Despite my attempt to dramatize the title, I’m afraid this particular debate cannot be definitively brushed aside with one fell swoop of the multi-dimensional sword. I cannot deny that the spreadsheet remains a flexible adhoc reporting tool and when adhered to in the correct use case can be a significant ally to a team of analysts. However, we must draw a distinctive line in the sand between an adhoc reporting tool, and a robust, reliable performance management solution which truly underpins a company’s decision making.
Can we really trust an offline spreadsheet model to reliably answer the critical business questions: How are we performing? Why are we performing that way? and What should we be doing to improve that performance?
Following our successful breakfast event last month I have had the pleasure of sitting down with some notable retailers, both of enterprise and midsize organisations and it’s quite clear that we are all facing the same challenges. Looking outward; you have to be agile to react to market shifts at a moment’s notice. Your decisions have to be informed, quick and effective. And you have to get it right the first time round. There will be few, if any, second chances. Looking inward; you don’t have confidence in the information you are using for business critical decision-making. You don’t have the right information in the hands of the right people, and you don’t have the resource to respond fast enough to changing forecasts and budgets. A business analyst should not spend the majority of his/her time collecting or churning data rather analysing the data to improve the performance of the business; Performance Management!!
Unfortunately there seems to be a common misconception out there among the spreadsheet community that these kinds of performance management applications are beyond their means or prohibitive to financial minds, so you continue to rely on the familiar spreadsheet for all your needs despite the documented risks. However it need not be an ‘either/or’ scenario, as we are seeing more and more companies augmenting a performance management tool that leverages spreadsheets but eliminates the risks and inefficiencies.
Eliminate spreadsheet errors: It’s often a much varied statistic but studies have estimated that 88% of all spreadsheets have errors in them, while 50% of spreadsheets used by large companies have material defects. I’ve witnessed cases where these errors prove not only costly in terms of time and money - but also lead to damaged reputations, lost jobs and disrupted careers.
Make confident decisions: create a centralized single version of the truth that combines data management, planning, budgeting, forecasting, consolidation, reporting & analysis. The performance management HUB. After all, we’re continuously trying to gather the right data as evidence to support the next step and draw data based conclusions. Can we really rely on such error prone mechanisms to form the basis of every critical business decision within our company?
Gain greater insight through multidimensional analysis: Even in smaller companies, financial and business data is simply too complex to be effectively stored, managed and utilized in two dimensional, row-column relationships. I always talk about the perfect template. Concentrate on defining the spine of calculations and let your dimensions align around it, i.e. SKU’s, Departments, Channels, Products, Entities, Subsidiaries, Cost Centres, etc. Don’t waste time ensuring the once perfect template remains perfect across 500+ worksheets. I’m sure you can all relate to that one………
Collaborate throughout the company & automate workflows: a single version of the truth, a single logon, a single platform and an audit trail of who, when, why.
React faster to changing business conditions: With multiple spreadsheets flying back and forth through cyberspace, who can truly know if everyone is working on the same version of the truth. Create multiple versions to simply track performance month on month, vs. Actual, vs. Budget, vs. PY, vs. Prior Forecast, etc. Analyse the movements to remain pro-active, not reactive to changes.
Simplify data aggregation: Streamline consolidation from multiple users, no more pulling and dragging from different spreadsheets.
Remember the Reinhart-Rogoff paper?!? An economical paper (“Growth in a Time of Debt”) which George Osborne freely admitted strongly shaped his debt reduction policies in 2010. A spreadsheet model became the focal derivative of that paper which concluded that public debt of more than 90% of GDP slows down growth. Catastrophically, a fatal defect was soon unhinged in the model, a mistake in a spreadsheet that could have been easily overlooked, a few rows left out of an equation to average the values in a column. However, the correction was substantial. The paper said that countries with 90% debt ratios see their economies shrink by 0.1%. Instead, it should have found that they grow by 2.2% – less than those with lower debt ratios, but not a spiralling collapse. Yet cutting public spending to avoid that contraction became a linchpin of both George Osborne's and the IMF's policies following the circulation of the paper. A cautionary tale for anyone entering a budget cycle via spreadsheets!!
It’s quite clear that a spreadsheet-based approach to performance management is inadequate to meet the challenges facing a growing midsize business. We need to robustly support key planning, budgeting, forecasting, consolidation, reporting, analytics and data management processes in one integrated solution. Immediate feedback will enhance decision support at all levels of the business, so you can spend more time on what you do best – running and growing your business.
“Did an Excel coding error destroy the economies of the Western world?” Paul Krugman, New York Times on the Reinhart-Rogoff paper.