On a recent Webcast, a finance professional asked me about the use of spreadsheets in the planning process. Because this is such a common theme, (over 70% of respondents said they use spreadsheets for their planning process) I decided to add my observations to the conversation.
Telling a finance person that they should not use spreadsheets is like telling a mason not to use mortar. Spreadsheets are so integral to the role of finance that we cannot live without them. The fact is, (despite what you may hear from some vendors) it is appropriate to use spreadsheets at many stages of the long-range planning (LRP) process. There are also certain places in the LRP process in which a better tool can and should be used. A good planning tool will not seek to replace spreadsheets but instead will help make the most of their functionality.
Because Finance is so accustomed to using spreadsheets, we tend to force them to commit unnatural acts. For example, using spreadsheets to align organizational budgets generally starts to breakdown when a company reaches any kind of organizational complexity. By the time an organization is matrixed, the purpose for the spreadsheet has reached its breaking point and intensive manual maintenance is required to sustain the resource alignment request. The spreadsheet approach relies on the creation and population of finance templates, followed by corporate parsing and redistribution of the relevant information to the relevant groups, and then the process repeats itself until alignment is achieved. There are Fortune 100 companies who still attempt to rollup resource requests this way. These companies often ask senior financial analysts to spend significant cycles to manage this process. In this case, a better solution is a centralized repository with access controls sufficient to let organizations manage their own alignment. This solution frees up financial resources to analyze data requests rather than simply monitor them. Even here, there is still an important role for spreadsheets.
Spreadsheets serve as an organizational database for financial planning and have become a common reference format to collect and analyze data. Because spreadsheets have exporting capabilities and functional templates that serve to help consolidate information, I recommend selecting a planning tool that will easily import and export data from spreadsheets. And to make the most of spreadsheets, a centralized planning repository needs to make it easy to get data from the spreadsheets into the system. After all, like a brick wall without mortar, a planning process without complete data falls apart.
In part two of this series, we will examine another instance in which it is appropriate to use spreadsheets in long-range planning and how the right planning tool can enhance their functionality. For more on this topic, register and listen to the 15 Common Pitfalls for Financial Planning Webinar and get your very own copy of the paper.
How important are spreadsheets to your long-range planning process and where exactly do they fall short? Share your experiences by posting a comment below.