Excel in Budgeting – Friend or Foe?

Most organizations still use Microsoft Excel as their budget preparation tool. The reason for this is that the general ledger or ERP providers don’t focus on, or even understand, the budget process or budget workflow and do not think about this from the perspective of the average user or institution. So, financial people took matters into their own hands and, during the 1990’s, decided to handle this application in Excel.

This has led to some severe limitations in what can be done for budgeting in organizations still exclusively relying on Excel. And, due to the economic climate and the general desire to improve overall financial performance, the budget process has become “mission critical”. This has left these organizations with a less-than-optimal process that has become a sore point to management, end users or budget managers and the financial team itself.

Here are some limitations with Excel and the problems that this causes:

  • Excel is not a database – which results in hours of manual data management by the finance department.
  • Excel is not a programming or development environment – resulting in a very weak application with severe limitations and greatly expanding the possibility of errors.
  • Excel requires lots of manual data entry. Often data needs to be re-keyed into other spreadsheets for reporting or other purposes. This redundancy creates version control issues and many hours of manual effort from resources best used elsewhere.
  • Excel is not flexible for budget preparation for users. Users are often limited to simple data entry as opposed to allowing for different accounts to be budgeted using different methods on a department-by-department basis.
  • Consolidation of the budget is cumbersome.
  • Version control is difficult. So finance has to try to manually manage versions – and version comparison is exceptionally cumbersome.
  • Excel offers no audit trails or workflow. Therefore it is not apparent when things have changed or been approved – and approved by whom.
  • Excel has limited security and is prone to formula errors. There is no user security and locked cells can be easily overwritten or even erased.
  • Excel is not loved by non-financial people. Financial people love Excel, but non-financial people do not. So, the original concept of using a product that everyone knows and loves is lost on the budget manager.

But, does this mean that there is no role left for this very popular tool? Absolutely not. Excel can still play an important role in budgeting if it is seamlessly woven into a dedicated, specialized budget solution AND it is used for the things that it was designed to be used for.

First and foremost, there needs to be a bi-directional link between Excel and the budget system where Excel is dynamically talking to the application database. Rekeying of data should never be required. Secondly, Excel is a very good two-dimensional calculator (rows and columns), is brilliant at analytical functionality, can be outstanding for formatting output and, in the right hands (finance) can be exceptional for pivot tables and multi-dimensional analysis. If the financial team views themselves as Excel experts, this group should try to take advantage of their love and knowledge of Excel – but without forcing that knowledge and love affair on the budgeting end-users or trying to have Excel handle the heavy lifting of the application. So to summarize, here are some things where you can and should use Excel but only if dynamically attached to an application that possesses budget intelligence and requires no re-keying of information.

  • Excel is a good two-dimensional calculator for some calculations. So, financial people can still use the calculation functionality, especially for more simplistic and customized calculations without learning another product.
  • Excel is a good analytical tool. Financial people still love Excel and want to be able to perform financial analysis functions in it.
  • Excel is great at formatting output or reports (but not managing data). There is no better way to lay out customized or ad-hoc report formats than the visual capabilities of Excel. If the report can be built in Excel, but populated from a secure application and database, you can get the best of both worlds.
  • Excel is great at pivot tables. Sometimes, organizations want to slice and dice data but not buy expensive and difficult to maintain multi-dimensional separate applications. Excel offers similar capabilities for the experienced user without the expense and/or maintenance. Why not utilize what you already know?

Finding the right balance of how and where to use Excel in any organization is the trick. You need to analyze your own internal skill set and then determine how much you choose to utilize your knowledge of Excel within the budgeting, forecasting and variance reporting and analysis processes. Doing this, allows you to leverage your existing knowledge and prevents you from having to learn some vendors unique way of doing something that you already know how (and love) to do anyway. Plus it can eliminate high cost and low utilization of foreign products.

Excel…it can be the foe of the budget process if left to it’s own devices and a friend if it is used properly within the confines of a packaged budget application that has budget intelligence woven in.

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