Ultimate Excel finance guide
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Experts have long warned finance departments against using Microsoft Excel to perform critical processes, and yet...
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many organizations continue to cling to spreadsheets. But this may not be due entirely to a reluctance to change. It seems some finance users aren't aware change is even a possibility.
In a survey conducted by San Ramon, Calif.-based Ventana Research, when respondents asked if they were aware there are better alternatives to Excel for performing critical finance functions, only 49% said "yes." The remaining half was divided between "don't know" with 32%, and "no" with 19%.
"They haven't looked up from their spreadsheets to see if there are better ways," said Robert Kugel, Ventana senior vice president and research director. He added that even when users are aware of more attractive options, they rarely move away from Excel, which could be due to weak business cases for new systems or fear of change.
While Kugel said Excel is the right tool for certain tasks, such as ad hoc analysis, storage of small data sets and creating simple models, he stressed that the effects of using spreadsheets for tasks they weren't designed to handle can be more damaging than finance executives realize. In a webinar titled Avoiding Five Spreadsheet Pitfalls, presented by Ventana Research and FinancialForce.com, Kugel sought to inform attendees of the dangers of spreadsheets by listing the top five problems that arise when finance departments rely heavily on Excel, while acknowledging that spreadsheets will never -- and should never -- be abolished entirely.
#1: Dueling spreadsheets create data face-offs
Kugel explained that the phenomenon of having two or more versions of a spreadsheet with inconsistent data is so common that it has given rise to its own term: dueling spreadsheets. This problem occurs because spreadsheets aren't bound to a single, unified source, he said. Even if the original data is downloaded from the same place, such as an enterprise resource planning system, collecting it at different times can result in mismatched spreadsheets. Additions or deletions made to some versions but not others can also create variances.
"Sometimes the differences between spreadsheets are not all that important, or you can work around them, but in many cases it's important not to waste time trying to resolve whose spreadsheet is right, because they could all be wrong," Kugel said.
According to Ventana research, nearly half of enterprise-sized companies have experienced this problem -- 44% of survey respondents said they grapple with multiple, inconsistent spreadsheets. Comparatively, 34% of large companies, 20% of midsize, and 23% of small also attested to the existence of dueling financial spreadsheets.
#2: Spreadsheets are a time suck for individuals
Although using Excel often saves time up front because people are familiar with the program and therefore do not need to be trained, Kugel said using spreadsheets for finance processes is incredibly time-consuming in the long run. Survey respondents said they spent approximately 12 hours each month "consolidating, modifying and correcting the spreadsheets they collaborate on with others and reuse frequently," which Kugel said equals about one and a half business days.
But why is this the case? Kugel said the majority of time users spend with spreadsheets isn't for doing complex work -- they're simply trying to find and correct errors, another weakness of the tool.
#3: Errors go unnoticed… until they don't
"Thoroughly checking spreadsheets for errors is a chore that no one wants to do, so errors slip past unnoticed," Kugel said. "There have been studies that show that errors persist even when professional auditors have combed through them to spot errors -- errors in data, errors in formulas, broken links and so on." Ventana research shows just how prevalent errors are: 35% of survey respondents said they were aware of data errors in the spreadsheets used for the organization's most important processes.
But while spreadsheet errors can certainly cause monumental problems -- Kugel pointed to J.P. Morgan's $6.2 billion trading losses that resulted from errors in spreadsheets used for analysis -- he acknowledged that most are fairly innocuous. However, that can cause users to take a lax attitude toward errors, which can be dangerous.
"That works until there's an error so bad it bites you on the bottom," Kugel said.
#4: Spreadsheets waste company time
Closing the books faster and more efficiently is a perennial goal for finance leaders, but departments that use spreadsheets for the process are at a considerable disadvantage. According to Ventana research, 54% of companies that characterized themselves as substantial spreadsheet users take seven or more days to perform the monthly close.
And it's not just the closing process that is slowed. "Spreadsheets bog down processes in many different ways that have a noticeable impact on how long it takes to get work done," Kugel said. "They're fast [and] easy to set up, but when they're used in collaborative, repetitive enterprise processes, they become time wasters."
#5: Limited governance with spreadsheets
Kugel's last point concerned control. He explained that while spreadsheets offer users a lot of freedom, it might be too much in the world of corporate finance.
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"Individuals can immediately translate their thoughts about what to present and how to present it in a format that makes sense to them; they can update and modify it whenever they wish, and the change is instantaneous," he said. "[But] the downside is it's just this thing that drives parallel data stores with inconsistent and inaccurate data."
Kugel stressed that financial data needs to be controlled in order to remain accurate. He recommended finance leaders establish a single, protected financial data source, which often means lessening dependence on spreadsheets in favor of dedicated financial management software.
Do spreadsheets still have a place in finance?
At the end of the webinar, Jennifer Jenkins, controller at Allen, Texas-based wireless services and software company Nexius, explained that her organization moved away from QuickBooks and Excel after experiencing significant growth. At one point, the finance department was generating 500 spreadsheets per month, which unsurprisingly led to errors and dueling versions.
Since adopting FinancialForce in 2011, Salesforce.com's financial offering, Jenkins said data integrity and visibility have dramatically improved. However, she still opts for spreadsheets for certain tasks.
"Today we're using [Excel] more for auditing … and also formatting. The management likes to see pretty charts and graphs, and as of today it's more desirable to go to Excel and add colors and those kinds of things," she said. "I don't think there's ever going to be a world without Excel."
Emma Snider asks:
How would you describe your finance department's Excel use?
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