In-Depth

Study Finds Spreadsheets Obsolete for Budgeting and Forecasting

Companies adopting dedicated planning and budgeting applications (instead of spreadsheets) typically achieve greater accuracy while budgets and plans are more consistent, though time spent on these tasks wasn’t reduced.

• By Stephen Swoyer
• 03/24/2004

If the results of a recent study from Ventana Research are correct, electronic spreadsheets, such as Microsoft Corp.’s venerable Excel program, are so last millennium—when it comes to budgeting and planning, anyway.

In fact, argues Ventana researcher Robert Kugel, electronic spreadsheets have become obsolete tools for budget planning and forecasting—much like the adding machines and paper-and-pencil systems they replaced 20 years ago. The upshot, he says, is that dedicated software tools have distinct advantages over spreadsheets for executing the budgeting and planning process.

Why should you eighty-six a technology that you’ve been using effectively for years now? According to Kugel, Ventana’s recent Budgeting and Planning Study found that companies that adopt dedicated planning and budgeting applications instead of spreadsheets typically achieve greater accuracy and are able to plan and budget more consistently. Dedicated tools have other advantages. For example, writes Kugel, companies using them were more likely to drill down into their budgets to get to underlying data.

Some companies might expect that using dedicated tools will reduce the amount of time spent budgeting and planning. Ventana found that this wasn’t the case, however. Instead, companies are taking about as long as they always did – although they’re using their time more effectively.

“We did not find that companies using budgeting software were spending appreciably less time on the process. This confirms other research we have done on this topic where we discovered that companies did not usually cut the amount of time they spent budgeting and planning, they made the time spent more worthwhile,” Kugel writes.

In spite of the manifest benefits of dedicated budgeting and planning tools, only 21 percent of companies are currently using them, while 11 percent are tapping the budgeting and planning functionality included in their ERP systems. That means that a clear majority of users—64 percent—are using spreadsheets, in spite of the inefficiencies associated with the use of such tools.

“When first introduced, electronic spreadsheets were a big improvement because they eliminated the time consuming elements of manually prepared budgets,” such as using adding machines and checking for errors, writes Kugel. “Yet, they quickly added their own inefficiencies as organizations took the time saved to make their plans more detailed.”

The upshot, Kugel concludes, is that it’s high time for organizations to dump their spreadsheets. Some dedicated tools have the look and feel of a spreadsheet application such as Excel—some actually use Excel as their interface—which could help make the transition easier for users. “Spreadsheet-based budgeting and planning processes are so laborious and time consuming they prevent finance organizations from intelligently applying the information collected, and make it too difficult to revise plans quickly in a coherent fashion when conditions change,” he writes. “We have found they prevent companies from getting deeper collaboration and the accuracy and buy-in that usually come from having broad participation.”