9th June 2014
Whichever way one turns analysts’ forecasts for the future of cloud computing are positively gushing. Gartner says cloud computing will become the bulk of new IT Spend by 2016 and IDC predicts that over the 2013–2017 forecast period, public IT cloud services will have a compound annual growth rate (CAGR) of 23.5%, five times that of the IT industry as a whole. Clearly, the cloud is destined to have a profound impact on all business functions and although cloud adoption in the finance function initially lagged behind other functions, such as humans resources, sales and marketing, it is now clearly catching up.
41% of respondents to a recent KPMG survey1
say that they are already using cloud-enabled services in finance, accounting and financial management and a further 35% say they are likely to adopt such services in the next 18 months. So why is the modern finance function turning to the cloud for its core applications such as budgeting, planning and forecasting?
The basic advantages of the cloud are well documented
The fundamental advantages of the cloud-based budgeting, planning and forecasting are compelling. The ability to selectively jettison applications to a cloud vendor can be liberating. The host assumes all of the obligations of overseeing, managing, operating and supporting the computing environment as well as responsibility for securing the confidentiality and availability of the user’s data. In marked contrast to traditional on-premise solutions, the user organization does not need to retain any dedicated IT infrastructure (server capacity, networks and the like) or the in-house IT resources that usually accompany it. By extension, the IT function is freed of the responsibility for supporting a new application or establishing a user help desk. The user organization also ‘escapes’ responsibility for software upgrades, implementing software patches, introducing regulatory changes, or providing more server and network capacity.
The cloud subscription model also removes a layer of cost uncertainty. The initial capital outlay is eliminated, and the IT function is no longer saddled with the unexpected costs of hardware upgrades or support costs and furthermore the subscription model makes it particularly easy to identify the cost of adding users as the organization grows. The ability to ‘pay only for what you need’ allows organizations to avoid the high upfront costs of on-premise solutions (which are fixed) and to align computing costs more sympathetically with growth. Indeed, 70 percent of respondents to a recent1
survey believe that cloud is already delivering efficiencies and cost savings.
Strategic benefits are emerging as the dust settles
But as the cloud market starts to mature two important new themes are emerging. Firstly, larger organizations are transitioning to the cloud, often as part of a two tier strategy as they seek to wind down legacy systems and simultaneously leverage new applications available in the cloud. This means that organizations can quickly take advantage of cloud based budgeting, planning and forecasting systems such as Adaptive Insights
without major disruption to their other business applications.
Secondly, cost reduction, although remaining very important, is no longer seen as the main driver behind a move to the cloud. Smart CFOs increasingly recognize that the cloud can serve more broadly as a springboard for process transformation, innovation and increased business agility. In fact, according to the analyst firm IDC2
, finance and accounting stands to benefit most from an organization’s cloud strategy over the next 3 years.
The immediacy, accessibility and near infinite scalability of the cloud lends itself to process transformation and more collaborative ways of working. Take for example the budgeting process. For historic reasons, principally systems performance, high data volumes, and local needs, it has been common practice to distribute budgeting systems on a regional or divisional basis in order to spread the processing burden. But the high use of spreadsheets and number of physical layers in this process hierarchy can have a profoundly detrimental effect on the efficiency of data capture, budget modelling, budget consolidation, scenario planning, and reporting.
By contrast, Cloud-based budgeting applications offer the potential for a single centralized budget model for the whole organization. Rather than deploying separate instances of the budgeting system to say different geographical regions, every budget holder is able to access the same model at any time utilizing just a web browser on a PC or laptop. This provides the ideal environment for collaboration and negotiation, driving up data quality, forecast accuracy, and control while simultaneously driving down the number of budget iterations.
Cloud deployment is also proving pivotal in a volatile economy in which organizations need to re-forecast more frequently to keep their fingers on the pulse. A centralized, globally deployed model allows budget administrators to engage more productively with line managers or budget holders at the sharp end of the business as well as accelerate ‘time to decision’. For example, an Aberdeen Group study3
outlines the results achieved by ‘cloud’ versus ‘non-cloud users’. It finds that the percentage of internal financial reports delivered in the time needed by mangers was 86% for cloud based SMBs (small to medium sized businesses) compared to 76% for non-cloud based.
But for many organizations it is the increased business agility of the cloud, especially the accelerated deployment that is particularly welcome. Cloud deployment allows multinationals to quickly roll out the corporate standard for budgeting, planning and forecasting following acquisitions, mergers and re-organizations where speed is of the essence and traditional roll-outs of on-premise solutions and spreadsheets cannot compete.
Finally, the Cloud is also where many businesses will find the latest innovations as newer applications developed specifically for the cloud displace some older on-premise applications. For example, social tools deeply embedded in applications are transforming budgeting, planning and forecasting as different stakeholders are able to overcome functional boundaries, more effectively search, retrieve and share information and work on the same version of the budget in real-time without resorting to email.
It is also easier to consume innovation in the cloud since the SaaS (Software as a Service) business model allows all users to leverage new functions and capabilities as soon as they become available without resorting to individual upgrades and migrations as has historically been the case.
Cloud based applications are having a profound effect on the finance function, saving money as well as driving increased efficiency and convenience. But as the SaaS market matures and cloud deployment moves upstream to larger enterprises, attention is shifting from cost-savings as the major driver of cloud-based investment to the increased business agility conferred by the cloud.
Cloud computing eliminates the inefficiencies of spreadsheets in budgeting, planning and forecasting processes by enabling organizations to centralize their business models, implement standard processes, improve collaboration and control, as well as accelerate the budget cycle and time to decision. With lower costs, enhanced convenience and improved budget performance, smart CFOs can have their cake and eat it.
KPMG/Forbes Insights “The cloud takes shape” Global cloud survey: the implementation challenge
IDC CloudTrack Survey, September 2013
Cloud Financial Management “Cost-Effective Implementation of Budgeting and Forecasting Measures”, May 2012 Nick Castellina and William Jan