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Spreadsheet Budgeting and Forecasting Red Flags: How to Know When It's Time to Switch

September 5, 2017
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Is your budgeting process consistently bogged down, slow, and dare I say, painful?

It might have less to do with the budgeting and forecasting process and more to do with the system your organization is using, namely spreadsheets.

While having a spreadsheet-based system can work well early on in your business, as you grow, more advanced tools are needed. However, some businesses don't realize that they've outgrown their spreadsheet system until it's too late.

In this post, I want to highlight what I like to call spreadsheet ‘red flags.’ These might seem like no big deal at first blush, but they can be quite damaging to your ability to accurately budget and forecast over the long run. Those issues can then lead to even bigger problems, which I'll cover in more in depth below.

No Single Source of Truth

Having the right data is incredibly important to any business—not only for the budgeting and forecasting process but for operational decision making as well.

Unfortunately, using a spreadsheet-based system makes having the right data harder than many realize.

Spreadsheets are often passed around to many different people and departments within the organization. Different departments have their versions of templates which may (or may not) coordinate with the 'official' version.

Take one look at your email, and you'll no doubt see different versions of one spreadsheet.

Operating this way makes it extremely difficult to determine which is the 'right' version with the correct data, the single source of truth. This makes modeling inherently unreliable. It's also important to remember that it takes substantial time to consolidate all this data, something that can be a drain on employee resources.

It sounds exhausting, doesn't it? It's no wonder that data integrity issues are one of the most common complaints from organizations that budget using spreadsheets.

Difficult to Drill Down

Organizations often run into trouble with spreadsheets when they try to drill down to get the key information behind a top-line number.For top-line numbers, spreadsheets are fine. But it's more often the case that department managers and decision makers need to dig deeper to find the data they really want—the data that shows the true health of the business.This inability to drill down in the conventional spreadsheet system can hamper decision making.These issues exist not only in budgeting and forecasting overall but on a departmental level as well. For example:

  • HR managers who can't accurately drill down into payroll and benefits numbers can end up over- or underestimating future needs.
  • IT managers who can't see cash flow projections might put off data infrastructure updates and projects when it's unnecessary to do so.

Not being able to see the details beyond the top-line numbers will leave your business at a competitive disadvantage in both agility and decision making. It can also impact forecasts and operational strategy.

Poor Modeling Capability

Spreadsheets become burdensome with modeling. There are only so many advanced calculations and macros that can be run on a spreadsheet before the system gets overwhelmed.

When that happens, your organization can be left flying blind. Without reliable models and projections, it's virtually impossible to produce accurate budgets and forecasts.

With all the data at our fingertips today, a system that thrives on more information will always be better. Moving away from spreadsheets will let you to create in-depth dashboards that highlight your key performance indicators, run 'what-if' scenarios and rolling forecasts.

Each of these capabilities offers great insights into the real health of your business. Having this type of information allows you to create a forward-looking operational strategy, setting your business up for success over the long run.

Final Thoughts

Consider the red flags I mentioned today. Do they sound familiar at your organization?If the answer is yes, you'll want to take a different approach to budgeting and improve your capabilities—it's time to leave the spreadsheet behind.If you're still using spreadsheets for your budgeting and forecasting and you're considering a transition.

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