Budget Types• Capital Expenditure• Multiple Year Budgets• Budget Levels

Budget Planning• Budget Establishment• Need Collection• Budget Preparation• Targets & Ceiling

Budget Control• Budget Tracking• Balance• Financial Statement• Accrual• Audit

Conclusion

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METHODOLOGY


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Manufacturing Services Finance, Insurance & Real Estate Public Administra�on, Non Profit Entertainment Other

Customers

Non Customers

75%

25%

Manufacturing Services Finance, Insurance& Real Estate

Public admin,Entertainment Other

Participants By Industry

Type of Participants



Pro�tEntertainmentOtherTo generate the statistics in this report, we have published a survey and gathered data from over 100 participants. The data was then analyzed and compiled to identify trends.

This survey has been sent out to both determine's customers and non-customers as an online questionnaire of about 20 questions. Customers represent 25% of the total participants as opposed to 75% of non-customers.

The panel of participants is diverse, mostly made of C-levels including CFOs, CEOs, CIOs, managers, and business owners. Among them, we �nd employees of di�erent industries including services, �nance, insurance and real estate, public administration and non pro�t, manufacturing and entertainment.

Finance and procurement professionals are encouraged to explore purchase-to-pay solutions to achieve the best practices listed in this report.

For more information on this and other resources available, visit Determine at www.determine.com

BUDGET STRUCTURE


Budget Types

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Through their structuring nature, budgets provide a way to allocate and use resources e�ciently within the organization. Before creating budgets, selecting the right budget structure is crucial and should be done base upon business objectives.

Depending on your organization, and what you are trying to reach, the types of budget implemented can have signi�cant impact on your success.

Cost Center Based Budgets

Using this type of budget means operating budgets will now be executed at the cost center level. The basis of a cost center management is the tracking of cost types and cost centers. This type of budget makes it easy to compare planned and actual costs and forms the basis of a decision-oriented pro�tability and success management.

When using this type of budget, an amount is allocated to each cost center. Each cost center is related to legal entities and each budget is divided in expense categories. Each budget is then controlled by a cost center manager. Speci�c to each business, cost center based budgets usually require advanced system to be managed.

Project-Based Budgets

Project-based budgeting means that operating budgets will now be completed at the project-level as opposed to the cost center level. For many organizations, the annual budget is the principal management and measuring tool. Project-based budgets can overcome the di�culties within traditional budgets, as these can take months to prepare and weeks to update.

There are many main bene�ts that come from this type of budgets. One of them is that it can maintain up to date the operational details that really drive the business. In addition, they provide executives with visibility and control over a project portfolio, can become a helpful tool when forecasting, and be a support in the decision-making process.

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The main challenge an organization can face when using this type of the budget is the complex set up, which is why most organizations consider using a tool to help them with this initiative.

General Ledger (G/L) Budgets

Creating budgets associated with each G/L accounts is a solution that can make reporting easier and faster by breaking down every general ledger account.

Results

According to the survey, almost three-quarters (72 percent) of respondents report using cost center based budgets. Creating budgets based on cost center is the standard way of managing budgets in an organization, allowing them to quickly monitor costs on solid data while choosing an easy-to-manage structure.

The survey also reveals that when using a purchase to pay solution, like Determine, cost centers based budgets and project-based budgets are more widely used. 81% of customers participating in the survey reported using cost center based budgets, while less than 70% of non-customers do. In addition, 69% of customers participating in the survey reported using project-based budgets, while only 38% of non-customers do. Using such a solution, provides organizations with the ability to easily track project and cost center allocation, resulting in better budget control.

Capital Expenditure (CapEx)

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Are CapEx tied to a budget?

Yes No

77%

23%

Multiple-Year Budgets

Many Few None

36%42%

22%



Capital expenditure, also called CapEx, are funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. Capital expenditure are mainly consider as investments and �nanced over more than one �scal year.

According to our survey, CapEx are tied to a budget for 77 percent of organizations.

Associating CapEx to a budget by creating separate budgets or including them to an existing one makes it easier for businesses to report on this type of expense and to analyze tax implications.

Multiple Year BudgetsMultiple-year budgets can be necessary when managing CapEx and provides bene�ts including the ability to identify long-term trends and to implement long-term �nancial goals and strategies that would drive the operations.

According to our survey, more than half (58 percent) report using multiple year budgets.

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Budget Levels Number of budget levels

1 2 +3

41%

33% 26%

The number of budget levels used in an organization shows how detailed a budget structure is. The more level a business uses, the more precise tracking and reporting will be.

The pie graph to the right indicates that more than one-third of survey respondents (41 percent) report using a budget structure including two budget levels.

However, it is important to make the di�erence between SMBs and bigger organizations.

The survey reveals that 100+ employee businesses are mainly using at least 2 budget levels (83 percent), while businesses under 100 employees primarily use only one budget level (75 percent).

This gap is related to the di�erent nature of their operations as 100+ employee businesses need a more detailed budget structure to keep their reporting accurate and ensure spend visibility.

Another key observation is the di�erence from an industry to another. The survey reveals that services, �nance and manufacturing businesses have a more detailed structure than the average, usually because of the multiple operations they manage.

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BUDGET PLANNING


Budget Establishment

Last year's budgets

Dedicated Team

Based on financial goals

Based on current needs

0% 10% 20% 30% 40% 50% 60%

50%

22%

19%

28%



Once your business is operational, it’s essential to plan and manage its �nancial performance. Structured planning can make all the di�erence to the growth of your business as it gives you a better glance at the bigger picture.

The key bene�t of business planning is that it allows you to create a focus for the direction of your business and provides targets that will help your business grow. It will also give you the opportunity to stand back and review your performance, and the factors a�ecting your business.

Depending on the industry and the objectives an organization is trying to reach, there are several ways to establish budgets. According to the survey, half of respondents (50 percent) report establishing budgets based on current needs, which means that these budgets are revised based on operation inputs. In today’s economy, where being reactive is becoming a necessity, establishing budgets based on current needs enables businesses to be �exible and proactive as they are up-to-date with current operations.

In addition, less than one-third (28 percent) report establishing budgets based on last year’s budget. This method is usually used when a company’s activities are stable from one year to another. Finally, only 22% of respondents report establishing budgets based on �nancial goals, a method which can help maximizing margin along with a proper �nancial strategy.


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Need Collection

• Less time consumption• Cost e�ectiveness• Easier analysis• Accurate assessment of needs• Honest feedbacks if anonymous survey

Internal survey

Mee�ngs

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

77%

55%



When planning budgets, organizations have to �nd the best way to collect their current needs across their multiple departments. Depending on the structure and the size of the company, this process can be really tedious and take up to several months.

There are several ways to collect needs in order to plan and create relevant budgets for the upcoming year. According to our survey, most organizations (77 percent) report mainly conducting meetings to collect the needs, while just over half (55 percent) of organizations report using internal survey.

Choosing internal survey over meetings, especially when using online tools, provides bene�ts including:

In addition, the survey con�rms that it is common for executives to review budgets before approval. According to the survey, the vast majority (81%) of organizations report all budgets are reviewed by an executive.

A critical aspect of planning is preparing a budget, which can be a di�cult task. As for the need collection, budget preparation can take up to several months, depending on the criteria; this includes the structure and the size of a company, and the number of budget levels used.

The survey reveals it takes less than 3 months to prepare a budget for three-quarter (75 percent) of organizations, using a purchase-to-pay solution like Determine, compared to 65 percent of organizations that are not using such solution. Purchase to pay solutions o�er bene�ts that make budget preparation process easier.

The main advantages include:

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Budget Preparation

• Quick access to real-time accurate data• Improved spend visibility across departments• Simpli�ed spend analysis

Budget Preparation Timeframefor P2P users

< 1 month > 1 month > 3 months

44%

25% 31%

Budget Preparation Timeframefor non P2P users

< 1 month > 1 month > 3 months

38%

35% 27%

Executive Budget Review

No Yes, dependingon budget size

Yes for all

81%

13%6%




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Targets & Ceilings

Targets & ceilings revision per year

Once Twice More than twice

23%

52% 27%

Type of Targets

Aggregated Entity Line Item

48%

34%18%



Budgets targets are used to de�ne the objective of a budget and drive the use of the money towards that objective. Using targets makes it easier to analyze the ongoing operations and drives better reporting. Budget ceilings represent the maximum point of each budget for which the funds are drained, helping companies to drive compliance, and to reduce maverick spend.

According to the survey results, almost half (48 percent) of organizations report using entity targets, which are targets de�ned for the portion of a budget that is given to each entity.

The survey also reveals over half (52 percent) of respondents report revising their targets and ceilings more than twice a year. This con�rms the increasing need to be reactive in today’s economy. These results can be put in correlation with the fact than half of respondents have also reported preparing budgets based on current needs.

Budget Tracking

• Improved spend visibility• Real-time tracking• Easier analysis• Minimize Risks• Reduce Maverick Spending

When do you track budgets?

End of the Year End of each quarter

PredictiveIn real-time

38%47%

BUDGET CONTROL


13

4%11%



After choosing a budget structure, and once you have planned and created your budget, how do you control them? How do you make sure funds are correctly used? Tracking budget consumption, enforcing budgets, and balancing them, are some of the ways to ensure your budgets are used for the de�ned purpose.

One of the more e�cient and common ways to control budgets is to track expenses. But how often do companies actually track their budget every year? How do they track their budget consumption? Depending on their objectives and solutions used to help them in this initiative, this can vary from one company to another.

According to the survey results, almost half (47 percent) of organizations report tracking their budget in real-time while only 4 percent report tracking them at the end of the year. These results con�rm the constant need for visibility.

The survey also reveals that when using a purchase to pay solution like Determine, half of organizations (50 percent) report tracking their budgets in real-time, while only 35 percent of non P2P users do. A purchase to pay solution o�ers bene�ts in certain areas related to budget control. The biggest bene�ts include:


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Budget Balance

Per budget Per entity Overall balance

34%

36% 30%

Financial Statement Closing

Annually Quaterly Monthly

22%

45% 33%



BalanceWhen it comes to balancing budgets, organizations have di�erent alternatives to choose from, depending on their current objectives (�exibility, savings opportunities, compliance...).

The survey reveals that more than one-third (36 percent) of respondents report doing an overall balance of their budgets, which is the less detailed way to balance budgets.

An overall budget balance is often used as it allows greater �exibility than the other methods, enabling to redistribute funds from a department to another. Having a tool, to transfer funds from a budget to another, should allow to get a better balance per budget with consolidation entity.

On the other hand, balancing budgets at the entity level makes sense when these entities are autonomous. This will drive greater compliance as it will not allow extensive overspend.

Financial StatementThe purpose of a �nancial statement is to accurately represent an organization’s �nancial condition, performance and changes in �nancial position at a particular point in time. The objective of this practice is to make better economic decisions.

Depending on their needs, businesses can choose to publish this kind of statement on a more or less regular basis.

According to the survey results, almost half (45 percent) of organizations report closing their �nancial statement on a monthly basis, which con�rms the growing need for visibility and real-time control.

The purpose of �nancial audits is to ensure �nancial statements are accurate. Even though an audit is not designed to provide absolute accuracy it helps reducing the risk of misstatement.

According to the survey results, more than three-quarter (81 percent) of organizations report doing their audit internally. External audit can be costly, especially for SMB’s, but it can help identify weaknesses in internal control, and experts can make their recommendations based on their unbiased opinions.

Audit


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Accrual Type

Full Accrual Cash

52%48%

Type of Audit

No Audit Externally Internally

81%

13%6%



AccrualOrganizations can use both cash basis budgets and full accrual budgets.

In cash basis accounting, revenues and expenses are recognized when cash is exchanged, not when earned or in the period they bene�t. This allows a company to extend credit to customers, or make purchases for which future payments will be due, without excess concern.

In full accrual basis accounting, revenue is reported when earned, not when cash is paid. Expenses must then be matched to the period in which they helped to earn the revenue.

The survey reveals that more than half (52 percent) of respondents report having a cash basis budget. Full accrual can be di�cult to achieve, but this is the best way to get realistic numbers. It is also easier to compare one year to another when using a full accrual methodology.

In today’s economy, organizations have been looking for ways to improve their spending visibility and control. Nowadays, being reactive and proactive is a necessity more than ever, which explains why tracking budgets used to be considered a priority only at the end of each �scal year, and are currently becoming an everyday concern. The survey results clearly have revealed the growing need for real-time information and reactivity.

Every function of a business should be put towards improving organizations’ overall �nancial performance. Therefore, procurement and �nance departments should work hand on hand to pro�t this goal. According to a 2007 survey from IOMA (Institute of Management & Administration), the number one complicated point when it comes to budgeting is dealing with other managers in the company, regardless of the size of such company. The second complex points, identi�ed by that survey, are issues while working with spreadsheets or other technology-related platforms. In addition to greater visibility, organizations need to improve collaboration and gain productivity using the right tools.

Leveraging a centralized solution for both �nance and procurement functions brings value to the entire business process, streamlines the purchasing cycle, and can be seen as a competitive advantage. This will result in accurate reporting, better decision making and saving opportunities.

Conclusion


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Determine, a Corcentric company is a leading global provider of SaaS Source-to-Pay and Enterprise Contract Lifecycle Management (ECLM) solutions. The Determine Cloud Platform provides procurement, legal and �nance professionals analytics of their supplier, contract and �nancial performance. Our technologies empower customers to drive new revenue, identify savings, improve compliance and mitigate risk.

The Determine Cloud Platform seamlessly integrates with major ERP or third-party systems such as SAP, Oracle, Sage, QAD and Microsoft. Modular solutions can be con�gured to add more as needed to provide additional value beyond spend management. Our uni�ed master database and business process approach empower users at every level to make more informed and smarter decisions.

About Determine, a Corcentric company.

Documents

INTRODUCTION - Determine, Inc....Closing the Budget Loop Report INTRODUCTION 50% of respondents using a purchase to pay solution report tracking their budgets in real-time. 41% of