Budgeting and forecasting – how do you know it’s time to move away from Excel?

Budgeting and forecasting – how do you know it’s time to move away from Excel?

Some 35 years ago the first spreadsheet programs were making their way into the business community and since those heady early days accountants and managers have been using them as a way of producing budgets and forecasts.

The foremost of these, Excel has been as prevalent in the office environment as the humble stapler and it’s a rare company that doesn’t start out its budgeting life using the ever present Microsoft product.

There’s a good reason for this. Excel over the last 32 years has developed from a simple tool to a massively powerful business engine that can be used for a huge variety of applications making it one of the most cost effective purchases a company can make.

The problem is that it becomes habitual and it’s easy to find yourself using Excel for things that you really shouldn’t do. After all if you are a confident user then it can often be quicker to knock up a single compliments slip or write a short letter rather than use word.

In the same vein it is commonplace for companies to continue to use excel for budgeting and forecasting when in fact they should actually be looking further afield to find software that is specific to the task.

The question is of course what signs should you look for that show it’s time to move?

1 – Highly complex workbooks. Workbooks that extend over a massive amount of tabs and link out to a significant number of different sources are a clear sign that your forecasts have become too complex for a spreadsheet program. Either look at ways to reduce the amount of external links and tabs within the workbook or think about using a different system.

2 – Several collaborators in the process. It would be hard to find many people that would argue that Excel has not fallen well behind in the connectivity and collaboration stakes. In fact newcomer Google Sheets is light years ahead in terms of having multiple users on one sheet at the same time. It also has an excellent audit function too.

3 – A process that is spread across several locations. This point runs alongside the collaboration point above. If you have people inputting, reviewing or controlling and they are spread across different locations then you’ll be faced with the prospect of using the fairly haphazard sharing function or sending out workbooks with the associated version control issues.

4 – A very long budget process. If you have a budgeting and forecasting process that takes a great deal of time then you’ll need to look at two aspects; the people element and the system element. Try to identify what is actually using up the time to get to an agreed forecast. If it’s the people involved taking too long or finding it hard to reach agreement then new software simply won’t help. On the other hand if input spreadsheets are returned quickly but analysts have to spend days or weeks managing, collating and consolidating the data then you need to look at a better method.

5 – Difficulty bringing in source information. If you have all the data you need but it’s sitting on an ERP or accounting system then you may need to look at finding a way of linking a reporting system to your source data. If you find people are spending lots of time inputting data by hand then there will be some efficiencies possible here.

6 – Difficulty consolidating departments or companies. If you are budgeting across different disciplines, different sectors or different entities then it simply ends up adding in layers of complexity. If it is taking a long time to combine all of these aspects then you should look at something different.

7- Problems with data accuracy. So often in a complex workbook formulas get replaced for hard coded figures or vice versa or links get broken leaving #REF! errors. This means that it becomes difficult to spot where data is incorrect and leads to a lack of confidence in the model.

The problem is often that workarounds become so much a part of everyday life that they start to be part of the furniture and eventually the whole process of budgeting and forecasting becomes traumatic.

There are some things you can do to mitigate the issues though.

Proper control of spreadsheets is vital and it’s often useful to employ someone with specialist skills and experience to take a look at the way your process is set up. Often a fresh pair of eyes will spot the workarounds that are taking too much time out of your day.

Using industry standard methodology such as the FAST standards1 can make a huge difference to the whole budgeting process. Implementing these types of controls will also pay dividends in other excel tasks across the business.

If you find that your budget process takes a long time and is fraught with issues then it’s worth going through the list of problems above and rating them 1-10 based on how much they are affecting your company. A high score means that it’s time to consider an alternative, a low to medium score means that you may still be able to get away with excel but that you need to be more controlled and organised about things.

If you are finding that your budgeting process suffers from several of the above issues then it’s worth looking at whether it would be a good option to consider a form of Corporate Performance Management(CPM) or Enterprise Performance Management (EPM) system.

These are methods of collecting data, analysing, forecasting and reporting that are refined so that they form a quick and efficient way to bring together disparate parts of the organisation to take part in the budgeting process.

Often these systems will be cloud based and tend to be system agnostic – that is to say that they will link to most data sources.

This isn’t a cheap course of action though so be aware that this may end up costing you money in the short term but will probably pay huge dividends in the medium term through a quicker, more efficient and more accurate budget or forecast.

Often the process of budgeting and forecasting can be seen as a chore that adds little to the business but with a bit of thought and organisation you can turn it into a way of adding great value and giving people back a little of their day.

 

1 http://www.fast-standard.org/

 

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