Why the obvious solution may be your worst choice
About a year ago I was looking at various software solutions that assist companies with the planning, budgeting, forecasting and analysis processes. I was surprised to see how many choices were available, even in the SMB (Small & Medium Business) market. There was a mix of server based (on premises) and web based solutions and certain applications claimed to be suitable for larger enterprises. Cost of licensing, subscription and software renewal fees varied among the different products and labor and consulting fees to implement these systems also ranged from modest to very expensive.
What I also realized during this analysis was that the most common tool in corporate planning and budgeting is still the spreadsheet (more accurately a set of spreadsheets or workbooks). Microsoft Excel dominates this, and the level of sophistication ranges from simple revenue and expense worksheets with basic consolidations, to extremely intricate systems containing hundreds of workbooks and worksheets, linked together and having certain reporting capability.
I attribute use of spreadsheets for planning and budgeting to the early days of personal computers when dedicated budgeting software did not exist. Spreadsheets are also very common in the workplace and all finance and accounting personnel are familiar with them.
As dedicated software solutions became more available more and more finance managers and professionals began to realize that spreadsheets are not the right tool to use in these processes and for good reasons as explained in these blog posts: Replace Excel with a Dedicated Planning, Budgeting and Analysis Solution and Forecasting a Balance Sheet in a Spreadsheet World.
The strong arguments against use of spreadsheets are the main reason for the existence of dedicated, database-centered applications intended for implementation and maintenance of a corporate budget and analysis process. This approach has become quite popular even in smaller companies and there are a variety of applications available to choose from.
Unfortunately, in designing many of these budgeting software solutions, their designers, while doing away with use of traditional spreadsheets, and adding important security and workflow functions and controls, failed to realize that their users were still required to enter formulas, functions and links into their plan or budget models. In fact, many of the traditional drawbacks found in spreadsheets are also present in these budgeting software applications.
Those who implement these types of applications quickly discover that building and maintaining a budget is not much different than using a set of spreadsheets. The risk for errors creeping into the model is the same as in traditional spreadsheets; maintenance is just as hard, change management controls are mandatory and rather complex; adding drivers and allocations, and configuring the system to output even a rudimentary Balance Sheet and a Statement of Cash Flows requires much knowledge and experience, often resulting in significant consulting work, services gladly provided by the software vendors.
Fortunately, there is another approach, providing the best of both worlds: A complete departure from the spreadsheet environment, while allowing budget and finance managers to build a budget without using a single formula, function, macro or link. This approach employs built-in business logic and rules and the ability to employ an unlimited number of drivers, setup to suit the specific needs of every organization.
Of particular importance is the automatic system generation of all future period financial statements, including a Balance Sheet and a Statement of Cash Flows, besides an obvious P&L.
Examples and explanations of this approach can be found here: 10 Must Have Features of a Budgeting & BI Solution, Those Debits and Credits, or A Modular and Automated System for your Annual Budget Process.
It is good to know that there are several choices when it comes to selecting a planning and budgeting software application. It is, however, wise to realize that applications that seem natural for this function may not be the best choice and in the case of the most obvious solution, the spreadsheet, the worst possible one.