Budgeting and planning software definition
/What is Budgeting and Planning Software?
Budgeting and planning (B&P) software centralizes the storage and use of budgeting information. This software presents a common interface to all users, and stores all submitted information in a central database. The information in this database is rendered into the budget model by the modeling software. Users cannot adjust the budgeting software, other than through adjustments to the various user-specific flags (which are password protected), and so cannot introduce any modeling errors.
When users enter data, the system can be configured to present them with just the information required for their department, possibly along with historical or other information that they can use as a basis for developing their budget estimates. The system may also allow them to copy forward actual results from prior periods into the budget fields in the model.
The system can also present users with the pro forma results of their departments, based on the information they have entered into the system. This information is useful for adjusting budget information. There may also be boundary warnings, which notify users if they input budget information that exceeds certain predetermined maximum or minimum values.
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A better B&P system contains an integrated workflow management system, which the budget manager can use to monitor who has updated their information, and which budget information has yet to be input into the system.
A comprehensive B&P system should provide the purchaser with a complete set of budgeted financial statements (not just the income statement), as well as a set of ratios, such as the current ratio, debt to equity ratio, and days of accounts receivable. These ratios are useful for determining the extent to which budgeted ratios vary from historical results, which is a prime indicator of excessively high or low assumptions in the development of the budget.
Cost of Budgeting and Planning Software
The budgeting capability is built into enterprise resources planning systems. If you do not already own such a system, then acquiring a B&P software package will be expensive - expect to pay at least $100,000. An alternative is to buy a subscription to an online budgeting model, which requires monthly payments rather than an up-front fee. Given the cost of these systems, their use is generally limited to larger businesses.
Advantages of Budgeting and Planning Software
Using budgeting and planning software offers numerous advantages for businesses seeking to manage their finances and resources more effectively. Here are some of the key benefits:
Enhanced accuracy. The software reduces human error by automating financial calculations.
Time efficiency. The software automates repetitive tasks, such as creating budgets, tracking expenses, and generating reports. It also provides instant insights into financial performance, eliminating the need for manual data consolidation.
Enhances decision-making. The software offers charts, dashboards, and reports that make it easier to interpret financial data. It also allows users to model different scenarios and forecast outcomes to make informed decisions.
Collaboration options. The software enables multiple users to access the same data from anywhere, supporting remote and collaborative work.
Saves money. The software identifies areas of overspending and opportunities for cost reduction. It also lowers administrative costs by automating tasks.
Scalability. The software scales to meet the needs of small businesses, large enterprises, or personal finance management.
Compliance and reporting. The software helps ensure compliance with financial regulations by providing templates and structured processes.
Goal setting and tracking. The software enables users to set financial targets and track progress over time. It also helps businesses monitor key performance indicators (KPIs) and adjust strategies accordingly.
Stress reduction. The software makes it easier to manage complex budgets and financial plans without the need for advanced expertise.
By leveraging budgeting and planning software, businesses can gain better control over their financial health, improve efficiency, and make more strategic decisions.
Alternatives to Budgeting and Planning Software
An increasingly common approach for many businesses is to forego the budgeting process entirely, which means that there is no need for the accompanying budgeting and planning software. Under this approach, a company maintains a high-level rolling sales forecast that is revised on a monthly basis. Based on the revised sales information, expenditure authorizations are constantly adjusted, rather than spending in accordance with a budget. This approach keeps a business from being tied to a rigid plan that may be as much as a year old, and so can react more readily to changes in the competitive environment.