The Budgeting and Forecasting Experts Blog

When the Spreadsheet Becomes a Disadvantage in Budgeting

  

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Good budgeting practices are designed to minimize errors and inconsistencies, and engage front line managers that have the unique perspective of their department or area of responsibility naturally combining top-down guidelines and standards and bottom-up individual knowledge.   Excel, the de facto tool for budgeting, is a powerful personal productivity tool, however, it lacks the collaborative capabilities necessary in developing accurate, cohesive budgets that you can present to executive management, the board or your lenders. 

From my 25+ years experience in budgeting, there comes a point when a company's reliance on spreadsheets for budgeting becomes an impediment to effective decision-making and analysis.   There are several clues to detect this transition point before it leads to severely ineffective decision-making, lost productivity and lost opportunities.  So how do you know when your company is at the tipping point? 

Here are 12 Warning Signs That Your Budget Process Has Outgrown the Spreadsheet:

1. No single version of the truth guides or emerges from the budgeting process.  It's too hard to do because here are too many variations in the roll-up structure.
2. Ownership & accountability by business users have disappeared.  "These aren't my numbers!" syndrome.
3. Executives don't know who their most profitable customers are, what managers are most productive, why certain metrics are "out of sync".
4. The financial statements are not fully integrated because the model was modified too many times to ensure no errors.
5. Detail becomes impractical and almost unattainable.  Spreadsheets have grown so large.
6. Budget calculations have become too complex for most budget preparers to follow.
7. It takes more time to maintain the spreadsheet than to perform the actual analysis and planning.
8. The budgeting model breaks frequently with changes to data structure or roll-ups.
9. Data integrity issues abound - mistyped data, broken formulas, missing links - logic errors - making the budget model unreliable.
10. Comparing actual results to plan or last year's actuals is a 'cut & paste' exercise that slows down month-end analysis and reporting.
11. It's difficult to accurately track payroll, taxes and fringe for all employees -resulting in over budgeting for payroll taxes  - impacting year-end cash flow.
12. Deferred revenue projections (for renewals, royalties, subscriptions, etc.) are too complex to model requiring the layering of multiple revenue schedules within multiple periods.

If a number of these 'warning' signs mirror what's happening with your budgeting process perhaps it's time to consider a change for the better?   There are numerous database budgeting applications that automate the budgeting and forecasting process, serve to reduce budget cycle time, eliminate calculation errors and generate integrated financial statements.  The result?  You can re-allocate you your time currently spent on data entry and formula maintenance to strategic financial analysis activities that have a greater impact on the company's financial position.