The Perils of Using Spreadsheets for Budgeting, Planning and Forecasting

A Common Problem

The 2017 survey by CFO Research, in collaboration with Planful, asked 154 finance executives about their systems. More than half of the respondents–55%–said their companies use spreadsheets shared via email as their primary BPF system. But only 6% of the surveyed executives whose companies use the spreadsheets for BPF said they are “very satisfied” with that choice. Survey respondents from companies using spreadsheets for BPF reported a list of problems with the practice.

Figure 1. Survey respondents who use spreadsheet-based BPF, shared via email, report they have repeatedly experienced problems with the following: (multiple responses allowed)

Data integrity 54%
Version control 45%
Hidden calculations or cells 41%
Output errors 37%
Long process cycle times 34%
Incomplete documentation 28%
Security (internal) 12%
Security (external) 10%

Spreadsheets can be an adequate budgeting tool for certain types of companies, such as early-stage startups with few managers and cost centers. But companies soon grow too complex for the spreadsheet-as a BPF-tool to handle complex organization structures, customer bases, supply chains and market conditions, along with product development and expanding sources of capital. The spreadsheet as a BPF tool is typically inaccurate, and it isn’t dynamic or flexible enough to provide a complete picture for budgeting, planning and forecasting.

Limitations of Spreadsheets

One downside to using spreadsheets for BPF is that they limit the ability of finance to directly link the numbers to actual outcomes or financial results from the company’s business units. That limitation can make it difficult for the CFO to quickly adjust plans and budgets based on real-time events. Enterprise cloud software solutions with planning, budgeting and forecasting capabilities help CFOs collaborate with business unit managers, boosting the accuracy of the planning. The more collaborators that a CFO can include in the budgeting and planning process, the more strategic value those plans carry, and that is difficult to accomplish with spreadsheet BPF.

Another problem with spreadsheets-via-email BPF is that the approach makes it extremely difficult to plan for different scenarios, and to run through different scenarios to see how the company’s planned financial outcomes would change. Spreadsheets generally present only a limited, fragmented snapshot of specific pieces of a company’s business. So assessing specific drivers of that business –profitability based on customer demographic, for example—is usually not possible with spreadsheets. It’s also difficult to analyze how a change to one aspect of the BPF impacts other items.

Running through what-if scenarios with spreadsheets is time consuming, if they are possible at all, because of the complexities of most companies. And without rolling forecasts based on inputs from business units, CFOs are forced into more reactive decision-making, so companies can miss out on opportunities and fail to take advantage before it’s too late. And the pressure for finance to deliver increased value to the business is only increasing (See Figure 2).

Figure 2. Survey respondents believe that, over the next 12-18 months, pressure on their finance functions will increase substantially to:

Facilitate improved collaboration among all key decision makers 78%
More tightly integrate BPF processes across the enterprise 73%
Deliver faster BPF data 71%
Provide better tools and technology to support decision-making 69%

Spreadsheet budgeting also leads to longer budgeting cycles, which means a company can be working off budgets and financial plans that are obsolete almost as soon as they are completed. Shorter budgeting, planning and forecasting cycles lead to better business outcomes, and shorter cycles are associated with companies that out-perform their peers. For 55% percent of companies, budget assumptions are already useless just three months after their budget year begins, according to the American Productivity & Quality Center.

Help is on the Way

Most finance executives in the CFO/Planful survey whose companies use spreadsheets via email for BPF—58%–reported that their finance teams “abuses” spreadsheet software by using it for tasks that should be addressed with more sophisticated solutions.

The good news for some companies is that help is on the way. More than one quarter of the survey respondents with spreadsheets for BPF—26%– said they expect to be using an enterprise software solution within 18 months. The CFO can take advantage of an enterprise solution deployment by allocating more finance resources to analytical work and away from manual processes.

Enterprise solutions can shorten the time a company needs to collect and consolidate its BPF data, and they can provide better insights into performance. They can also provide a better link between planning and execution of strategic initiatives.

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