Transformation of the Budget Management into a real-time variance analysis and spend decision engine to drive organisational budget adherence and margin improvement.

Objectives

• To create an automated  budget management system with real-time spending tracking against approved budgets
• To have active variance analysis with drill down facility where the end-user could go down to employee/project level costs to detect and address the variance
• To issue red flags and early alerts for spend categories where budget exhaustion is near
• To effectively drive reduced spending on certain expense categories for creating a positive margin impact

Stages of Transformation

Budgeting tool design

1. Process study to identify the current budgeting process
2. Automation of the budgeting process using a web-based interface for uploading and tracking budgets

Integrating real-time cost tracking

1. Linking the budget management tool with ERP tables for capturing cost information on a real-time basis
2. Enabling dissection drill down of variance along with downloadable variance analysis reports

Building an early warning mechanism

1. Building threshold levels for issuing alerts to the budget managers
2. Integrating the budgeting tool with other enterprise applications responsible for creating spend.

Results/Benefits

• Exception budget approvals for non-operational expenditure reduced from 25% to 5% resulting in a 2.5% margin impact
• Ease of cost leakage identification due to drill-down facilitation by project managers resulted in identification and removal of dead cost creating a 0.3% margin impact
• Red flags for budget exhaustion alerts resulted in more agile responses to fund allocation for important spending areas which needed greater budgets
• 4-5x ROI on tool implementation cost within a 3-quarter timeframe

Budget Management – Budgeting tool design and real-time cost information integration

• Step 1: Understand the current budgeting process and make process changes if needed.
• Step 2: Design the master budget table in line with the lowest level of budget that is maintained
• Step 3: Map out the linkage of each micro-level budget element to the actual cost table 
• Step 4: Ensuring real-time actual cost information backflow into the budgeting tool for active variance analysis.

Mapping

1. Process mapping to study the current budgeting system to understand the frequency of budgeting, budget types and level of detail on budgets
2. User mapping for all users who are required to create budgets
3. Workflow mapping for budget approval workflows and extension/exception approval workflows
4. Accountability matrix mapping to understand who is held accountable for meeting budgets
5. Process revision to account for organizational strategic initiatives with respect to budget management
6. Identification of the budget roll-up structure
7. Tying up cost roll-up the hierarchy with revenue roll-up hierarchy and matching 100% of the costs with 100% of the revenue
8. Tying out each element of cost with the source table in the base ERP

A sample cost roll-up hierarchy could be as follows:

• Vertical (Insurance)
• Sub-Vertical (L&A)
• Customer group/account within L&A
• Projects/Contracts for a given customer – Revenue plan rolls up from here
• Master cost element (For example direct cost)
• Manpower cost
• Offshore Manpower Cost
• Sub-Elements of offshore Manpower cost like travel cost- Cost plan rolls up from here
• Employee-level drill-down capabilities

9. Back-end database mapping and tables creation to create the master budget table where budgets will be stored.

10. Database system needs to have the capability of communicating to the front-end tool on a real-time basis.

11. Built the Front-end tool using custom HTML5 coding or on a Qlik View platform as well.

12. Front-end tool built with smart visualisations (gauge-based consumption charts and consumption forecast charts).

13. Added the Report download capability for deep-dive of variance analysis and identifying cost leakages.

14. User roles and budget workflows replication using pre-identified user map and workflow map.

Budget Management – Adding early warning mechanism and ensuring budget adherence

Integrated budget planning and variance tracking

Budget planning is done on the budget management tool at the lowest planning element level and rolled up

Consumption data flows in real-time from the base ERP systems to update actual costs against budgets

Budget managers login into the front end using a web-based interface to check consumption data

Early warning mechanism and budget consumption forecasts

Defining threshold levels for each cost element type and mapped to users for an early warning system.

Doing the Budget consumption forecast according to predictive modelling to actively forecast future budget consumption.

• For example, if the Onsite travel cost for Project ”Transform NextGen” for Customer “InsureNext” has a quarterly budget of USD 100,000 and a threshold level of 80% is defined, the moment the total cost of all travel for all employees mapped to “Transform NextGen” reaches USD 80,000 it sends an early warning system to identified stakeholders.
  
• The predictive modelling tool uses machine learning to identify and predict future consumption of budget based on project milestones, planned travel activities and other underlying parameters. It predicts the date on which budgets will exhaust.
  
• This ensures adequate organisational visibility for budget adherence and also allows for the planning of funds.

Integrating with other applications impacting spend and budget adherence

Bot sets Blocks/warnings at the indenting systems for any new indents for the cost elements where exhausted budgets are founds.

• Checks the budget availability before the rase of any new indent for manpower request/travel request etc.
  
• This requires integration of the budgeting system with other base systems for real-time communication
  
• This results in stronger budget adherence and translates into a bottom-line improvement