Planning well is vital when it comes to creating intentional growth and sustained success. Every aspect of every business function requires good planning, whether it be financial, operational, or strategic. Organisations should not take risks in their approach towards these crucial activities. Despite this, many businesses still leave critical planning activities in the hands of an out-of-date and error-prone tool – spreadsheets.
The primary reason why so many users are unwilling to relinquish their weapon of choice is due to their relative simplicity and familiarity, believing them to be tailor-made for the job. However, with so many moving pieces influencing a business’s financial performance, spreadsheets quickly fail the reliability test. Their continued use is no longer sustainable, especially in the current, digitally connected business world. For those organisations still using spreadsheets for business planning and to generate financial reporting, it’s time for this to end.
The problem with spreadsheets
When it comes to using Excel and other spreadsheet applications for financial reporting, there are a number of reasons why organisations should utilise alternative tools. Firstly, spreadsheets are fallible. Research has shown that 94 per cent of spreadsheets have significant flaws, with even the most carefully put together worksheets containing at least a one per cent error factor within a formula cell. These issues have had disastrous consequences over the years with the infamous example of errors in JP Morgan’s financial spreadsheet cost the company $6 billion following misreporting of its overall Value at Risk (VaR).
Added to this, spreadsheets typically do not display real-time data, only being as current as the latest download from a central data source. As a result spreadsheets are unlikely to be updated with the regularity required to act effectively in volatile and ever-changing environments. Therefore most businesses using spreadsheets tend to be assessing financial data from – at best – several weeks behind, and in some situations, data from the previous month or quarter. This limits the time businesses have available to course correct potential issues and monetise emerging opportunities. The unfortunate outcome is that too much time is spent around the boardroom table discussing the veracity of the numbers rather than the business strategy they are intended to support.
Moreover, financial data in spreadsheets cannot be tracked. This means that organisations are unable to maintain visibility into who adds, amends, or introduces errors into a document. For an activity such as business planning that is often distributed, this is a major concern. In addition to this, when organisations create and cross-connect spreadsheets using Excel or alternative applications, processes can become sluggish, with the overall picture becoming muddled. It is impossible to maintain a ‘golden record’. This is the case even after plans are finalised and signed-off. An inability to track tasks and manage the correct approvals can result in the original plan swiftly becoming a distant memory.
For growing businesses it is vital to constantly innovate, as well as make swift, sure decisions at the same time in order to thrive in the project economy and a fast-evolving world. These organisations require a collaborative way of working, while they must also constantly test assumptions so as to create more effective plans. This is something which spreadsheets are unable to offer. As such, it is time for organisations to utilise an alternative approach.
Implementing a smart planning model
Should an enterprise choose to install a smart planning platform, they’ll quickly notice a number of significant benefits. First, the solution empowers organisations to develop plans in a transparent manner, all within a shared and controlled system, where comments, changes and approvals are captured automatically. Second, there is also only ever one current version of the software. This is not the case with spreadsheets, where multiple copies or inconsistent workbooks, with contrasting sets of data offer the potential of a major issue for businesses. In a scenario in which the error was made several months ago, it would be difficult to find out which spreadsheet is right and which is wrong.
Lastly, smart planners are also capable of modelling multiple and contrasting financial or operational scenarios in a controlled manner, without this impacting the core business plan. The platform can remain active, evolving as conditions develop, never losing sight or control of the original core targets. The model also reduces planning risks through the elimination of invisible errors, while it also ensures compliance as it defines planning processes.
The firm foundation provided by a smart planning model empowers finance to become a trusted value partner to all areas of a business, as the solution enables superior financial planning that feeds directly into an organisation’s business strategy. It also enhances business control and supports increased planning clarity and predictability for every business task managed within an organisation.
For improved planning in this digital age, it is time to ditch the spreadsheet and work smarter.
By Andy Campbell, global solution evangelist at FinancialForce