IN THE FAST LANE
Companies are trading in their spreadsheets for swifter, more powerful applications.
By John Goff

Budgeting and planning? "Being better as an organization leads to success on the track," says Scott Lampe, Hendrick's CFO. "And that's all connected to forecasting and planning."

In earlier years, Hendrick's forecasting-and-planning process could only be described as, well, marginal. Lampe would print out the current month's financial results, and then pencil in the margin what he figured the company would spend that same month the following year. But a push by Hendrick's management to get racing teams to share more information got him thinking. Determined to bring engine guys, chassis guys, and crew chiefs into the budgeting process, Lampe ditched a Microsoft Excel spreadsheet in 2003 in favor of Forecaster, a web-based, dedicated B&P program from FRx Software. "With a spreadsheet, you can build the model the way you want it," he notes. "The problem is, only you understand that model. Then you have to explain it to everyone, one at a time."

Other finance executives know the drill. While most companies have modernized, digitized, and otherwise webified their transactional systems, the B&P process remains frozen in time. Business advisory firm The Hackett Group says that world-class companies finish their budgeting in 80 days. The process tends to drag out longer for less enlightened businesses, however. One consultant who specializes in financial-process reengineering says it's not uncommon for companies to take six to seven months to finalize a budget.

A lot of that time is spent rekeying data - drudgery often necessitated by spreadsheet formats and formulas getting modified downstream. Flexibility, once a selling point for Excel, has become a real liability. "You've got people customizing and formatting spreadsheets for the majority of the day," says Cody Chenault, finance practice leader at Hackett, "rather than providing insight into business performance."

Such fiddling often leads to different versions of a budget lurking in the system at the same time. Hijinks generally ensue. Indeed, in a Ventana Research survey of US companies with 1,000 or more employees, half of the respondents thought their budgets were inaccurate or very inaccurate. Worse, spreadsheets do not play well with other spreadsheets. This disconnect squashes input from operational heads, line managers, and sales personnel - the folks who actually have a sense of future sales and the cost of those sales. Without news from the front, budgeting is little more than wishful thinking. Says Lampe: "You can't forecast in a vacuum."

Deprogramming

Apparently, a lot of finance managers agree. The Ventana study found that 71 percent of the respondents intend to make significant changes in their budgeting and planning in the next two years. For many, those changes will involve deploying dedicated web-based B&P systems from such vendors as Hyperion, Cognos, FRx, Geac, and SAS Institute - and deep-sixing spreadsheets.

Finance workers at US-based Gilbane Building are now in their third budgeting season using a B&P program from Cartesis Software. With the company's old B&P tools (Lotus 1-2-3 and Access), finance-department workers had to rekey data from an expense spreadsheet into the financial-forecast spreadsheet. Using multiple spreadsheets left little time to analyze data, and did not allow easy tracking of variances from forecasts. Says assistant corporate controller Lori Enos: "To have data in one source and to be able to do comparisons to prior forecasts without having to dig through old spreadsheets has been a plus."

Convincing staffers to give up their beloved spreadsheets can prove tricky, however. Lotus 1-2-3 was a godsend to finance-department employees when it was first released in 1983 - and finance managers have gotten mighty comfortable with their rows and cells in the past two decades. Their comfort level has been reinforced by the perception that budgeting, no matter how laborious, is pretty much the same everywhere. That perception isn't far off, either: about two-thirds of US businesses still rely on spreadsheets (mostly Excel) for B&P. "Since a lot of companies go through the annual budgeting exercise the same way," observes Ventana vice president and research director Robert Kugel, "nobody seems to be at an obvious disadvantage."

David Klementz ran smack into this cult of the spreadsheet when he became CFO of US-based Progress Rail Services in 2002. At the time, he wanted to move the railroad-services specialist to a single data source B&P system - one that didn't revolve around Excel. The merits of ditching Excel seemed obvious to Klementz. "As a senior manager, you need to have better visibility of your business," he explains. "As long as the data's in Excel, you don't have the visibility you need."

Selling finance staffers on the switch to a relationship database took some doing, however. "Workers often use spreadsheets as a crutch," observes Klementz, noting that this dependence makes it difficult for finance managers to maintain anything but an aerial view of a company's performance versus projections. His solution? "I finally told my accountants I was going to take Excel off their computers."

It never came to that. In 2003, Progress Rail deployed SAS Institute's Financial Management planning software. With that web-enabled program, finance-department workers can run multiple versions of a budget without compromising the integrity of the data. Klementz believes the software eventually will help shorten Progress Rail's budgeting cycle to three months, allow for more frequent analysis, and eliminate a whole lot of typing.

The elimination of scut work would seem to be a big selling point for the makers of B&P software. Surprisingly, the argument doesn't always play. Consultants point out that many finance chiefs don't necessarily care if staffers are at the office at 2:00 am during budget season. And contrary to rumors, it's not because their hearts are three times too small. "CFOs put in those kinds of hours when they were controllers," explains one management consultant. "They see it as a rite of passage."

When Excel Doesn't

Maybe so. But asking a well-educated, well-paid controller or financial analyst to rekey data would seem to be a monumental waste of resources. Says Kugel: "One company we spoke with said it has a Harvard MBA working almost full-time consolidating spreadsheets."

For some companies, consolidating spreadsheets is the corporate equivalent of a tooth-scraping. Often, individual departments within a business have their own set of accounts and their own spreadsheet models. That's particularly true within the finance function itself. "It's common for finance professionals to change standard spreadsheet templates," notes Chenault. "It makes it impossible to maintain any data-standard consistencies."

This sort of customization, while comforting to workers, makes it difficult for corporate planners to roll up numbers. Until recently, financial-planning analysts at Princess Cruises had little choice but to manually consolidate Excel files sent by each department during the budget season. "We were dealing with a couple hundred spreadsheets," recalls Clint Allen, manager of financial planning at the company. "And that doesn't include one-off tools."

The shortcomings of this approach were magnified after the terrorist attacks of 9/11. As bookings thinned out, executives at Princess looked to max out the profits on every cruise. The maxing involved moving ships around at the last second, depending on (among other things) the profitability of routes, fuel expenses, and port costs. "We needed data immediately," says Allen. "The limitations of aggregating data from spreadsheets became obvious."

Last year, Princess deployed a new B&P package, Cognos Planning, from Cognos. The application, says Greg Bozigian, director of financial planning at Princess, enables financial-planning analysts at the company to spend more time on analysis and less on "mind-numbing consolidation of data." Using the application, company managers are able to roll up accounts into defined P&L categories. "It's all there at your fingertips," adds Bozigian. "It's not buried in somebody's spreadsheets."

And therein lies one of the real weaknesses of Excel. Although the spreadsheet provides fairly robust analytics, the tool is limited by its lousy handling of data. "You can do this kind of [projection] stuff in Excel," argues John Iverson, CFO of US property developer Montalbano Homes. "But as the process gets more intricate, it gets fragile toward the end."

In some cases, that fragility requires the intervention of a band of outsiders to fix the problem. "The Cognos tool is much more finance-owned, much more user-friendly," notes Bozigian. "We don't have to involve IT on a daily or weekly basis."

Corner Office, Dark Hole

Phoning tech workers is not exactly what corporate planners have in mind when they speak of collaborative budgeting. Under the best of circumstances, spreadsheets limit budget collaboration to small numbers of workers. That lack of companywide input - particularly from employees outside of corporate headquarters - often leaves planners flying blind when assessing revenue prospects for the coming years. In fact, in the Ventana survey, improved collaboration was cited most often as the key to producing more accurate budgets.

Dana Gilman would undoubtedly agree with that assertion. When Gilman signed on as vice president of planning and control at catalog specialist Miles Kimbal, budgeting was a very clubby affair. While ten or so employees had some input to the process, says Gilman, there was no accountability for those numbers. "Mostly, the controller and president were doing the work by themselves on Excel in a corner office," she recalls. "Budgeting was kind of a dark hole."

Eager to shed a little light on the subject, the company president decided to purchase Geac's MPC system, a dedicated B&P program and reporting platform. With the application, managers at the US$200 million-a-year retailer can run analyses of sales and costs, by channel, down to the SKU level. In October 2003, Miles Kimbal started applying this sales analysis to its budgeting process. "The biggest benefit of the software is that it's spread information out across the entire organization," says Gilman. "It's no longer locked in the controller's office."

Of course, businesses can get their sales forecasts right and still miss net revenue projections. As always, the devil is in the details - here, details about expenses. Case in point: Aspect Communications, a US-based call and contact center specialist. While the company's revenues have been steady, controller Bruce Ruberg says the costs to generate those revenues have mostly been out of whack. In fact, up until 2002, the company was operating at a loss. Ruberg blames the red ink, in part, on a lack of communication during the B&P process.

To get a better sense of future expenses, Aspect is switching next year to Oracle's Enterprise Planning and Budgeting program. With the software, employees will no longer be told to simply go meet their targets. "Then," says Ruberg, "it will be, 'This is what we will do in revenues, and this is what it will actually cost to generate those revenues.'" By emphasizing a bottom-up approach to planning, Ruberg hopes to break down the silos of information that have arisen during years of spreadsheet-based budgeting. "The old approach was, 'This is what I do, but I don't know what those other folks do,'" he notes. "Well, that's not a very successful way of running a business."

Back at Hendrick Motorsports, where they run a very successful racing business, the speed of the FRx software is generating all sorts of budget collaboration. In fact, Lampe says he now has time to actually confer with employees who are more comfortable with a pit row than an Excel row. In day sessions, Lampe brings in his crew chiefs, puts Forecaster up on a projector, and walks them through the planning process. "I used to think it was inefficient to go through this together," he says. "But you know, things come up in conversation that you wouldn't get if somebody just typed a number in. You begin to understand their theories - and their concerns."

John Goff is technology editor of CFO, CFO Asia's sister publication in the US. of the good ones."