Choices in Budget Software: Megavendor versus Independent
Posted by John Orlando on Fri, Mar 11, 2011 @ 03:13 PM
Spreadsheets are not the only commonly used tool for budgeting in the smaller business. While a large number of smaller-than-enterprise sized businesses use spreadsheets, a large number also use a combination of tools, ranging from ERP-add ons, to jerry-rigged accounting packages and tweaked general ledger systems. These “solutions” work at a base level, but in reality they are simply using the wrong tool for the wrong job. Accounting packages are just that: designed for accounting, not budgeting. It’s the same with general ledger systems.
Once you weed out the wrong tools, you are really left with two solutions: business performance management (BPM)/ corporate performance management (CPM) systems and pure-play budgeting packages. BPM packages are most commonly used by large enterprises. BPM offers a comprehensive package for budgeting, planning, financial consolidations, forecasting and more. It automates and delivers many of the capabilities that are just impossible with spreadsheets.
But BPM isn’t necessarily an ideal solution for the SMB. BPM is very expensive, often costing more than $100,000, significant in-house IT support and it may take years to implement.
Some vendors will offer solutions that are really “BPM-lite” solutions. These are essentially enterprise applications with some features scaled back and a lower price tag. At its core, these solutions are just repackaging by traditional enterprise vendors hoping to cash-in on the SMB market. These offerings promise power, but also deliver a high level of complexity. A level of complexity that is often far too much for the business with less than 500 employees. These solutions have hidden costs, mostly in the form of significant in-house IT or external consultant resources.
The other alternative for the SMB is a pure-play budgeting package. This approach is particularly well-suited for the SMB. In particular, a pure-play budgeting package:
- Conforms to your business, rather than making you change your business to fit the tool
- Synchronizes financial and operational views so you get a complete picture, easily, and when you want it
- Speaks native “accounting” – i.e., P&Ls, balance sheets, debits, credits, etc.
- Allows for easy what-if analysis
- Easily identifies operational metrics that impact financial outcomes
- Allows users to easily state the parent-child relationships between metrics and outcomes
- Is easily implemented by the finance staff, requiring little to no IT resources, either at implementation or afterwards.
The ideal financial planning solution for the SMB takes a cue from the big-company approach: it creates a consolidated financial model of the business. It achieves this without creating chaos or turning your business upside down. It is a centered approach that avoids the extreme of small business using the wrong tool for the wrong job, and big business throwing unlimited amounts of money, time and IT staff at the problem.
There are solutions available, both on-premise and hosted, that produce big company impact for smaller companies. They are more reliable than spreadsheets, more versatile than typical budget “point” solutions or accounting packages, and much more affordable than BPM systems.
How much risk is involved with independent software vendors?
Everyone knows the adage that “no one ever got fired for buying [insert big vendor name].” But that really only holds true for the enterprise sale. For the smaller business, buying the bigger, more well-known, but more complex offering can be as risky and dangerous as buying from an unproven, too light-weight solution.
Gartner recently surveyed customers using BPM and budgeting packages from vendors and developed some conclusions all CFOs should consider when purchasing software for budgeting:
- “Customer satisfaction is better for the independents [vendors, versus megavendors].
- “Pure-play vendors provide a better overall customer experience than megavendors.
- “Some independent vendors are best-suited to smaller, less-complex implementations.
- “Don’t automatically assume that buying a CPM solution from a megavendor is the best or only choice. Pick the vendor that best suits your needs for functionality, business benefits and TCO.”
- “Consider the vendor’s sweet spot for size and cost of engagement, and match this to your own budget and scope of work.”
No single tool is perfect for every company. And no business wants to change financial management systems frequently. It is vital that the SMB fully understand the capabilities and drawbacks of the financial planning systems they are considering.
Next week, I'll outline 10 Key Requirements for an SMB Budgeting Application.