Reality Budgeting - ' Smarter Budgets '

Smarter Budgets

Now, though, thanks to the company's switch to real-time budgeting, "we know more about this company in-depth," Lee says. Finance people work alongside the sales force and the design and development group to input demand forecasts into the system. Then comes the actual budgeting. "People are budgeting for their own responsibility areas based on the sales forecast," says Lee. "Once that's fine-tuned, we can roll that back out to our departments so we can do expense-based planning based on those units or dollars shipped in the budget. Now the units have much more of a hand in the budgeting process, and we're putting financial forecasts in senior managers' hands every two weeks—not every two months as in the past."

The result: Executives can respond faster to shifts in the marketplace. "Now, if we have a slow month with a particular product," Lee says, "the company can respond quickly to manage inventory cycles or press marketing and sales to beef up their efforts." The budget system was up and running by August 2001, and Lee notes that it was critical in spotting the downturn in the fourth quarter of that year. "We were able to recycle through our budgeting in reaction to the economy much quicker than we would have been in an Excel environment."

Xilinx knows that better, perhaps, than most. "We now have an ongoing quarterly forecasting process, which we review and update monthly," says Chellam. "Each month, we take numbers up and down based on our forecast of nine parameters, including return on assets, return on equity, revenue per employee, market share, percentage of revenue from new products, and so on." CIO Anderson says, for example, the improved visibility helped the company know that its newer products were selling well enough to justify continued investment in new-product research—despite the downturn in the economy. "We kept investing in new products at a time many companies cut such spending," she says.

Xilinx's forecasting process and software also takes into account Xilinx's customers' customers' business—the end markets. "We now track capital spending by the telecom industry," Chellam says. "We also track the profit performance of the S&P 500 to determine if Corporate America is making enough cash flow to spend on IT." Altogether, Xilinx' system collects external data from 15 top global customers and 20 strategic customers like Nortel, tracking their shipments by product, geography, division and other metrics.

The result? Since implementing the new system, Xilinx has met its last three forecasts and exceeded the past two, lifting its stock to a new high of around $40 a share in mid-May. "We've muted the element of surprise," Chellam says.

Russ Banham is a business journalist, playwright and author of six books. Debra D'Agostino also contributed to this article. Please send comments on this story to editors@cioinsight.com.