Unlike in Britain, where the public face of budgeting is a leisurely annual stroll, the statutory reports that publicly traded US companies must issue every 90 days mean their budgeting demands a quarterly sprint.
Intensely scrutinised by Wall Street analysts, institutional investors, shareholders and other key influencers, these reports have had an increasing impact on the share prices of those organisations. In some cases they have increased or decreased the market capitalisation of companies by 20-30% or more in a single day, with a major knock-on effect on the continued employment of top management.
In one sense, such focus on quarterly data is misplaced. The reports do not help the organisations run better or faster. They simply report a series of business metrics that were established hundreds of years ago by lenders and taxation authorities to judge the risk factors of loans and to standardise revenue models. The profit-and-loss accounts and balance sheets are too summarised and too focused on corporate performance and cash management versus product line or divisional/departmental performance to provide line managers with any insight into running their business.
However, there is no question that effective control of corporate earnings performance and share price (and, therefore, executive careers) can be achieved through better management accounting systems. There is a real sense that ‘if you can’t produce accurate budgets, you shouldn’t be running a major corporation’.
As a result, in the US, the role of management accountants has become increasingly front-line, and their work can make the difference between survival and disaster for chief executives and boards.
The resulting appetite for new tools and techniques for planning and budgeting is driving the emergence of a new category of business planning software and a more sophisticated and accountable layer of management with responsibility for budgeting and planning. US management accountants now routinely use advanced techniques and software systems in areas such as forecasting and budgeting, financial planning and analysis, activity-based management and others.
Because of this, organisations outside the US are the victims of a ‘double whammy’: not only do they trail their US rivals in adopting new technologies, but they are also falling increasingly behind in their fundamental ability to harness planning and budgeting information to business strategy.
Guy Haddleton is chief executive officer of Adaytum Software.
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