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Study Finds Finance Professionals Turning to Software Tools to Improve Forecasting and Budgeting

By May 21, 2012Article

Editor’s Note: A startling number of business and finance professionals still rely on spreadsheets for their planning, forecasting and budgeting processes. Quantrix, a global provider of business modeling and analytics solutions, conducted a recent survey of 158 organizations to analyze the business challenges resulting from the use of spreadsheets and identify organizational constraints for adopting software solutions. I talked with David Phillips, marketing manager at Quantrix, about the survey findings detailed in the report (“Quantrix 2012 Budgeting Forecasting and Planning Survey: Insight into Processes, Solutions, and Business and Finance Teams”). Was there anything in the survey data that was surprising to you?
Dave Phillips: Yes. The fact that respondents are spending 72 percent of their time using spreadsheets and doing manual processes for planning, forecasting and budgeting. One of the big issues with spreadsheets is that people spend so much time doing copying/pasting, checking for errors and updating the business model that they don’t have much time to do value-added analysis and make decisions.
Because they’re using spreadsheets, there are opportunities for a lot of errors to be introduced. In fact, a study a while back that found that 90 percent of complex spreadsheets had errors. That’s a big problem. Then because they need to spend so much time updating the spreadsheet they don’t have time to keep the model updated, and that impacts time available for decision making. Practically everything is automated now. Why are these companies still using spreadsheets?
Dave Phillips: Spreadsheets have been around over 30 years and are included on every corporate desktop, and people are just used to them. Also, businesses often don’t associate a cost with spreadsheets; so even though there is a high level of pain associated with using them, they haven’t been motivated to try other solutions. Additionally, many CFOs are in the later stages of their careers and are not really open to change.
But things are changing in that regard. There’s a new level of manager that’s coming up, and they’re more open to using software tools other than spreadsheets. Your study found that organizations waste a huge amount of time redoing budgets and planning and forecasts because they didn’t get it right the first time. Apparently that’s been pretty much acceptable. What is changing now so that this is no longer deemed acceptable? Is it the economy or a more competitive market?
Dave Phillips: It’s a number of factors. I think the economy is certainly one as it creates the need to be more responsive to volatile economic conditions. Competition is also a factor. If you’re a manufacturer and something happens and all of a sudden your forecast decreases by a substantial amount, you want to make sure that you’re not going to produce those goods only to have to hold them in inventory. Organizations are looking for any kind of competitive edge.
Another factor is the improvement in technology and the increasing adoption of collaborative software. Spreadsheet-based systems tend to be very siloed and the knowledge transfer moves very slowly compared to collaborative, server-based technologies and thin client access. The need to collaborate, move data through the organization very quickly and make decisions much more quickly are definitely key drivers. Can you share an example of how this would help a company’s bottom or top line?
Dave Phillips: We have a client that provides financial advisory services to companies in the transportation industry. Using Quantrix, our client was able to work with large data sets (20+ million records) and fuse together the data from multiple sources. It was able to create very granular scenarios within a short timeframe to determine whether or not its customer should make an investment in a distressed company. (It did and made a ton of money.) It helped another customer discover an unexploited shipping lane.
Another client, a leader in private education, needed to move from its system of linked spreadsheets that were difficult to manage and error prone to a solution that would seamlessly scale as they bring new campuses and programs online. They needed the ability to model and interact with live data. Using our solution, they now have the flexibility to model enrollment, tuition revenue, human resources planning and marketing expenditures. They can now budget and plan with live data looking at a three-year run rate. What are you hearing from your potential customers about their main pain point causing them to consider a software tool to help them in planning, forecasting and budgeting?
Dave Phillips: About 90 percent of our customers come to us from the spreadsheet model. Their big complaint is that spreadsheets provide only a two-dimensional representation of their business when it’s actually multi-dimensional. Most companies sell multiple products or services, have different channels and work with different currencies. Spreadsheets don’t adapt very well to that kind of environment. So when they want to scale or introduce a new product, they have to go back and rework their spreadsheet.
And over time, the spreadsheets become really large. Potential customers have told us that when they run model calculations, they have to come back the next day to finish because the spreadsheets were so large. In a multi-dimensional business, the calculation time gets really bogged down.
One of our customers replaced another application and implemented Quantrix because they needed to empower the business users doing modeling and business intelligence. It’s often an iterative process that takes a lot of time, effort and money. The business analyst tells IT the stack they need. IT has to program that and then send it back to make sure it’s want the analyst wants. Then the analyst often responds: “Things have changed in the month since I sent that to you. Now I need these tweaks.” That agonizing iterative process is a lot of the reason why people tend to fall back on spreadsheets.
This particular customer found that our tool enabled their end users to design, build and manage those models over time and create a solution that was much more nimble and responsive to the changing business environment.
We designed Quantrix for business users. Most IT departments are already over-extended. So we put the business user in the captain’s seat and let them do what they need to do. That really enables them to be much more successful and enables the company to be more successful. Are there other pain points driving companies to software solutions for financial processes?
Dave Phillips: Another pain point is not having the ability to do “what-if” scenarios on the fly. That’s very challenging with a spreadsheet. The inability to integrate with data sources without having to manually copy/paste it into the spreadsheet is another problem.
Other potential customers coming to us are using enterprise budgeting and planning tools instead of spreadsheets, but the tools don’t provide flexibility. When companies are in a volatile business climate, they need to be able to change their model for forecasting/budgeting purposes and need flexibility to do that very quickly. That’s actually a difficult task with a lot of the applications available in the market today. So there are many reasons to switch from spreadsheets to software tools; yet a lot of companies still haven’t taken that leap. What’s holding them back?
Dave Phillips: Usually the key issue is that someone on the finance team is change resistant. And some of them believe that part of the value they bring to their company is being a spreadsheet guru. Once you sell the product, then do you have any trouble with end-user adoption? That’s a challenge with a lot of software applications.
Dave Phillips: It’s ingrained in the minds of most people who have been working with spreadsheets for 10-20 years that two-dimensional spreadsheets are the way things work. With our software tool, they have to relearn things in a multi-dimensional, real-world way. Getting over that learning curve usually happens within a couple of days with our tool. We’ve invested a lot of money and effort into building learning resources on our website. Are there any particular verticals that are more in need of using software tools for planning, forecasting and budgeting?
Dave Phillips: We have a number of large customers in financial services that are doing things like portfolio management, mergers and acquisitions rather than straightforward budgeting and planning. They need a tool that’s very multi-dimensional that can handle a lot of data.
It’s also especially valuable for users in higher education because there are a lot of moving parts within this vertical. Budgeting, planning and forecasting are based on student enrollment, and that’s a different paradigm than an average company.
Manufacturers also benefit because they need a tool that enables them to be flexible in planning processes introducing new products or discontinuing products. Also, the economic climate may be such that they need to revise their forecasts and then set production planning based on that. At the beginning of our conversation, you mentioned doing value-added analysis. Is this usually a segmented activity within the finance team only?
Dave Phillips: An effective software tool can be used across an organization to do things such as production planning, what-if” scenarios and planning for human resources. With Quantrix, companies also benefit from its ability to link all those sorts of models together into an integrated model. So when something happens somewhere in the organization, the tool enables people in other departments to see the downstream effect. That’s very powerful in today’s highly competitive, fluid business world.
The survey was conducted during February 2012 and had 158 responses from B2B and B2C organizations ranging from 50 to 5,000+ employees. Nearly 25 percent of the respondents were CEOs; others were CFOs, Controllers, CIO/IT management, and departmental or other business managers. Click here to download the study report.
David Phillips is marketing manager for Quantrix. He brings broad experience in software company operations, from marketing and sales to product development and project management. He has worked with both startups and industry-leading organizations. As part of an international business career, David has lived and worked in N. America, Europe, Asia and Australia. He is an alumnus of the MBA Enterprise Corps, a U.S. Agency for International Development funded program that assists companies in developing countries.
Kathleen Goolsby is managing editor at