Robert Kugel's Analyst Perspectives

The Right Software is Crucial for Effective Planning

Posted by Robert Kugel on Nov 27, 2012 9:39:46 AM

I’ve been examining how corporations plan and budget for more than decade. One clear pattern that has emerged is the difficulty that using desktop spreadsheets imposes on the process. Ventana Research recently published findings from our trends in business planning benchmark research, and the research once again confirms this observation. It shows that companies that use dedicated applications are consistently more satisfied (and much less dissatisfied) with the software they use than users of spreadsheets. Twice as many said their third-party planning application performs very well in financial and cash-flow forecasting. While one-third (32%) said their dedicated application performs the complex task of compensation planning very well, just 7 percent of spreadsheet users say so. Dedicated applications also have capabilities that spreadsheets lack; those include easily integrating data from multiple systems, drilling down on demand to understand the underlying causes of variances in reviews and performing extensive what-if planning. All of these enable more accurate planning.

It’s frustrating to see that so many companies continue to use desktop spreadsheets as their main tool for planning in all parts of the enterprise. A large majority (69%) of business units rely on them, either exclusively (22%) or in conjunction with other applications such as ERP (47%); only about one-fourth (26%) use a dedicated planning application developed in-house or by a third party. Spreadsheets are too cumbersome and problematic to be useful in collaborative enterprise-wide efforts; half of the research participants (49%) acknowledge that spreadsheets make it difficult to manage planning processes. This response varied with the size of the company, ranging from 60 percent of the very large ones (with 10,000 or more employees) saying there’s a problem to just 35 percent of small businesses. One reason for the disparity is that smaller businesses are far less complex from a modeling, data collection, analysis and reporting standpoint. Another is that smaller businesses can get by with much less in the way of formal planning mechanisms because communications between decision makers are can be much more direct.

The research also revealed a strong connection between effective planning and the information and technology used to achieve it:

  • Organizations that can drill down on demand to understand the underlying causes of variances in reviews are able to plan more accurately.
  • Those that can readily access supporting data during review meetings and those that use dedicated applications instead of spreadsheets have more accurate plans and budgets.
  • Companies that can easily integrate data from multiple systems have more accurate plans.
  • Companies that use dedicated applications find it easier to do extensive what-if planning.

You can read more of my observations on our overall findings and on what’s wrong with budgeting elsewhere in my blog.

Information technology by itself will not create a mature planning environment. But the benchmark research once again confirms that without capable software, it’s unlikely a company will make meaningful improvements in its ability to use planning as a management tool.

Desktop spreadsheets are extremely useful for accounting (the term “spreadsheet” originally referred to a piece of paper used to present bookkeeping information), for performing ad-hoc analytics and one-off reports and for maintaining simple databases. Because they are so good for some purposes, users often make the mistake of using them for everything. Yet they suffer from several inherent defects that make standalone spreadsheets the wrong tool for any collaborative, repetitive, enterprise-wide function such as planning. They lack referential integrity, which is why it is difficult even for proficient users to combine multiple plan submissions. The more participants, the more difficult it is to wrangle the mass of data into an accurate consolidated view. Once combined, it’s impossible to unscramble the omelet to drill back down into the underlying detail. Spreadsheets are two-dimensional grids, so it’s harder to show scenarios with more than few dimensions in presenting plans, results and results versus plans. Pivot tables can take you only so far, and working with them consumes a great deal of time. Unless designers put a great deal of thought into constructing a spreadsheet, users will find it tough to make global changes to assumptions. Even then, in the process of hard-wiring these global assumptions into a spreadsheet you can wind up with a brittle model that is difficult to adjust as conditions and requirements evolve over time.

Dedicated applications today often combine the best of both worlds by using Microsoft Excel as an interface. Users get to work with a familiar tool, but behind it lies a real database and enterprise application capabilities such as workflow management and sophisticated reporting features.

Integrating planning across business units enables a company to plan with coordination and visibility. Changing from a spreadsheet-based process should enable a company to shorten the time required to produce plans and budgets. It makes it easier to adopt rolling quarters planning and forecasting and to execute faster plan revision cycles. The right software can facilitate an organization’s ability to drill down into underlying details and use that deeper understanding to explore a wider range of responses to changing business conditions. It can transform a monthly review session into a monthly dialog about future directions that ensures that everyone is on the same page.

What should companies look for in replacing desktop spreadsheets? Our Financial Performance Management (FPM) Value Index assesses FPM suite vendors’ offerings in part on their ability to support planning and budgeting. We look at a long list of capabilities in this type of software, and in budgeting and planning applications generally. Some of the most important include:

  • Budgeting capabilities such as scenario management, automated spreading and trend analysis
  • Planning capabilities that can support unit-times-rate structures, driver-based planning and goal seeking/sensitivity analysis
  • Administrative capabilities such as automated workflows and notifications
  • A central data store for easy data access
  • Built-in analytical capabilities, including easy manipulation of core business dimensions such as time, organizational structure, product families and currency, to name some of the most common
  • Built-in reporting and data visualization capabilities

The planning and budgeting software category is a crowded one, and companies have many options today. Some are specifically designed for midsize and small organizations, while others scale to thousands of users. As with shoes, it’s important to choose the right size or use becomes painful. Companies can choose to have the software installed in a conventional on-premises configuration or in the cloud in software-as-a-service (SaaS) mode. With so many options that are affordable for a wide range of companies, it’s a shame that so many organizations still use spreadsheets and limit the business value of their planning activities. I strongly recommend that senior executives of companies that use desktop spreadsheets for these activities consider the value that better planning can deliver.


Robert Kugel – SVP Research

Topics: Big Data, Planning, Office of Finance, Operational Performance Management (OPM), Reporting, Budgeting, driver-based, Business Performance Management (BPM), Customer Performance Management (CPM), Financial Performance Management (FPM), Sales Performance Management (SPM), Supply Chain Performance Management (SCPM), Workforce Performance Management (WPM), Financial Performance Management, Integrated Business Planning

Robert Kugel

Written by Robert Kugel

Rob heads up the CFO and business research focusing on the intersection of information technology with the finance organization and business. The financial performance management (FPM) research agenda includes the application of IT to financial process optimization and collaborative systems; control systems and analytics; and advanced budgeting and planning. Prior to joining Ventana Research he was an equity research analyst at several firms including First Albany Corporation, Morgan Stanley, and Drexel Burnham, and a consultant with McKinsey and Company. Rob was an Institutional Investor All-American Team member and on the Wall Street Journal All-Star list. Rob has experience in aerospace and defense, banking, manufacturing and retail and consumer services. Rob earned his BA in Economics/Finance at Hampshire College, an MBA in Finance/Accounting at Columbia University, and is a CFA charter holder.