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New Research on Spreadsheet Usage for Budgeting and Planning in Midsize Organizations

Originally published September 15, 2009

Over the past ten years, BPM Partners has closely tracked the usage and benefits of analytically oriented software applications in all areas of business performance management. The budgeting and planning processes have been among the prime beneficiaries of dedicated applications. However, most software vendors first developed performance management applications with the large enterprise in mind, given the high price points and maintenance fees they could achieve in that target market segment.

In Q1 of 2009, BPM Partners conducted a survey of 221 midsize businesses to understand the current pains with their internal processes for planning, budgeting and forecasting. The survey sought to uncover trends in the technologies being utilized to support these processes, in particular to look at the differences between spreadsheet-based processes and those driven by a dedicated analytical application.

While spreadsheets are a standard tool for managers, allowing quick and easy calculation and presentation of data, they are essentially a desktop tool. Managing an enterprise process of any complexity typically requires an enterprise platform. When large corporations initially began to use dedicated applications for planning, budgeting and forecasting, only custom solutions were available. Software vendors then began to create packaged applications and users found that these systems could foster greater collaboration, improve data accuracy, reduce cycle times, enable deeper analysis, and provide a platform to drive and monitor their business processes. Initially, though, these systems were beyond the reach of midsize businesses. However, as technology improves and becomes more accessible from a cost and maintenance perspective, more and more small to mid-sized companies are finding ways to achieve the same efficiencies and benefits.

Today, an enterprise platform for budgeting, planning and analysis is presumed to address the following six aspects:

  • A spreadsheet-like interface to ease the way for new users

  • Workflow capabilities and privilege levels for data input, administration and data access

  • A central database to deliver consistent, reliable, up-to-date information in different views

  • Integration with different data sources including multiple general ledgers and other transactional systems

  • A variety of views and scenarios, which some term multidimensionality

  • Integration with common desktop applications for presenting information, such as compatibility with Microsoft Office or other end-user oriented reporting tools
This recent study determined they indeed can benefit from investing in such technology. Specifically, we were able to draw some conclusions about companies that have migrated from spreadsheets to dedicated applications for budgeting and planning.

To begin, our key “strategic finding” is that while in the past automated performance management applications didn’t have the right combination of price and functionality that midsize enterprises need, they now do, and successful implementations prove the advantages of adopting analytical budgeting solutions.

And none too soon. Companies in this size range have been squeezed between big-league information demands and their overreliance on spreadsheets. They have also gone through growth and organizational changes that their budgeting and planning simply could neither keep up with nor support.

Key Findings

More specific findings of the survey indicate that at companies that implement well-chosen analytical budgeting systems:
  • There is more success aligning financial goals across business units.

  • Management has a better understanding of their cost and performance drivers and has a more forward-looking view of the business.

  • Financial processes consume less time and fewer resources, and provide more flexibility for making changes.

  • Business unit managers play a more active role in planning.

  • Financial staff and other stakeholders are more satisfied with their planning and budgeting, and are better prepared to support growth.

  • Most users of performance management applications say that the technology has met or exceeded their expectations.

  • Complex performance areas such as operations and personnel/compensation can be managed more efficiently.
On the other hand, companies in the survey that continue to rely on spreadsheets and manual processes reported more difficulties than other respondents in several areas:
  • Keeping up with organizational and data model changes

  • Data integrity

  • Version control

  • Collaboration

  • Financial consolidation
Companies that use performance management applications for planning, budgeting and forecasting are generally satisfied with the software. This is not the case among midsize companies wholly reliant on spreadsheets for budgeting; and of all the constituents of the process, the finance department is the least satisfied. Of the 138 survey respondents whose primary planning, budgeting and forecasting technology is spreadsheets, only 27% of respondents say their finance staff is “very satisfied,” as compared to 47% of those whose primary technology is an automated performance management application (see Figure 1).




Figure 1: Respondent Satisfaction by Technology Approach

Through our interviews with finance executives, we uncovered clear reasons why companies move from spreadsheet-based solutions to performance management applications:
  • Formula and linking errors in spreadsheet based systems undermine confidence in the data

  • Manual processes are labor intensive and don’t leave time for value-added analysis

  • Spreadsheet-based systems make it difficult to make changes to the data structure or to revise budgets or forecasts

  • Senior management wants more frequent forecasts and more flexible reporting

Additional Findings

  • Companies also report a lack of “ownership” of the processes by the business units, and key constituents of these processes are dissatisfied with the output, especially business unit managers (only 20% saying they are very satisfied), the finance staff themselves (only 27% very satisfied) and executive management (only 34% very satisfied).

  • Another key problem identified is an inflexible system that does not allow easy revision to forecasts and budgets. Conversely, in companies using an enterprise performance management application, over one-third of business users are said to be “very satisfied” with the output of the planning and forecasting process, along with 47% of both finance staff and executives.



Figure 2: Satisfaction with Budget and Planning Process by User Group
  • Nearly one-quarter of spreadsheet users plan a substantial change in their planning, budgeting and forecasting function in the next two years. A similar number expect to change their offline processes. With 50% planning to change their systems and processes, it is clear that there is urgency about finding a remedy to the existing dissatisfaction.

  • Users of enterprise performance management applications have a better handle on their businesses drivers. As compared to companies with spreadsheet-based systems, these companies are better able to define their key performance indicators and cost and revenue drivers, as well as their key financial ratios. In addition, they report a greater ability to align financial goals across business units.

  • Many enterprise planning, budgeting and forecasting solutions are available but most are out of the price range of midsize companies. The most common reservation that midsize companies had regarding performance management applications was anticipated high cost. Through due diligence, though, companies were able to find packages that met their needs in terms of functionality, ease of use, fast implementation and price.
In addition to these findings, the survey helped highlight some of the largest problems that remain for spreadsheet users including a significant 67% that say the process takes too long, and 55% report they do not have sufficient time to analyze data (see Figure 3).




Figure 3: Problems with Spreadsheets are Tied to Human Expertise and Coordinating Users’ Collaboration

Lastly, there is a tremendous gap in satisfaction between spreadsheet users and analytic application users, with only 27% of spreadsheet users reporting that their expectations were met or exceeded during the budgeting, planning or forecasting process compared to 74% of analytic application reporting their satisfaction (see Figure 4).




Figure 4: Technology Investment Satisfaction

Conclusion

The results of the survey indicate that midsize companies gain many advantages from investing in performance management applications for planning, budgeting and forecasting. Some of the solutions available now offer the necessary comprehensive approach to enterprise budgeting with the requisite functionality at a price that midsize organizations can handle. This is a welcome change because in the past, analytic budgeting capabilities needed by midsize companies were not obtainable in their price range.

The research also indicates that while all midsize companies could benefit by moving beyond spreadsheet dependency, factors such as business complexity, management changes, organizational restructuring and perceived drawbacks to spreadsheet-based manual processes are the common catalysts for change. The experience of interview subjects affirms the benefits of migrating to more sophisticated planning tools, as well as the challenges. Due diligence in evaluating software solutions needs to address internal processes and system needs, as well as software cost, functionality, implementation best practices, training needs and other user experiences. Given that the midsize company is often pushed to upgrade its budgeting because of organizational growth and change, it’s particularly important that an automated analytic solution be based on a comprehensive vision of what enterprise software should deliver. Key aspects are central database reliability, multiple views of data and reports, familiar interfaces, workflow or other automation, and integration.

For a full white paper on the research conclusions, click here.

For an upcoming webcast on this subject, please register here.

  • John ColbertJohn Colbert
    John, Vice President of Research and Analysis at BPM Partners, is responsible for market trend analysis, services development and technology vendor relationships at BPM Partners, the leading independent authority on business performance management (BPM) solutions. Prior to BPM Partners, John was Senior Director, Product Marketing at Hyperion Software, responsible for directing Hyperion's OLAP Business Analysis financial software products. Earlier in his career, John was an end user of performance management solutions while a product manager at Raychem Corporation, a Fortune 500 company that has since been acquired by Tyco. John has contributed to many publications including the New York Times, BPM Magazine, Information Week, Business Finance and eWeek, and he is a regular presenter at performance management related conferences and web seminars.

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