Business Intelligence Blog from arcplan
3Oct/130

Don’t Rely on Spreadsheets: Essential Tools for Planning, Budgeting, and Forecasting

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aberdeen-group-guest-postIn my role as the Senior Research Analyst in the Aberdeen Group's Business Planning and Execution research practice, I spend a significant amount of time studying the key pressures facing organizations in their planning processes as well as the key technologies that top performing organizations use. Unsurprisingly, I often get questions on the role of spreadsheets in the planning process. Spreadsheets continue to be a popular tool used in financial planning, budgeting, and forecasting processes. In fact, Aberdeen's 2013 Financial Planning, Budgeting, and Forecasting Benchmark survey found that 89% of organizations use spreadsheets in the planning, budgeting, and forecasting processes. Employees are comfortable with spreadsheets because many of them use them in both their professional and personal lives. This familiarity makes it unsurprising that both top performing and Laggard organizations are employing them in some aspect of their financial planning process. This reliance may stay the norm for the foreseeable future and spreadsheets are likely to continue to be an integral part of the planning process.

Yet while the Best-in-Class may be using spreadsheets as a part of the planning process, they are less reliant on them as the sole means of communication and interaction, preferring to combine them with the use of applications (Figure 1). Being a repository of exported data is in fact the leading role spreadsheets play in top performing companies. As the methods in which spreadsheets are used become more manual, the Best-in-Class and the Laggards switch rankings.

In Laggard companies, spreadsheets can sometimes be the only method of communication and interaction through the process. Anyone who has used spreadsheets exclusively in the planning process would understand why they are inefficient. For example, manually consolidating spreadsheets is time consuming and puts organizations at risk of having incorrect data. It is also difficult to identify if the data contained within spreadsheets is up-to-date. Spreadsheets are also not easily shared because employees may "break" formulas that they did not create or do not understand. When using spreadsheets for financial planning, budgeting, and forecasting, the Best-in-Class have discovered that data needs to be accurate, secure, and easy to use which avoids the pitfall of extra work and inaccuracy. This is why Best-in-Class organizations rely on other technologies to help automate these processes.

Figure 1: The Role of Spreadsheets


role-of-spreadsheets-aberdeen-arcplan

Source: Aberdeen Group, January 2013

Best-in-Class organizations utilize a wide range of technologies throughout the planning, budgeting, and forecasting process (Table 1). These technologies can perform a wide variety of functions, but the common theme should be that Best-in-Class organizations are more likely to do the work in and export data from these applications to spreadsheets in order to consume the data. Since it is perceived that many employees are comfortable with using spreadsheets, some of these more advanced applications can mimic that look and feel. For example, 68% of the Best-in-Class use planning, budgeting, and forecasting applications that may look similar to a standard spreadsheet. The difference, however, is the way in which these applications can be used and where they are located. A financial planning, budgeting, and forecasting solution may contain budget templates and the ability to assign workflows. Additionally, all data will be contained in one place, which negates problems with version control and collaboration. But planning, budgeting, and forecasting applications are just one way in which Best-in-Class organizations are more likely to automate the process.

Table 1: Key Enablers of the Best-in-Class


Best-in-Class All Others
Query and reporting tools 79% 56%
Financial reporting and consolidation application 70% 53%
Planning / budgeting / forecasting application 68% 47%
Dashboard / scorecard tools 66% 38%
Enterprise BI platform 50% 28%
Enterprise Performance Management 49% 30%

Source: Aberdeen Group, January 2013

For an example of how Best-in-Class organizations automate the planning process utilizing the above applications, reference Figure 2.

Figure 2: Automating the Planning Budgeting and Forecasting Process


automating-planning-aberdeen-arcplanSource: Aberdeen Group, January 2013

First off, as with any process, employees need to understand who is doing what, and what they are going to do. For example, Best-in-Class organizations are 43% more likely than All Others to have the ability to assign resources and workflows for budgeting and forecasting activities. This establishes which employee has responsibility for which action. Further, 74% of the Best-in-Class have budget templates which they use to communicate and manage input. This provides step by step guides for which data needs to be integrated, by whom, when devising budgets. With these capabilities combined, there should be no excuses for anything going overlooked.

Best-in-Class organizations are also utilizing the above technology to enable some more advanced processes that impact agility and accuracy in financial planning, budgeting, and forecasting. For example, Best-in-Class organizations are almost twice as likely to perform "what if" scenarios and change analysis. On the one hand, they are able to mix and match different scenarios to see their likely outcome. For example, what is the impact on revenue if four more marketing people are hired? This allows these organizations to inject some predictive data into their forecasts while aligning their actions with organizational initiatives. On the other hand, this allows these organizations to develop contingency plans so that they can react in an agile manner when events end up happening. This can have a significant impact on the organization's ability to quickly reforecast. Reforecasts are becoming more and more common. Organizations that have the ability to perform them can create more realistic plans to steer themselves toward success. But, again, it's all about driving down the time it takes to forecast that makes reforecasting possible.

This data illustrates that that spreadsheets alone are not sufficient for successful planning, budgeting, and forecasting. For further proof, check out my report, Beyond Spreadsheets: Automating the Financial Planning, Budgeting, and Forecasting Process. In the coming weeks, I will be writing more here on arcplan's blog about how technology can simplify the financial planning, budgeting, and forecasting process and give decision-makers the tools they need to guide their organizations.

Nick Castellina

About Nick Castellina

Nick Castellina is a Senior Research Analyst for the Business Planning and Execution practice at the Aberdeen Group. His research covers topics such as ERP; Financial Planning, Budgeting, and Forecasting; Enterprise Performance Management; Business Process Management; and the office of the Chief Financial Officer. Castellina also serves a significant role in the development of the Aberdeen Business Review, a research document presenting a comprehensive analysis of technology trends and business performance results from organizations across the world.