It’s the ubiquitous spreadsheet program, installed on billions of computers worldwide. Almost anything that can be performed with numbers can be done using it; and everyone in your business can open and interpret a spreadsheet.
You have to question whether it is the best tool for the job, however, when a CFO is using the same program for analysing business unit performance as his daughter is using for her homework assignments.
A program with such a wide application invariably becomes a jack-of-all-trades. But, as the saying goes, that means it’s the master of none. In this article we’re going to explore four of the key shortcomings of Excel for financial reporting:
1. Excel is too complex
Anybody can learn the basics of Excel; few people, however, have the ability to navigate the hundreds of formulas it offers.
The problem is exacerbated when models are being fed from multiple data sources with complex logic and algorithms. An organisation may have only one or two people who understand how a particular file works – failing the “hit by the bus” test. People leave, they get sick, or their priorities change. And it takes only one user to link to an out-dated file to set off a ripple effect across the organisation.
Alternatively, one person may helpfully amend a cell without realising multiple formulae rely on the number in that cell. The cascading effect on reliant data can be catastrophic. Unlike a comprehensive business intelligence (BI) system, which will provide an auditable trail of whom did what and when, Excel won’t necessarily reveal which individual modified a cell incorrectly. This creates a governance nightmare.
2. There are always mistakes in Excel
It’s not that Excel makes errors … it’s the humans using the program. Is anyone going to notice, for example, that an inattentive accountant used an array lookup referencing the wrong year of data, with a flow-on effect to all other formulae relying on the result?
When a file has been in use for some time with several people authorised to add to or amend it, eventually something won’t work: a column won’t resolve, a link will be inexplicably broken, incompatible commands will cause the file to corrupt, or any of a multitude of other problems stop it from producing accurate reports. Finding the root cause may be the proverbial needle in a haystack. Restoring from a backup may only be a temporary fix. Does your business really have time to rebuild it from scratch?
3. Excel lacks governance controls
Every business has information that should not be disseminated widely. Excel offers a password-protection system, but access is all or nothing. If the wrong employee is allowed in, suddenly the CFO’s salary details are being shared around the warehouse.
An organisation needs to be able to provide employees with access to the data they require to do their job without exposing sensitive company information. A good BI system allows different people in the organisation access to information on a need-to-know basis from a sole protected data source.
4. Excel is time-consuming
There’s not a user in the world who hasn’t experienced Excel lag: the interminable wait after hitting F9 (calculate) on a large spreadsheet filled with complex formulas. In a particularly memorable case, one of ITeM Group’s clients was even housing their reporting spreadsheets on servers because their workstations simply didn’t have the processing power to crunch the numbers in the file.
The number of cells in an Excel spreadsheet is almost unlimited, but it can become unmanageable beyond a certain size. The more formulae working in each spreadsheet, the tougher it becomes, until it is unbearable to use.
So what’s the right way to use excel?
There will always be a place for Excel in business, and that place is alongside a fully functional BI system. Accountants will never stop loving Excel for ad hoc queries and financial models, and admin staff can create bespoke charts and graphs beloved for one-off presentations.
But when it comes to providing recurring reports pulled from timely, accurate numbers, a tailored business intelligence system will save time, money and, quite possibly, your sanity.
The smart CFO recognises the need for true business intelligence – a solution designed around your business, your issues and your requirements.
If you’re a CFO who would like to understand more about best-practice BI for financial reporting, you might like to download our free e-book: The nine key considerations when selecting a business intelligence solution for financial reporting (PDF)