Moving beyond spreadsheets

Many businesses use spreadsheets for budgeting and forecasting, even though these programs are error-prone and generally unable to support the critical nature of important financial processes.

Once a business encounters budget-related issues such as version control, complex macros, formula errors, and the inability to consolidate input from a wide range of participants, it would make sense to adopt a packaged application specifically designed for budgeting.

Yet breaking the spreadsheet habit proves to be a difficult step for many, and finance executives often postpone the decision to migrate to a purpose-built solution.

Step 1: Acknowledge that you have a budgeting problem

Good budgeting practices are structured to minimize errors and inconsistencies, and enable participants from every department to contribute from their own unique perspectives. Budgeting best practices entail a mixture of top-down guidelines and standards, as well as bottom-up individual knowledge and experience. Microsoft Excel, the de facto program for budgeting, is a useful tool for personal productivity. Its capabilities, however, are generally inadequate for the critical nature of budgeting and forecasting.

Warning signs that your budget process has outgrown the spreadsheet

No single version of the truth emerges from the budgeting process. Managers need to roll multiple budgets into a

single enterprise perspective, but struggle with excessive variations in the roll-up structure.

Ownership and accountability have disappeared, and control over consolidating the budget has fallen to a single person.

Users struggle to construct

integrated financial statements because the process has become too time-consuming or

the model has been modified too many times to ensure an error-free output.

Pinpointing details becomes impractical and almost unattainable. Spreadsheets grow so large that you budget for line

item expenses or revenue items only at a consolidated summary level.

Changing the data structure or roll-ups causes the budget model to break.

Moving beyond spreadsheets

Programming in a spreadsheet model requires users to create complex macros, which generate formula errors and broken links between workbooks. Even more dangerous for businesses, intricate spreadsheet budget models are often maintained by a single person who becomes a vulnerability point with no backup. Other maintenance and usage issues arise. Spreadsheet models are difficult to distribute and even more difficult to collect and consolidate. Not designed to hide or expose data (payroll, for instance) based upon user roles, organizations will find it nearly impossible to maintain confidentiality when using spreadsheets. These drawbacks constitute major problems for corporate governance and cause difficulties for the audit process.

There comes a point when a company’s reliance on spreadsheets for budgeting begins to impede effective decision-making and analysis, leading to lowered productivity and lost opportunities. If a number of these conditions apply to your organization, it’s probably time to migrate away from the spreadsheet environment.

Step 2: Recognize that you don’t need to reinvent the wheel

A best-practice approach to moving beyond spreadsheet-based budgeting would start with these steps:

• Fully understand your current budgeting model. It’s likely to contain embedded assumptions, formulas, reporting requirements, and other details that you would like to transfer over to a packaged application

• Determine what works and what does not work in your current process. For example,

if your particular business model requires bottom-up forecasting with input from many participants, you need a packaged application with strong collaborative features

• Secure executive sponsorship for the project and ensure the availability of sufficient funding

Summary

The primary benefit of graduating from pure spreadsheet budgeting to an advanced application is a more accurate and inclusive budget with a significant reduction to your cycle time. Companies often report that they can move from annual budgeting to quarterly budgeting as a result. Time savings and access to the correct data lead to valuable opportunities for informed analysis. The ability to assess profitability by product line, customer, region, and channel in real time helps users determine where to allocate resources, cash, and personnel. The enterprise budget offers a complete view of your financial organization, blending top-down and bottom-up perspectives, incorporating historical and forward-looking information.

Carefully consider the implementation and maintenance requirements of each solution. Clearly define the project’s strategic aims, its budget, and request executive sponsorship. Recognize that your organization will likely depend upon this system as an integral component of standard operations for a 5 to 10 year period. Conducting due diligence to explore alternatives is a worthwhile investment, as businesses will find a number of available applications, each with their respective pros and cons.

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