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Is Excel Budgeting a Mistake?

Excel's critics say that Excel is fundamentally unsuited for
budgeting, forecasting, and other activities that involve
collaboration or consolidation. Are they correct?

by Charley Kyd
December, 2006

One of Excel's most widely quoted critics is Robert D. Kugel, Senior Vice President and Research Director for Ventana Research.

The nature of Kugel's rhetoric is fairly consistent. To illustrate his typical criticism, in June, 2004, Kugel explained in BPM Magazine why Excel users are using the wrong tool. "What, then, drives process complexity?", he asked. "In a word -- spreadsheets.

"Although spreadsheets are great for ad hoc analysis that involves only one or a few people, they're fundamentally unsuited for enterprisewide collaborative efforts such as budgeting and planning at the level of detail corporations require.

"The spreadsheet's defects are behind the difficulties organizations have with the process. We therefore advise organizations to eliminate spreadsheets if they want to budget and plan more effectively."

Limit the Use of Excel? Others Agree

Others have jumped on Kugel's bandwagon. To illustrate, the tone of a recent press release from Adaptive Planning reveals that the company is shocked, truly shocked to learn from an ongoing survey that most business still use Excel for budgeting.

"One of the most revealing findings," their press release declared, "was that the technologies that finance teams are using are woefully out of date.

"Across all companies, 78% of respondents are still using spreadsheets as their primary budgeting and forecasting tool. This phenomenon is not limited to small or midsized companies—68% of large companies rely primarily upon spreadsheets for budgeting and forecasting."

The article quoted the president of a BPM consulting company, who offered his assessment of the survey. "These results," he said, "clearly highlight that most finance departments have not embraced best practice technologies and processes, and as a result are holding back their companies’ performance."

As you might expect, Adaptive Planning sells a product that competes with Excel for planning, and their web site links to a Ventana whitepaper that supports their Excel-is-bad product strategy.

Kugel's words have influenced others, as well. Recently, a senior editor of a business software magazine wrote me that, "our usual stance is that Excel is best for analysis and self-contained business unit reporting, but isn't appropriate for corporate reporting, budgeting, analytics, etc..."

With these quotes in mind, I've recently studied many of Kugel's articles about the use of Excel in enterprise applications. My original thought was to write a detailed response to him and other such critics of Excel.

But now, after more reading, I must admit that I agree with his central theme.

Mind you, I don't agree with his overstated rhetoric. But behind the rhetoric, Kugel makes valid points about the way Excel normally is used in business. For nearly 20 years I've helped consulting clients to cure similar problems.

The Real Problem: How Excel Is Used

In his article When Good Spreadsheets Go Bad, Kugel finally makes his thinking clear. He writes, "Ventana Research strongly advises companies to eliminate standalone spreadsheets in all collaborative or repetitive enterprise-wide finance functions such as budgeting and planning."

The key word in that sentence is standalone. That word is easy to miss, but it's crucial to finding a solution to the problems he describes.

"We also advise companies," Kugel continued, "to limit their use in cases where security, control, and auditability are critical. The importance of these issues has increased with the passage of the Sarbanes-Oxley Act and subsequent focus on establishing and maintaining robust financial controls."

Here, Kugel continues his valid point: Companies should limit their use of standalone spreadsheets for enterprise applications, particularly when companies are affected by the Sarbanes-Oxley Act.

So what's the alternative to standalone spreadsheets?

"An alternative to standalone spreadsheets is what we call the Enterprise Spreadsheet. This software bolts a spreadsheet (usually Microsoft Excel) to a centralized computing system. It leverages all of the training and experience individuals have accumulated over the years, while eliminating the difficulty of rolling up information from a set of spreadsheets, ensuring the synchronization of information, and enforcing all forms of security around the information and process."

Unfortunately, Kugel omits "standalone" from most of his articles that criticize spreadsheets...much to the delight of companies that compete with Excel in budgeting, planning, and other enterprise applications.

What type of software "bolts a spreadsheet....to a centralized computing system"? Many products do. Unfortunately for Excel users, most of these write (or "print") values back to Excel, continuing the bad practice -- storing values in cells -- that Kugel correctly opposes.

In my experience, the best way to eliminate the spreadsheet problems that Kugel describes is to use an Excel BI (Business Intelligence) system, as illustrated here.

The key characteristic of this approach is that Excel no longer contains raw data. Instead, users rely on formulas to live-link the cells in their worksheets to multidimensional data stored either locally or on a server. 

As Kugel demands, this arrangement offers full synchronization and security. Password security can be specified down to a single value in a cube. And spreadsheets are synchronized easily, because they're refreshed with up-to-the-second data whenever they're recalculated.

These types of systems can have two other delightful characteristics. First, they're quite inexpensive, as these things go. Second, they're designed to be administered by knowledgeable users, not by IT departments. So small companies can afford to use the same Excel BI systems that giant companies use.

Are Excel users making a mistake when they budget in Excel? Not at all. Are there ways to make their task a whole lot easier? You bet.

Excel BI systems are the way to go.