In our recent article, we highlighted the crucial role of FP&A during the ongoing crisis. However, we also concluded that there was considerable room for improvement and that technology beyond Excel has a massive part to play.
In research performed by the ACCA a few years ago, 75% of those organisations surveyed acknowledged that Excel was still the principal technology skillset for their Office of the CFO teams. Our recent GenerationCFO research reinforces that most organisations still rely heavily on Excel in one form or another. The question is, how far will Excel take the FP&A team, and what role can it play?
Excel is the starting point
As the great tennis player Arthur Ashe once said, “Start where you are. Use what you have. Do what you can.”
For most organisations, this means starting with Excel, the technology of choice for accountants. It’s the tool they turn to first for planning, analysis and reporting. And why not? It is easy to learn and use, it is widely available and accessible, and it has rich functionality and capability. Whether you use it for reporting or planning, Excel has something to offer. You only need to look at the multiple on-line ‘Excel’ forums to appreciate the expertise developed over the years, freely available to all – another major selling point.
Interestingly, an increasing number of organisations have now adopted MS Power BI to work alongside Excel to enhance analysis and reporting capability. This tool provides a further level of ability, especially around visualisation, that is not available as standard within Excel. We can compare this to planning, where Excel is often used exclusively as the primary tool to deliver this process.
Excel as a modelling platform
There is no doubt that Excel has the functionality and capability to build very sophisticated models. This includes those that integrate P&L, balance sheet, cash flow (three statement models) and others, such as consolidation or discounted cash flow (DCF). As we discussed in our previous article, an integrated three statement model is critical in a time of crisis.
We have seen examples where spreadsheet-based planning processes have turned out problematic. In 2018, Conviviality was sunk by an error in their spreadsheet forecasting model. Errors of this kind usually are a result of poor design or development disciplines such as testing. Yes, this could occur as easily within any software, not just Excel. However, it is far more unlikely within other software as their development attracts a higher level of project control, testing and governance. Therefore, we can address this issue within Excel, but unfortunately, it rarely is.
So, if Excel can deliver sophisticated and complex modelling, why might it not be the best tool to use even if better development controls are put in place?
A model is not a process
We are under increasing pressure for finance process to be efficient and effective. Of course, the solution design needs to model the business accurately. This is fundamental. However, achieving efficiency and effectiveness of the planning process goes far beyond the model itself.
As an organisation grows, so we increase the number of collaborators to the planning process. This is necessary to achieve the mindset change that breaks down the traditional silos between finance and operational departments. This need for collaboration creates three additional capability requirements:
- Workflow management; and
Let us look at these in more detail.
Excel workbooks can be deployed on different platforms and worked on simultaneously by multiple users through the ‘Shared Workbook’ functionality. This may work for a handful of users. However, as the numbers increase, this becomes increasingly complex and unmanageable.
Workflow is a crucial function of any efficient and effective process. It is essential to be able to monitor progress as well as review, question and sign-off contributions. The benefit to a finance team of gaining control of a planning process through the introduction of workflow alone is highly underestimated. As it stands, out-of-the-box Excel does not have workflow capability.
There is capability within Excel to protect and securitise workbooks. However, while Excel does provide worksheet and workbook password-based protection, cell locking and hiding of formulas, and password protection of macros and Add-ins, the level of protection offered is relatively low. As plans become ever more detailed and driver-based, it is necessary to apply a high-security level to the process.
There are several other considerations worthy of note. Of course, you can enhance Excel using VBA or other solutions to cover some of the weaknesses identified. This will require the management of multiple solutions, with a related increase in maintenance overhead and the need for skills beyond Excel.
The other consideration is auditability. This not only relates to the need to track changes in data but also changes in model design. Yes, Excel does have basic functionality to track change. However, it is doubtful to meet the requirements of many finance and IT teams.
The benefits of an enterprise solution
Suppose you are developing your planning, analysis and reporting processes to meet the increasing demands currently being put upon them. In that case, you may reach a point where an Excel-only approach no longer enables you to deliver an efficient and effective process for the reasons discussed above. This is where you should consider an enterprise planning solution.
In terms of modelling, enterprise planning solutions deliver the same level of complexity and, you could argue, go significantly beyond the functionality offered in Excel. Yes, you may have to learn new formulae or functions. However, many Excel users would also need to learn advanced Excel-modelling techniques to achieve the same capability. Also, the functions in an enterprise planning solution are explicitly aimed at modelling and planning.
The analytical and reporting capability is included as standard within most enterprise planning solution platforms. You may have another analysis and reporting tool (such as MS Power BI) is already in use within your organisation. You can likely link seamlessly to the enterprise planning solution as a data source with that in place. Multi-user collaboration, workflow and securitisation capabilities are out-of-the-box and only require configuration.
Another benefit of an enterprise solution is manageability. There are often controls and checks built in that provide a higher level of confidence around solution development. And, of course, a support desk, user groups and forums are there to help.
Finally, let us not forget Excel. Nearly all technology vendors understand the need to embrace Excel and utilise its strengths as a user interface for planning, analysis and reporting. Most solutions continue to operate and develop robust interoperability with Excel, and increasingly with Word and PowerPoint. This puts the controls and securitisation of an enterprise solution behind MS Office tools’ capabilities.
In the next article, we look at ‘Making the leap to an enterprise solution’ where we will look at when to do this and how to leverage your current model and process.