BUDGETING AND FINANCIAL PLANNING

Budgeting And Financial Planning

Budgeting And Financial Planning

Introduction

Budgeting and financial planning processes are traditionally performed on a periodic (usually annual) basis, limited by time-consuming methods of sharing and aggregating information. From a technology perspective, these processes often depend extensively on the use of electronic spreadsheets and email.

From a business standpoint, the budget itself has been more of a cost-control instrument rather than a planning tool in many organizations, limiting expenditures by organizational units through a hierarchical command and control scheme. As a planning tool, the budget quickly loses relevance as it becomes out-of-date within months or weeks of its laborious creation. As technology constraints are lifted by a new generation of Web-based budgeting and financial planning tools, business processes become more collaborative and dynamic, and thus more responsive to business needs. While many companies will find it beneficial from an efficiency standpoint to automate budgeting and financial planning processes, the ultimate potential will be realized by transforming these activities into a virtually continuous process, driven by events rather than the passage of time. Companies making this transformation can achieve greater visibility into future revenue, expenditure, and operational patterns, increasing their ability to predict and manage financial performance (Geerts 130 2000b).

The budgeting and financial planning application market is led by a relatively small group of aggressive best-of-breed software vendors, including Hyperion, Adaytum, and Comshare. Paradoxically, the large enterprise resource planning (ERP) vendors, which dominate the market for transactional financial systems among large companies, have lagged in this application area from a competitive standpoint. Giga predicts the market for budgeting and financial planning solutions, currently at about $225 million in software licensing revenues, will grow 20 percent annually through 2005. The main drivers of this growth are: the critical need by most businesses to rapidly reconfigure or adjust business plans in a dynamically changing business environment and the availability of more powerful technologies that will enable the innovation of financial planning processes for greater effectiveness.

The large ERP vendors are improving their budgeting and financial planning offerings as well and will begin to exert more influence in this application market in 2002, contributing to its overall growth. While the ERP vendors should provide a more substantial competitive threat, best-of-breed vendors will continue to lead this market through 2005.

Equity Market Performance

Performance of equity markets has undergone great changes in recent years. International investors have purchased emerging-market equity shares at unprecedented rates, tripling the value of their emerging-market equity portfolios between 1995 and 2004. Greater foreign investment in emerging markets has tightened their price linkages to the international financial centers. Partly as a result of these changes, emerging markets have matured considerably, achieving increased market size and an increased capacity to support equity issuance.

Much of the attraction of developing-economy equity markets derives from the outstanding return performances registered by many of these markets in recent years. This research seeks to explain these striking emerging market return performances. It examines recent structural reforms and their effects on equity portfolio inflows in nine of ...