For most FP&A millennials, it's hard to imagine a world without Excel. For over 35 years, it has been among the most widely used spreadsheet tools, revolutionizing the way we plan, budget, measure and quantify data. Along the way, it has become the standard in nearly every industry. But even in acknowledging its impact, the question remains: is it sufficient to keep pace with the changing needs of the FP&A world?
The Beginnings of a Revolution
Many have fond memories of the productivity improvements that came from our first use of VisiCalc, Lotus 1-2-3, Multiplan, and ultimately Excel. No more handwritten spreadsheets requiring endless calculations that were ripe for error. Through the creation of spreadsheet software like Excel and its kin, the hours of effort required to maintain a budget were cut dramatically, and automated calculations meant that as long as the data input was correct, one could trust that the results would be equally correct.
Over time, our use of tools like Lotus and Excel began to evolve from personal productivity to becoming the basis for regular reporting and analysis. Part of the revolution involved not just the automation and functionality, but the ease of distribution. We were able to shift from antiquated mainframe budgeting systems to distributed spreadsheets shared via couriered floppy disks (remember those?), and ultimately by email.
This brought us the advantages of flexible and – sort of – multi-user input, but also required extensive programming to combine the data and ultimately upload it back to the mainframe budgeting systems. Along the way, we learned how to program in these tools and to create "applications" that corrected for the individualization that people incorporated into their personal productivity tool.
Today, multiple versions of spreadsheets reside on shared drives – either on corporate networks or in the cloud. While solving or mitigating some challenges, these technologies have also allowed errors and multiple truths to propagate rapidly across and even outside the enterprise.
The Cost of Productivity
For Finance functions, spreadsheet programs have saved countless hours of effort and have exponentially boosted productivity. Yet this has come at a cost. We have gone from "single source of the truth" (data in one core system) to "multiple versions of the truth." As multiple spreadsheets are updated by different users at different time intervals, using different calculations and assumptions, errors abound. Nearly 90 percent of all spreadsheets contain errors, with Ray Panko, a Professor of IT Management at the University of Hawaii and authority on spreadsheet practices, describing the problem as "pandemic."
"Spreadsheets, even after careful development, contain errors in 1 percent or more of all formatted cells," says Panko in an article by MarketWatch. "In large spreadsheets with thousands of formulas, there will be dozens of undetected errors."
But even without formulaic errors, the flexibility of Excel has allowed to users to perform analytics using 'versions' of the truth, simply because different parts of an organization count operational metrics differently, usually to support their view of business performance.
The End of Excel?
Technology has now evolved to the point where we are ready to "go back to the future." Flexible, cloud based tools can allow us to report and analyze data in consistent ways across platforms – based on an enterprise definition of each data element – and present that data visually using powerful tools that rival or exceed the charting capabilities in Excel and PowerPoint. Collaborative planning and modeling tools allow us to forecast by connecting all parts of the organization in a consistent way.
Just last week, one of our large clients proudly told us that he had shifted his last Excel model into a cloud based modeling tool. While it's hard to see the end of Excel any time soon, the signs are clear that we need to go back to the days of using it as a personal productivity tool, and not as a full-scale financial reporting application for enterprises.