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The Challenges of Spreadsheet-Based Forecasting

Bobby Ellis | | June 20, 2017

finance

Spreadsheets are an indispensable tool for most organizations and understandably so; it is easy to use and adaptable to a wide range of uses. Despite its benefits, however, spreadsheet software is like any other software in that the appropriateness of its use for a given function depends on a variety of factors. Consider, for example, the planning and forecasting process – as an organization grows and matures, the planning and forecasting process requires supporting technology that offers features not required by a smaller organization, including centralized administration, collaboration and versioning features. When organizations reach this critical mass, they begin to seek out a more shareable, scalable, and trackable finance solution like cloud-based enterprise performance management (EPM) software such as Oracle’s Planning and Budgeting Cloud Service (PBCS).

Datavail has just released a white paper on Excel vs. PBCS entitled, Why Finance Leaders Are Dropping Excel for Oracle PBCS, which is available for free download. The white paper provides a detailed assessment of the problems resulting from using spreadsheets for FP&A, the benefits of using cloud-based EPM alternatives, the characteristics of Oracle PBCS, and the steps involved in migrating spreadsheet-based business processes to a cloud solution.

This post discusses some of the ways over-dependence on spreadsheets can hinder the performance of small or medium-sized businesses (SMBs) with annual revenue under a billion dollars. The good news for SMBs is that they can now afford to take advantage of new versions of enterprise software that have been perfected by Fortune 500 companies and are now available in inexpensive cloud-hosted versions.

Six Challenges of Financial Reporting with Excel

Everyone has a favorite Excel nightmare. From incorrect or overridden formulas to employees drawing growth charts then working backward to the numbers needed to generate “the curve we want,” the decentralized nature of spreadsheets facilitates their misuse, whether intentional or not.

The potential for a spreadsheet-based solution to yield incorrect results increases with the number of users involved in the process and is often exacerbated when the users involved are not collocated. What began as a seemingly straightforward spreadsheet exercise may quickly escalate into a complex series of inter-dependent workbooks and worksheets, naturally increasing both the potential for errors and the time required to troubleshoot such errors.

Here are some of the major problems you are inviting by keeping a legacy Excel system going rather than taking advantage of new SaaS opportunities:

  1. Inability to forecast accurately more than three months out. That means you can do cash flow well enough to get by, but good luck trying to project financial results for new markets or products.
  2. The bomb that shows up at the worst possible time. Finance spreadsheets are likely to continually evolve, increasing in complexity and therefore in susceptibility to errors. If the spreadsheet models are not properly maintained and reviewed, errors may be discovered at the worst moment.
  3. What-if scenarios are more like what-the scenarios. What happens if interest rates increase a half a percent in the next year? With a spreadsheet-based solution, it can be challenging to answer questions like these, questions which will inevitably come with an expectation that the answers be turned around quickly. Without a flexible, robust budgeting and forecasting platform, this type of scenario analysis often requires considerable overtime from those involved in the process.
  4. You say “potato,” they say “tuber.” Whenever you have unique users creating and editing their own finance spreadsheets, which then must be merged to arrive at consolidated results, you will eventually encounter a mapping or terminology issue that yields skewed results.
  5. Who has access to this spreadsheet? Attempting to maintain some semblance of security with a spreadsheet-based solution can be challenging to say the least. Security on network shares is normally out of the control of Finance, meaning that IT must regularly be engaged to help ensure that access is appropriately restricted. Unsecured spreadsheets are prone to unauthorized changes, improper disclosure of financial projections and a myriad of other issues.

The Two Biggest Problems with Using Excel for FP&A

In case you need more ammunition to convince the powers-that-be that you should abandon spreadsheet-based solutions, the Datavail white paper provides a comprehensive list of the problems such solutions may cause for planning, budgeting and accounting, including:

  • Data Integrity Problems
  • Standardization Issues
  • Lack of Communication Capacity

But the two biggest problems the white paper identifies are the wasted time and wasted talent that result from continuing to nurse a legacy spreadsheet system when a better solution is available at an affordable price.

Spreadsheet-based solutions cost time because each user invents a unique solution to a common problem. His or her original solution is often unseen because it gets erased in the merger of data into a single format. Time is wasted merging the data, reviewing the consolidated results and correcting errors.

Spreadsheet-based solutions waste talent by forcing valuable, highly-skilled people spend hours combing through spreadsheets to confirm the accuracy/integrity of formulae, troubleshoot errors and try to adapt to the changing nature of the business. Talented professionals who feel their skills are not being utilized or that their development is being stunted may choose to pursue other opportunities.

Oracle PBCS is a Better Solution for FP&A

Oracle Planning and Budgeting Cloud Service (PBCS) drives the financial planning, analysis, and reporting of companies across the globe. The highly-talented professionals in Datavail’s EPM practice have assisted our clients in deploying PBCS in their respective industries, which cross a variety of business verticals. The white paper referenced above documents the many benefits of moving to PBCS, benefits which include auditability, scenario analysis, operational efficiency, and expansion planning.

If you are ready to replace an outdated, inflexible spreadsheet based solution, or if you have other reasons for wanting to pursue the myriad benefits of a cloud-based budgeting and forecasting, Datavail’s experts are available to help assess, plan, and execute your move to the cloud. If you have questions about cloud-based solutions, including the time and effort required to migrate to one, please contact Datavail today.

Datavail is a specialized IT services company focused on Data Management with solutions in BI/DW, analytics, database administration, custom application development, and enterprise applications. We provide both professional and managed services delivered via our global delivery model, focused on Microsoft, Oracle and other leading technologies.

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