By David Matheson, SmartOrg
In a recent research paper, the Aberdeen Group finds that companies that “move beyond spreadsheets” for financial planning and forecasting can dramatically improve results, while increasing efficiency and effectiveness. Companies that use spreadsheets for these activities were found to experience a decrease in efficiency by more than two percent per year, whereas those that moved to automated methods improved efficiency by more than one full percent per year, a gap of some three percentage points. While these ratios may seem low on the surface, when multiplied by the number of users, the annual cost can be substantial, considering wasted time, rework and delayed decisions.
Additional studies by various organizations have shown as much as 80% error rate in spreadsheets; an article in the EndUserComputing blog cites the cost of spreadsheet errors to be some $11.5 billion annually.
Demands are particularly strong for flexibility and accountability in budgeting and forecasting. Aberdeen’s report lists five pressures on these processes, among them the inability to trace business success to its key components and the need to dynamically account for change. Many organizations experience brown-outs during their budgeting and forecasting processes because the cycle is too long and highly labor intensive. When changes occur, it is often very challenging to update information, particularly when multiple spreadsheets are involved.
I don’t wish to put down spreadsheets. Spreadsheets are wonderful tools, but they are ill-suited to responding to these pressures, particularly in an enterprise setting. The Aberdeen report identifies four key issues surrounding the conventional use of spreadsheets:
- They are not easily shared and can often bring along problems with version control.
- They may have to be manually updated.
- It is difficult to tell if data is up to date.
- They can impede collaboration because employees may not understand or could “break” the formulas contained within them.
These issues are supported by numerous academic research reports on the use of spreadsheets. Research reveals that spreadsheets are rife with mistyped numbers and logic errors involving mistaken formulas or errors in reasoning. The worst errors are frequently omission errors, in which something of importance is left out. Time pressures imposed by budgeting and forecasting processes tend to increase the probability of these errors.
These often reflect issues surrounding deployment; for instance, emailing spreadsheets for updating and review decreases effectiveness, increases the chance for errors and slows down the process.
Aberdeen recommends employing various forms of automation around the use of spreadsheets to support budgeting and forecasting processes.
The bottom line: business relies on spreadsheets to collect data. To support analyses. To create forecasts. And to guide decisions. Spreadsheets are critical to the success of your business and deserve appropriate scrutiny and attention from senior management.
SmartOrg addresses issues raised in this article with a new product, code-named Astro, a spreadsheet management platform that transforms spreadsheets into collaborative, dynamic and reliable web-based applications. Astro enables users to update data, track changes, compare different versions and scenarios, and aggregate multiple spreadsheets in real-time, addressing the limitations of spreadsheets to improve budgeting and forecasting processes.