One school of thought when it comes to the purchase, implementation and maintenance of budgeting tools is that this should be a "managed service". Budgeting as a managed service is a more sophisticated form of outsourcing. Consequently, the pros and cons of this approach are similar to the arguments on both sides of the outsourcing divide. I'll seek to explore the issues involved and argue that the benefits of having the budgeting application as a carefully managed service, in a lot of cases, outweigh the disadvantages.
For a lot of executives responsible for budgeting within their organization, the thought of outsourcing their budgeting processes, application and data is a worrisome one. Understandably, worries about sensitive data, loss of ownership etc. come to mind. Interestingly enough, for a lot of these executives, their companies already outsource their accounting operations.
It is inevitable that software as a service will be the norm for how companies and individuals access their software. With the advent of the Internet for all manner of productivity and constantly improving security, there will come a day where all software will be accessed via the Internet. The only question will be, "Where should the data and application be housed?" For a lot of financial applications, the perceived wisdom is that it should be in-house. The implication of this however, is that the customer is obliged to undertake considerable cost of hardware, licensing fees, supplementary software, implementation resources, technical resources to administer the application and ongoing maintenance fees for the vendor. Consequently, most of the financial and human effort required to implement a budgeting application is focused on getting the infrastructure set-up and less on actually creating a world-class, best practice application.
So how does a managed service improve on this tried and tested model? Well, luckily we can learn from the pioneers in this field. Companies like Salesforce.com and Net Suite have demonstrated that there clearly is a profitable business model for managed applications. Far more importantly, they have proved that the security of their client data can be maintained to a consistently high degree. For both of these companies, the end users access their information from anywhere in the world via a web browser. The data, business logic and hardware are hosted by the provider. The client companies pay a monthly fee per user and can start using the applications in a few short weeks (and in a lot of cases, days). Their customers never have to worry about time-consuming and costly upgrades or purchasing the appropriate hardware and software. Instead they can focus early on in the process on running their business and refining their business logic.
While a managed budgeting application is advantageous to companies of all sizes, it makes the most sense to small and mid-sized companies. These companies can take advantage of some of the latest and most sophisticated budgeting tools in the market place at relatively low cost, a privilege usually reserved for the larger companies. Budgeting as a managed service works particularly well for companies with dispersed business units across different countries or time zones. Since the service is up 24/7, the budget holders can log onto the Internet anytime during the day and access the application. Scheduled maintenance can be undertaken behind the scenes without the need to roll out the new versions of the applications. Companies always have access to the latest technology releases incorporated with the service package. Importantly, in these days of operational efficiencies, there should be no need to employ a bevy of administrators to look after the application (for some tools there are requirements for a database administrators, application administrators, technical administrators etc.). Instead, the focus should be on utilizing the highly skilled employees within the budgeting department to analyze the company information.
Despite the obvious benefits to budgeting as a managed service, there are valid reservations about going down this route. These include:
Security of sensitive information
Poor transfer of business & technical knowledge
Dependency on an external provider
Poor understanding of business requirements by provider
One-size fits all solution
Inability to work offline
As indicated previously, there is a genuine concern about the loss or breach of security with regards to sensitive information. Undoubtedly, there are horror stories of systems being hacked into. However, one would argue that this situation could take place regardless of where the data is hosted. Providers of managed services undertake significant measures to ensure the security & reliability of their systems. One could argue that they do this more thoroughly than the IT departments of companies, as this is their business and they know that any failure in this area would likely result in the loss of current and future customers.
Another valid reason for not using a managed service is over-dependency on an external provider – not just from a technical perspective, but more importantly with regards to the transfer of business knowledge. During the traditional implementation of a budgeting application, a project team is set up comprising internal and external business and technical members. Employees from the budgeting department gain first-hand experience on how to develop an application using the particular tool. It benefits the employees and the company in a couple of ways. For the employees, it's an opportunity to gain new skills that will augment their career. For the company, the new skills gained can be used not only to support and further improve the application, but it means that they can make changes to the application without the need for an external consultant.
A serious limitation of the managed service approach is the one-size-fits-all model. For the model to be technically, operationally and financially successful for the provider, there has to be an element of standardization. The quest for this standardization risks a poor grasp of the client's requirements. A common problem is that the provider tries to change the client's requirements to fit the technology, instead of the technology around the requirements. The reality is that it's not financially viable for the provider to customize the budgeting application for every customer. However, a good provider mitigates this problem by developing a bunch of standard "widgets" that can be put together differently for each customer to enable their application to be customized. For example, complex and sophisticated budgeting tasks like employee transfers and cost allocations across departments are packaged as a set of rules within a widget or several widgets. When a customer is designing their application, they can choose which widgets are appropriate and specific to them.
The flexibility of software as a service can paradoxically also be its limitation. The ability to be able to log into the budgeting application anywhere there is an Internet connection is a cherished notion. It means you can be productive even if you lose your laptop at the airport. You simply go to the nearest Internet kiosk; logon and you have access to the tools to do your budget. However, what if you are traveling to a remote location with no access to the Internet? This can be a serious limitation. Unlike some solutions that enable you download a version of the application unto your laptop to work offline; a true managed solution is only available online. However, it's important to know that there are Excel-based tools that some providers offer that enable you work in a disconnected state.
So what is the right way to implement a managed budgeting service? The key, as obvious as it sounds, is the choice of provider. The selected provider must have a deep understanding of the budgeting process, preferably within your industry. They also need to have a solid partnership with the appropriate vendors in order to provide you with the most appropriate licensing options at the best price.
The provider needs to have a delivery mix of services and software, with resources that comprise strategy, finance & technology professionals. This is important because the project team, over a short period of time, needs to understand the business needs; suggest best practice solutions (Key Performance Indicators, Analytics etc.); and work with the client in developing a prototype using existing "widgets" or if necessary build new, reusable widgets. On approval of the prototype, the customer then has a very rapid rollout of the new system.
In conclusion, it is important to acknowledge that there are genuine concerns and potential pitfalls to adopting budgeting as a managed service model. It requires careful analysis of the risks and benefits. Clients must take adequate steps to ensure that reliability, security, pricing and customization are addressed to their satisfaction. Importantly, it is recommended that clients always insist on a prototype of their proposed system. The prototype must be tested by the key user groups where appropriate. However, the benefits of a managed system are truly compelling. Customers never need to worry about purchasing new hardware, software upgrades, latest technologies, dedicated technical resources, etc. They can simply focus on using the tool in creating the best budgeting application for their business. The highly skilled and highly paid budgeting professionals can spend less time operating the system and more time analyzing their data and providing the leadership team with valuable information for effective decision-making.
This article was written by Bernie Akporiaye, Practice Manager, Performance Management. During the month of November, Bernie will be available to provide free advice to any of your budgeting questions. He can be reached at:
