CURRENT CHALLENGES
As economy ebbs and flows, global marketplace expands, and technologies advance, many government organizations are pursuing aggressive efforts to restructure budgets in order to reduce spending and better align resources with strategic priorities and outcomes.
The new requirement is not just a onetime effort, but rather a systematic practice. Organizations are required to implement new systems and capabilities, and to monitor costs, analyze performance, identify savings (where possible) and re-evaluate approaches in a flexible, rapid, and effective manner.
Many areas of the organization are affected by this new requirement: organizational processes, skills, methodologies, and IT systems. Consistent processes to better manage organizational costs and performance need to be established, methodologies for strategic and operational performance goals, performance measures, financial and budgetary metrics need to be improved; and, finally, in the IT area, new tools that can help automate the above processes and methodologies need to be implemented.
As a result of the current economic and political climate, the role of organization leaders has been gradually changing. Beyond traditional pressures of overseeing budget formulation and executing functions, the scrutiny and accountability levels and reporting requirements have drastically increased. Additionally, on many occasions, finance leaders’ roles require an additional set of responsibilities, including performance measurement and performance-based budgeting.
The current reality of organizations’ budgeting, financial, and performance measurement function is that many processes that support budget formulation, execution, and tracking activities primarily rely on manual data re-entry and manipulation in MS Excel, MS SQL, MS Access or custom systems. These home-grown systems are often inadequately integrated with organization-wide financial systems. They are difficult to maintain and adjust, and lack both the flexibility and the decision-making power that is needed to sufficiently automate new requirements.
Ad hoc requests to produce needed reports, dashboards, and briefing slides for various stakeholders require colossal effort. Instead of focusing on analysis tasks, management and executives spend too much time obtaining, verifying and organizing information in order to generate reports and dashboards. Therefore, the current budgeting process poses a significant drag on organizational productivity and effectiveness.
Depending on the size of the organization, as much as three or four months’ worth of time is devoted to budgeting and performance tracking each year. According to a study by The Hackett Group, organizations spend an average of 20,000 person days a year, or $10 million per billion dollars of revenue, on budget preparation and analysis1. When so much time is spent on the process, many organizations face a time crunch in regards to budget analysis.
Furthermore, budgeting, financial analysis and performance management processes supported by spreadsheets are prone to material errors. According to Rajalingham, Chadwick & Knight (2000), a study by Pricewaterhouse Coopers found that roughly 90% of spreadsheets used in budgeting and planning contain significant errors, resulting in misstated results, firefighting, diminished credibility and a decrease in confidence with various stakeholders.
Solving the challenge with BUSINESS ANALYTICS
Business analytics tools can help organizations achieve tighter costs control and internal compliance, and improve efficiency and decision-making. Business analytics tools can improve accuracy of analysis, budgets and forecasts by up to 90% and can reduce cycle times by as much as 75%. “The Stages of An Analytic Enterprise” study conducted by Nucleus Research in 2012 found that the average return on investment (ROI) ranged from 188% for improvements in the traditional business analytics capabilities to 1,209% for more advanced use of predictive analytics and data mining technologies.
Business analytics tools provide visibility into how the organization is executing against established budgets and expected outcomes. With just a few clicks of the mouse, management and executives can identify variances, determine the root cause, and take corrective actions.
Additionally, when incorporated with the agency’s performance data, business analytics tools can provide a more advanced layer of analytics: budget execution against performance targets. This data can provide valuable insight into the actual burn rates and whether the established funding can achieve performance objectives.
Business analytics tools do not only display the high level data; they are an interactive tool to help users drill down to the lowest level detail of cost or performance data. Using data feeds from core financial and operational systems, business analytics tools can rank each program and project based on its performance against set thresholds, providing the budget office and program managers with a real-time view of the financial and performance data they require.
This data can be extracted into any format for report distribution. It can be automatically emailed to various recipients on a pre-defined schedule or on-demand. Since the source data used by business analytics tools is stored and automatically managed in a centralized database, budget analysts, program and project managers can create their own analysis, reports and dashboards without worrying about data integrity, validity, or consistency.
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