Ultimate Excel finance guide
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Many companies believe that important financial tasks, including corporate performance management, can be handled in Excel. On the surface, Excel is clearly cheaper than specialized financial software. But once you get below the surface, it turns out to be much more expensive for financial applications of any complexity.
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Sophisticated financial systems built on Excel will result in a much greater expenditure of time, and many more errors along the way. In CPM, this is especially true of budgeting, planning and strategy.
Could you use Excel for all of the functions described below? You can if you are a very sophisticated Excel user, but in that case, you might as well be in the budgeting software business.
Here are important things to consider before attempting CPM in Excel.
Excel’s user interface as integration link. Let’s give Excel its due—just once. It has a very usable interface, and by designing Excel forms, you can create an elegant user interface. In theory, this approach can allow intensive data input. But sophisticated companies don’t use Excel this way, instead limiting it to small tactical projects.
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These limitations of Excel make it clear that dedicated commercial software is required for budgeting, planning and strategy. Such applications have Web-based data input features that match or exceed what Excel offers.
Budgeting is a database problem. Let’s suppose you require 25 departments to create budgets. If you create each of these budgets in Excel, what do you do with the 25 spreadsheets? What you really need to do is to extract this data from Excel and store it in a persistent database. This way, you can do the following:
- Store the data in the cloud;
- Create a database that captures row IDs, departmental identifiers and budget revision numbers as keys; and
- Provide tools to manipulate the data.
Dedicated budgeting and planning tools have a database layer, often in the cloud. Why invent your own DBMS layer?
Budgeting only an auditor could love. Excel also raises auditability issues.
It would take some work to ensure that the corporate templates for Excel have the right cells and formulas locked down. Without these safeguards, departments can take liberties with their budget submissions. The issue is easy to manage with Web-based forms in a budget application. These forms have a high degree of security, and hence, auditability.
More important, there should be a central repository for submitted spreadsheets, each time-stamped and given a version-control number. An acknowledgment is sent back to the department submitting the document. The data is then updated to the database, with the department or version number as a key. All this is possible with Web-based, cloud-centered budgeting applications—and a huge amount of work in Excel.
Budgeting is both an individual and a team sport. Think of the command center managing all these departments. Managers need to be pinged when they are late. Reports must be created for the group managers and the CEO. The results must be communicated back to the individual departments. This is way beyond the scope of Excel.
Buy the BI. Forgive the pun, but business intelligence is an important issue when attempting to use Excel for CPM. Budgeting and planning require both canned reports and ad hoc reports. There will be budgets and revised budgets made available by category and time. Thus, reporting software is key, and again, not Excel’s thing.
Forecasting. Some companies encourage rolling forecasts—that is, changing the next 12 months’ budgets every month. Other companies model the future using driver-based planning. In both cases, these useful forecasting techniques are difficult to attempt in Excel.
Strategy and capital budgeting. The current budget must fund the first year of a strategic plan as well as the early stages of capital investments. It is easier to manage all this with workflow, database, report-writing and middleware tools (read: a financial software package) than with Excel.
My recommendation: Save Excel for simple tactical projects involving a small, contiguous workgroup. If you insist on budgeting with Excel, make sure you allocate more dollars than you would to buy a budgeting package.