Spreadsheets and finance: End of a love affair?by
Despite the arrival of powerful technology capable of dealing with complex processes in new ways, spreadsheets still have a hold over the financial world’s heart. But is this just out of habit?
In the past few years, we have seen the arrival of powerful technology capable of dealing with complex financial processes in a way that spreadsheets are not able to handle. In spite of this disadvantage, spreadsheets are still very popular throughout the finance world. Why? As we will see, there are some important reasons behind this contradiction, which according to John O’Rourke, vice president of Host Analytics: “Begs the question of whether our collective reliance on spreadsheets is out of habit, necessity or fear of change.” Regardless of those reasons, sticking to spreadsheets may not be a sustainable situation for finance teams that want to update their processes and become strategic units for their organisations.
The popularity of spreadsheets: how long will it last?
Do spreadsheets have a place in today’s world? Absolutely. Spreadsheets, and Excel in particular, are still in favour with finance professionals. According to business writer Bob Violino: “Excel is not just surviving, it’s thriving. The application remains popular among finance professionals, including chief financial officers.”
Although spreadsheets come with several limitations, they are still used for complex finance processes. “Despite the limitations of the tool, which stem largely from Excel’s manual processes — sharing spreadsheets, correcting mistakes, sourcing data — almost two-thirds of CFOs continue to use spreadsheets as part of their budgeting and forecasting processes,” states a survey conducted by Radius Global Market Research.
There’s no question about the popularity that spreadsheets enjoy in today’s market. But how long will this last? There is a technological revolution that has brought various new solutions to the finance world that are more powerful than Excel. Because of this “some finance chiefs still want to reduce their reliance on the application in favour of programs that more efficiently automate data collection and analysis,” explains Nina Trentmann, bureau chief for CFO Journal.
Plus, some limitations associated with spreadsheets have become more evident, not only because of the new technology that has arrived, but also because of the way we are working nowadays. According to Trentmann, “Inputting data manually can be time-consuming and result in errors that go unnoticed, especially when employees are scattered in remote work locations.”
This is even more critical when spreadsheets are used for things they are not designed for. Imagine the consequences of having a manual entry spreadsheet on time spent on projects. Mistakes and human error aside, how can you accurately analyse the profit/costs or margin of each project if you don’t even have a specialised project time tracking tool in place? Even if that spreadsheet data is correct, who is going to double-check the data, consolidate it, and turn it into something that can actually be analysed and used as a valuable piece of information for strategic decisions? Finance controllers have to run these accuracy checks on spreadsheets. However, freed from spreadsheets, finance controllers can devote their time to the analytical role of interpreting financial performance, which is where their work is most valuable.
These kinds of issues were particularly evident during the coronavirus pandemic when many finance professionals were forced to work from home. That’s when many companies made the decision to embrace new technology. For instance, Levi Strauss & Co is replacing Excel with AI to manage its supply planning. “The pandemic reinforced the business case for the change,” argues Harmit Singh, the company’s finance chief.
Why are so many finance teams still using spreadsheets?
According to a survey of 200 finance leaders cited by Robert Freedman, lead editor at CFO Dive, there are three main reasons why CFOs still stick to spreadsheets: time and knowledge invested, flexibility, and costs. “First, the time and knowledge invested in Excel models makes it hard to ditch. Second, Excel’s flexibility is unrivalled. And finally, the implementation costs of a potential third-party solution,” argues the survey. Let’s see some details.
Spreadsheets stickiness: Familiarity and emotional engagement
Spreadsheets have been empowering finance departments for more than 30 years. When it comes to Excel, for example, millions of professionals around the world are not only used to working with this tool but also emotionally attached to it. According to Steve Rosvold, founder of CFO.University, users of Excel have grown to love it, and the work they do with it has become very personal. “Until competitors can detach this emotional engagement to Excel, they are fighting an uphill battle,” states Rosvold.
Plus, Excel’s popularity in today’s market hasn’t been truly challenged by similar alternatives. “Finance employees grew familiar with the program and cultivated their own ways of working in it over the years. It’s a habit many have found hard to break, even as new enterprise software and other spreadsheet offerings, such as Google Sheets, have become available,” argues Trentmann.
An ideal low-cost solution
Some of the new, more powerful technology that can be used to replace Excel can be expensive, especially for a startup or a small company. “With a remarkably low cost for the functionality they deliver, spreadsheets are the go-to choice for most start-up companies. Online spreadsheets like Google Sheets are free in usage. Offline spreadsheets like Excel only cost 10 euros a month,” explains Jonatan Gomes da Silva, co-founder and marketing and product manager at Sheetgo.
Along those lines, the familiarity that exists with Excel helps companies to save on training and implementation costs. “That near-universal familiarity with Excel, even to those outside finance, reduces training costs and allows users to produce results faster. It also makes sharing files between organisations easier,” argues Jon Acampora, owner of Excel Campus.
An easy-to-use tool for everyone
Spreadsheets are easy to use. and nobody needs the support of an IT department to deal with this tool. “Excel’s longevity means users can typically get answers to their questions about features and functionality and make needed changes quickly, without relying on an IT department. By comparison, if users need support for enterprise resource planning (ERP) or customer relationship management (CRM) platforms, they can run into an IT bottleneck,” argues Acampora.
Learning how to use spreadsheets is something that doesn’t require any training. “The learning curve to use them is quite small and almost no formal training is required,” explains Silva. “Traditional spreadsheets are simply the right ‘first choice’ for small-scale businesses. Later, as the business grows, the information can be migrated onto more powerful platforms.”
Powerful features with ongoing updates
Even if they are simple to use, spreadsheets like Excel offer powerful and multiple features that allow finance departments to work flexibly. Additionally, these tools are constantly updated with new functionality. For instance, “Microsoft has added capabilities like supporting larger datasets and a library of functions for data modelling to Excel,” explains Vincent Ryan, editor at CFO Magazine.
The disadvantages of spreadsheets in finance
Despite their popularity, there are several questions to ask about spreadsheets’ relevance, especially when looking toward the future of finance and the ongoing development of technology with improved capabilities such as cloud-based financial applications.
This new paradigm has encouraged a more critical eye toward spreadsheets among finance professionals. “Looking at the upside of spreadsheets, there’s the low cost, ease of use, intuitiveness, and almost no learning curve required. Now, weigh those benefits against the lack of version control, audit trails, and security as well as tedious data entry, and human error inherent in spreadsheets. The scales are increasingly tipping toward the need for more control, scalability and functionality that goes beyond the traditional spreadsheet,” argues O’Rourke.
Let’s take a look at some of the disadvantages of using spreadsheets in finance today.
Time is a serious issue when it comes to spreadsheets. According to the Radius Global Market Research survey, “The biggest complaint among spreadsheet users is the time required by manual processes to complete even basic tasks, such as budget preparation.” In fact, 29% of CFOs surveyed mentioned this issue as the biggest frustration regarding spreadsheets.
An article published by Datarails supports that claim, highlighting the time that finance professionals invest in managing data: “Even trained and experienced professionals say that managing Excel sheets for financial processes takes much of their time. This is not only a result of using a complicated program, but also due to hours spent every month correcting and consolidating data.”
Lack of scalability
Spreadsheets may be the best solution for companies with very simple financial processes. But when companies grow, they need more sophisticated analysis in order to make more strategic decisions. According to Thomas McIlheran, vice president of finance at Chargify, the problem with Excel is that it “becomes unscalable over time as the business grows. It becomes wrought with potential for error and can become a single point of failure for companies that rely solely on Excel experts to maintain.”
Not an ideal tool for complex processes
Even if spreadsheets offer powerful functionality, they are not ideal for handling complex financial processes such as budgeting, planning, and forecasting. As described by the following example mentioned by Ryan in his article, using Excel for some tasks can result in process inefficiencies.
Because budgeting and planning often require finance professionals to pull data from multiple sources and departments, it can get really complicated quickly. Take this example from Genpact, who had a client that was using Excel even though their financial planning included data from about 600 users. Simply put, analysing and consolidating this data in real time “wasn’t possible with Excel and emails,” said Lavi Sharma, vice president of Genpact’s financial transformation group.
Unfit for strategic matters
The role of finance is changing. CFOs and finance professionals will be much more involved in strategic, decision-making processes than transactional ones. Because of this, finance professionals will need to have tools that can process large amounts of data with high accuracy in real time. Spreadsheets alone simply won’t cut it.
So finance professionals are already moving towards the future with a different kind of technology. “The rise of cloud-based Enterprise Performance Management (EPM) software packages – and a new wave of solutions known as Corporate Performance Management (CPM) solutions – allows a company to take a more strategic approach to their business. In addition, these solutions allow the various divisions within a company to more easily collaborate and integrate their various contributions to the overall scheme,” explains Silva.
A new future for spreadsheets
Despite spreadsheets’ inherent limitations, many finance teams today continue to rely on them. However, that may not be the case for tomorrow’s world, especially if we consider the tremendous pace of the technological revolution that is empowering finance teams to adopt a more strategic role in the future. Spreadsheets aren’t going away anytime soon, but their current starring role is very likely to change in the years to come.
To begin with, there will be several companies willing to adopt new solutions to either replace or work alongside a spreadsheet. “The reliance on it as a standalone tool is likely to wane,” argues O’Rourke who sees this as something inevitable due to the more strategic role of finance, the effects of globalisation, and the need for real-time answers.
Similarly, some experts foresee a future where spreadsheets are going to be used for more transactional tasks. As stated by Silva, the role of the spreadsheet “will likely live on as an easy-to-use tool. A tool for simple tasks that don’t require robust analytics or data management.”
This, however, may not be the case for companies that are planning or have already invested heavily in integrations. In fact, the future of spreadsheets may well rely on their flexibility for integration so that data from tools for business management can be imported or exported from sheets, and be integrated into other systems (for example a timesheet add-in for Excel).
These are just three of the possible scenarios that can shape the future of spreadsheets. We don’t know which one of them will prevail. However, if we take into consideration the current technological revolution and the growing needs of more strategic financial teams, we can see that change is well on its way.
Beebole offers project time tracking software for organisations of all sizes, as well as a time clock tool. Apart from being able to measure time spent on clients, projects, and tasks, you can also control budgets, costs, leaves of absence, and timesheet approval within a simple dashboard complete with fully configurable reports.
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Carlos Quintana is a freelance writer specialising in business management and digital marketing. When he's not reading up on the latest trends to write about, you'll find him enjoying a football match or taking a cultural walk around Rome.