Keys to Vendor Selection in the Budget Process

Vendor Selection - XLerant

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:

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:

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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