Keys to Vendor Selection in the Budget Process

Selecting a vendor to handle your budgeting and planning can be a tricky proposition. Many organizations (and people) do not have a great deal of experience at vendor selection and the world of cloud-computing has completely changed the game. However there are a number of key considerations that can help you select the right long-term budgeting partner.

The first question that many organizations consider is, “Should we try to utilize the budget module within their existing ERP product, or should we choose a vendor that specializes in budgeting software?” If the decision is made to utilize a specialized vendor, then the question becomes, “What criteria should we use?”

Why not the ERP?
For the most part, ERP systems are transaction-based systems built for financial people, while budgeting is an exercise in account balance information for non-financial people. Where ERP systems focus on accounting controls, budgeting requires user flexibility. ERP systems generally do not offer the right functionality, flexibility or usability for budget preparation, review, approval and analysis. Plus, most are still client-server based systems that require IT support – where budgeting is best done using cloud-computing where there is no IT support required.

So, if you make the decision to go with a specialized budgeting vendor, which one is best for you? The answer depends on what your primary goals are. Many vendors of budgeting software are really slicing and dicing companies that offer budgeting add-ons. These vendors offer very nice, but very expensive modular capabilities that start off looking attractive, but over time become cumbersome to manage and maintain and are very, very expensive to operate.

You should start by asking yourself several questions and making a list of the problems you are trying to solve. This is very different than listing features, which is a mistake. Features do not necessarily match up to problems and the priority of those problems. Plus, more features often means a more cumbersome and more expensive solution.

Most people think of the budget process as a financial one. Maybe, but if it is, why are 90% of the users non-financial people? Budgeting should be considered as much a communications process as a financial one. The primary purpose of a budget is to provide a platform for department heads to justify and fund the strategic goals of the institution. Therefore, it should be considered an end-user application, not simply a financial one.

The first question to ask yourself is a simple one. “How do I rank the following general criteria: usability by non-financial people, functionality for finance and department heads, and price?” Not surprisingly, most organizations choose usability and price over functionality as long as the solution handles the basics of budgeting, forecasting and reporting.

The second question to ask is, “Am I looking for a budgeting and forecasting application or a monthly management reporting application, or both?” And if both, “What is most important to me?”

The reason for these questions is that focusing on your needs will better guide your selection process than having the vendors guide your needs.

Most organizations still budget in Excel. Therefore the primary problems that they have are:

  • Excel is not a programming language and financial people are not programmers. Therefore, creating the right functionality for users and financial people is impossible.
  • Excel is not a database, so managing spreadsheets is very cumbersome.
  • Excel workbooks are prone to errors and this frightens most financial people.
  • Financial people love Excel, but non-financial people do not share that love. So, organizations are stunned when the Excel-based budget process is rejected by department heads.
  • There is no workflow and approval process in Excel. Understanding what has, and has not, been approved can be a mess.
  • Since Excel does not offer a centralized and blessed database, there is no reporting functionality in Excel. This includes lack of budget reporting, consolidation reporting and variance reporting.

Yet most vendors provide an incomplete solution that starts with reporting and loses sight of budget preparation. Organizations need to be reminded of the well-known term GIGO (garbage in, garbage out). The most important criterion is making sure that the selected product is the one that will best promote departmental head participation in the budget process and ownership of the numbers. Spinning budget data that does not have department head buy-in is an expensive and senseless exercise.

So how do you make sense of all of the above?

Keys to Success in Evaluating Vendors:

  • Choose a product that runs in the cloud. It is not the future of computing, it is the now! Choosing a costly client-server application that requires IT support will only lead to a costly and time-consuming conversion down the road.
  • Focus on the needs of the people who will prepare the budget…the end users. Choose a Turbo-Tax like interface that will appeal to the broadest possible range of users.
  • Avoid the RFP process. There are two reasons for this. First, the RFP process tends to focus on how you have historically done your vendor selection process not what you should be doing in your process. It does not take advantage of new and different ideas that might be available to you since you are limiting the RFP to your historical knowledge. Second, the RFP process tends to focus on features and functions (which most likely won’t be used anyway) as opposed to usability. In today’s world, people are used to well-designed apps in their personal lives and accept less crap in business applications. Functionality is no longer the key to success, usability is. For more information, please see this article .
  • Choose a system that offers the right overall functionality for users, but be careful not to over-buy based on functionality that simply will not be used going forward.
  • Price to value. Get the most functionality that you can at the best possible price.
  • Make the vendor quote the realistic price for both the software and the implementation upfront. Beware of the add-on price for modules after you have made the vendor selection.
  • Check references carefully. How long did the implementation take? Did you end up paying what the vendor originally told you the price would be for services and software? Was the software really easy for you to use and maintain or were you surprised?
  • Meet the people from the vendor who will be responsible for your success, not just the sales team. If you don’t meet the people responsible for your success before you buy, both you and they will not be happy with the end result.
  • Ask the vendor how many organizations returned the software or no longer use it. The number may shock you and you should determine why that has happened.
  • Ask the references if they were surprised by the amount of work required to implement and maintain the system.

As in all software selections, there is no totally simple path. Each organization is unique and will have its own criteria based on the personalities of the budget manager, the needs of the department heads and the industry that the organization operates in. But keeping the process simple and focusing on usability and the needs of 90% of the users in the budget process (department heads responsible for budget preparation and review) will provide a much greater probability of success of the ultimate application.

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