15 THINGS YOU CAN T DO WITH EXCEL FOR BUDGETING (BUT SHOULD DO FOR A MISSION CRITICAL APPLICATION)

Transcription

1 15 THINGS YOU CAN T DO WITH EXCEL FOR BUDGETING (BUT SHOULD DO FOR A MISSION CRITICAL APPLICATION) Do you believe that budgeting is a mission critical application? We do. And College Presidents and Vice President s of Finance are putting more and more scrutiny on the budget and the budgeting process than ever before. Higher education institutions need to ask themselves "Why do we have a mission critical function being done in Excel and suffer the limitations of Excel?" Excel is designed for two-dimensional spreadsheet work, report formatting, and simple or complex calculations. But Excel is not an application with intelligence. Excel is not a database nor does it have a database under it. And furthermore, it is not a systems development environment that allows for complex functionality for a "mission critical" application. This paper will highlight the 15 critical things that Colleges and Universities desire from their budget process, but, cannot be realistically accomplished in Excel. What we mean by "you can't do it" is either that it is simply impossible to do in Excel, or it is so complex that most institutions fail in their attempt or don't even bother to try. Excel does not have Budget Intelligence. Now think about this. Budgeting is supposed to be a "mission critical" application in higher education. This is how we determine resource allocation and numerically represent how we will support the President s strategy. Yet we try to build budgeting in a two-dimensional spreadsheet and are required to build and maintain the budget logic in this limited environment. There are essentially three problems with this. First, financial people are not programmers nor should they want to be. Did you really go to school to learn how to write applications in a spreadsheet, or did you go to school to learn to be a finance professional? Second, Excel is neither a database application nor a development environment. Financial people end up manually managing data, checking for errors, making sure that users did not change spreadsheets and manually trying to consolidate information and link things together. Excel has limited development functionality. Most things can't be done in Excel or, if they can, take too much time, effort or complexity. Finally, non-financial people do not know and love Excel the way financial people do. This means that you have built an application for you, not your end users. And, who does the budget preparation? This is all a recipe for a disaster. The main difference between a pre-packaged budget application and a spreadsheet (Excel) is that a budget application is built with Budget Intelligence and a spreadsheet uses unintelligent 1

2 rows, columns and tabs. An application knows what to do with the account structure, organization structure, time periods, versions, currency, salary information, and assets. It has knowledge of drivers, spreading algorithms, notes and assumptions, situational budgeting requirements, approval logic, consolidation, monthly/quarterly forecasting, audit trails and report formats. A spreadsheet does not. A spreadsheet needs to be taught how to deal with the required logic of budgeting and the natural dimensions of a budget database, and needs to be maintained as things change. Budget Intelligence increases user flexibility, AND at the same time, dramatically improves the financial controls and integrity of the process. An application is already built and requires no additional programming to get it to work for a given College or University. The application is uniquely configurable to each institution. It is built upon a secure database, which is not the case with manually maintained individual spreadsheets. You can't lose. Also Budget Intelligence adds in three critical ways to the flexibility and control of the budget process. First, it understands and helps manage the process for you. Budget Intelligence keeps track of who has started the budget, who has completed the current scenario, who has approved the budget and who has achieved the right targets. It also intelligently manages the account structure, the organization structure, and the budget scenarios. It understands time periods. It understands what to do with currency rates. It understands categories of users. Second, Budget Intelligence adds dramatically to user flexibility which leads to a dramatically better and more accurate budget. It allows users to think in their own terms, adds flexibility and intelligence to the budget preparation process providing the users what they need without the need for programming or maintenance. Finally, Budget Intelligence adds value to the reporting and analysis process. It allows people to report in precisely the right detail and format that they want without requiring any special knowledge of reporting syntax. It draws information dynamically from the database and tags notes and assumptions to the numbers for easy review and saves huge amounts of time in the approval, reporting and analysis process. Excel is great as a formula builder and report development tool for formatting and analysis. Therefore, a perfect budgeting application will incorporate Excel to allow people to use it for its intended use. So, what are the 15 key things that you can't do in Excel that you should be doing? Here goes: 2

3 1. You can't make Excel become a database application and it does not have inherent knowledge of budgeting. Excel is neither a database nor does it have any innate understanding of budgeting. It doesn't have any understanding of Accounts or Time Periods or Roll up Structures you have to program all that. And it's not the most robust programming environment... and even if it were, the underlying data is stored in spreadsheets and not in a database. Keep in mind that Excel is a two dimensional spreadsheet where you have to teach it everything like what an Account is, or what the difference is between a Discretionary Account and a Calculated Account. Until you program it, Excel doesn't know what a department is, or how departments roll up. It doesn't know about time periods or what a version is or what a driver is. You name it. It doesn't have innate understanding of any of this until you program it. So while you want to spend your time on Financial Analysis and Decision Support, you find yourself spending most of your days programming and maintaining Excel spreadsheets. Nobody we know went into Finance because they wanted to maintain spreadsheets. And once you program Excel, you have to maintain it. Think about it. If you have 65 departments, you send out 65 templates. The data isn't in a database anymore, it's in 65 spreadsheets. And if you make a change to the template, you can't just propagate that change across 65 templates. You've got to fix all of them. And when you get those 65 templates back in you've got to validate all of them to make sure nobody did something they weren't suppose to do like overwrite a formula or break a link. You've got to consolidate all these templates and use them as your basis for reporting. So now you're not only the programmer you're also the database. What our customers told us is they don't want to do that. And a third of the people who recently completed a survey complained that the mechanics just take up too much time and they don't want to be Excel programmers anymore. They want out of that business. 2. You can't tell where everyone is in the process (only those who've sent back a spreadsheet). You can't easily, and on an enterprise-wide basis, identify where each manager and department is in the budget process. There is no natural audit trail of who has submitted a spreadsheet to you for the current (or any) scenario of the budget. Additionally, there's nothing to give you visibility into the work in progress. You don't know who hasn't started the budget, who hasn't completed their budget, or which budgets are still to be approved by management. And that makes you reactive instead of proactive. This is critical as you are trying to prepare for the consolidated results of any given version of the budget. You want to make sure that faculty and staff are on-time and submitting the right version which has been pre-approved by the right people in the institution. This can save you huge amounts of administrative time in the budget process. 3. You can't enable faculty and staff to electronically sign off on budgets underneath them. 3

4 Management review and approval of each departmental budget under them should be an automated process. Version control issues occur because Excel doesn't have a way of allowing managers to electronically sign off on their budgets. When this process is automated and has electronic sign-off, not only will you save tremendous amounts of time and energy by not having to track down the approvals, but you will gain more ownership in the process because managers can easily review and approve their area's budgets. In most institutions, budgets are submitted, consolidated and THEN the operational review process starts. So often times a Vice President's or Director's first real look at the budget is after all the budgets have come back in and been consolidated up. Wouldn't it be better if once a department completed their budget and signed off on it, it went up the line for operational review by their boss who could then review it and either pass it up the line to the Vice President or Director or reject it? The point is by the time these budgets made it up to the top of the institution they've been reviewed by the appropriate functional or operating area and scrubbed. Our clients have told us this operational review process has saved a lot of rework because the numbers get scrubbed as they proceed up the line. Another benefit they tell us is now it's no longer Finance's job to play the role of "bad cop" it's the Directors and Vice Presidents who have to ultimately defend their budgets to the President, so they're going to make sure the budgets submitted to them are defensible and well substantiated. 4. You don't have an interactive map (or user dashboard) of the budget -- just flat budget templates. Faculty and staff don't budget every day. They need an application that talks to them in their language. These people want a single screen that shows them which department they are budgeting, which version they are on, what target they are trying to achieve, what accounts they need to budget for, what options they have for budgeting accounts, what spreading algorithms are available to spread the annual amounts, and much more. An Interactive Budget Map helps them to understand where they are and what they need to do. Excel can be formatted many ways, but at the end of the day you're still handing your users a grid of accounts listed in the rows and time periods running across the page. People are surrounded in their daily lives by technology that makes life easy be it their car's dashboard navigation or a step-by-step Turbo Tax process. While many users can handle a spreadsheet, they'd much prefer if you provided them with something useful and consistent with the way that they think about their budget. This flexibility in approach encourages participation and ownership which gets you more accurate numbers, faster. 5. You can't have an on-screen running total comparison of the budget versus other benchmarks. Most of the Colleges and Universities we talk to tell us that even before the budget process begins, the President or Senior Staff has some type of target in mind. It might be as simple as keeping costs flat versus the last year... or taking a 1% reduction from last year's Budget. BudgetPak can actually put that target right on the screen so people won't forget about it, and so they can see in real time the 4

5 impact of the decisions they're making against that target. They might want to increase spending in one area, but take it down elsewhere, all the while keeping track of the target. Faculty and Staff want targets to aim for and want to instantly know how a budget number change helps them to achieve that target. In Excel, you can have a column in a budget template that displays prior year actuals, for example. But if you want to add multiple comparison targets by line items or across various budget categories, or if the numbers that comprise the comparison change, it wouldn't be practical to build in Excel. But if you could have an always-on real time summary of the budget compared to other important benchmarks like latest forecast or a baseline budget or prior year budget it would be very useful to your end users especially if you've told them something like "do what you want, but make sure you come in at or near the latest forecast". Your users want an on-screen sanity check. They want to make their budget decisions and see the real time impact. 6. You can't give users multiple approaches for budgeting different discretionary accounts different ways. If you stop and think about how situational budgeting really is, you'll understand why choice and flexibility is so key. The Math department is NOT going to want to budget expenses the same way the English Literature department is, the Admissions department is not going to budget the same way the Athletics department does it's all situational to the department AND the particular account they're budgeting for. What XLerant has done is to package together the most common methodologies or choices for budgeting discretionary accounts and allow your users to choose what makes the most sense in that situation. Because what you really want is to give your users choice and flexibility, but in a controlled environment so they can't shoot themselves in the foot. In Excel you can't give users "point and click" formulas for budgeting an account. You can't give users the options to budget as a percent increase or decrease from prior year, or on a dollar per head basis, or on a unit times rate basis, or by building up the budget with line item detail. And you certainly cannot set up Excel to do all of the above in one budget template without generating a "circular reference" error. Users are frustrated because Excel budget templates provide them with only one way to enter their budget; one way to think about their budget. And that frustration leads them to try to alter your budget templates -- breaking links and formulas along the way or it forces them to work offline and you lose visibility into their assumptions. And then you have to spend your time validating their assumptions and their formulas, and finding and fixing user errors. That's the primary reason why so many of you lock down spreadsheets. An Intelligent Budget application eliminates the many issues of a locked down spreadsheet and gives you the control you need with the flexibility your faculty and staff demand. 7. You can't have budget holders select from a list of drivers and values and use them to create a budget. 5

6 One of the common challenges the Finance department has in managing the budget process is in ensuring people use consistent assumptions. For example, one person might assume the enrollment next year will be X while someone else uses enrollment of Y. Another example might be one manager assumes the mileage reimbursement rate is $0.60 a mile while someone else uses $0.45. What would be better is if you could have users select from a list of drivers and values and use them to create a budget. Unfortunately, there is no practical, effective, and user friendly way of achieving this in Excel. 8. You can't spread budgets based on last year's seasonality or a variety of other realistic spreading methods. Most higher education institutions still simply budget an annual number for most discretionary accounts. But the general ledger produces reports monthly. Comparing monthly actuals to annual budgets is useless. Proper monthly spreading of annual budget amounts is critical for proper monthly management or financial reporting. Most users are going to spread their budget by dividing by 12 or some crude, nonstructured method, if they even spread their numbers at all. Why is that a problem? After the budget is approved and the year begins, you'll be comparing actuals (with real world seasonality) with a budget that's divided by 12. That generates a lot timing variances that need to be tracked down. That can be a huge, unnecessary time-drain for the Finance department. A fundamental problem with using Excel for budgeting is you can't naturally or easily spread budgets based on last year's seasonality at least not without a lot of work and a high chance of human error. Even while spreading based on real world seasonality is best practice, it's always a good idea to give your users multiple spreading algorithms. That's yet another shortcoming of Excel; you cannot set up multiple point and click options for spreading budgets. 9. You can't have users insert rows for line item detail without risking broken links or formulas. Do your faculty and staff ever try to alter the budget templates you gave them? More to the point, have you ever stopped to wonder why they do that? This is a topic we've studied extensively. The most common thing people try to do with budget templates is to try to insert rows to provide line item detail. And this is really situational. The line item detail one user has, for example, Professional Fees is different than another. One very important element of a budgeting system is that it allow users to provide line item detail but without having to write or alter formulas, and without introducing the potential for human error. Just keep in mind that although you in Finance may be looking for just a single budget number for an account for example an account called Dues and Subscriptions the department head might want to build up that budget with line item detail. By the way, that's generally a good thing because that line 6

7 item detail can provide you with visibility into what's really driving that budget number and what it's built upon. 10. You can't attach a note with the account throughout the review and reporting process (even though it's easy to add a note in Excel). Certain accounts in any higher education institution get more scrutiny than others. But beyond that, a budget for any account that goes outside the recommended guidelines gets scrutinized as well. Those situations and others really require clear justification.especially in tough economic times. To accommodate that, some people will type something up in an , some will add a note in Excel but you've got to actually open up that spreadsheet and go scrolling around to find it, and others will just leave a voice mail. But the problem with all that is the justification isn't being captured in the system; it's not part of the database. So it's very easy to lose track of it, or to overlook it. The value of using a packaged application that uses a structured database is that notes, justifications, assumptions and supporting detail can be input and automatically available to the management to facilitate a better review process. These notes need to be tagged to the budget numbers directly and be made easily accessible to any authorized person. We know it's easy to add a note to a cell in Excel or add a column just for notes. But there is a difference between putting a note in a spreadsheet and having a budget assumption stay connected to an account and flow through all aspects of the application. During an executive review process, you want to be able to immediately access the assumptions and justifications behind the numbers. This allows you to be in control of the budget and be proactive rather than reactive. You can't do that with Excel. 11. You can't budget for individual user, departmental, or organizational actions like the President s strategic initiatives, marketing campaigns, IT projects, athletic events, training programs or other types of "Action Packages". If you stop and ask a faculty or staff member how they really think about their department business, it's not as a list of G/L Accounts. Marketing Managers, for example, tend to think in terms of marketing campaigns. IT Managers tend to think in terms of IT projects. Human Resource Managers tend to think in terms of training programs. Faculty tend to think in terms of strategic initiatives. What these people all have in common are "Actions" they want to execute, which involve multiple G/L accounts, and which are totally unique for each manager. Ideally, they'd want to see the expenses associated with these actions packaged together. When it is time to review the budget, organizations can just approve or not approve the actions and let the system automatically deal with the account balance information that relates to these actions. Users shouldn't have to manually go in and try to remember how much of a particular account balance was tied to each action. 7

8 One could potentially set up multiple tabs in excel workbooks to accomplish this, but it would be too time consuming and too prone to human error. However, this is how your faculty and staff think and how they run their departments. What if your faculty and staff could budget for their department the way they actually run their department? 12. You can't set up a budget intelligent, guided process for headcount and salary planning. Seventy percent or more of a higher education institution budget is made up of personnel costs. But because Excel has obvious privacy and security issues with distributing spreadsheets, the salary and headcount planning process is often centralized in Human Resources. However, salaries and benefits are typically the majority of a department's budget. In order to have accountability for the entire budget, salary and headcount planning should also be controlled by the department heads. Faculty and staff want to be able to plan for raises, terminations, headcount increases or decreases, and have automatic calculation of benefits, taxes, bonuses and other issues. You can't create a workflow wizard for budgeting headcount in Excel. You can't automate the interview process that someone from Finance or Human Resources would normally go through when creating a salary budget for a department head. It's important to provide an environment that is safe and secure and that handles the complexity, but engages with the department heads directly because they know what's going on with their staff better than anyone else possibly could. Of course it's got to be able to handle FICA and other payroll taxes, benefits and so on. But the system needs to handle those complex mechanics in a way that's transparent to the department head and doesn't require a large effort on their part. Excel is not a secure environment for sensitive salary data -- if you've got 100 departments you certainly don't want to be sending out 100 spreadsheets with salary data in them. There are a lot of complex calculations happening in those spreadsheets and there's a risk someone will overwrite an important formula or break a link. The shortcomings go on and on. A Budget Intelligent application puts the ownership of the salary and headcount process where it belongs with the faculty and staff functions. 13. You can't have a "shopping catalog" of Assets for people to request in their budget. You can't produce a shopping catalog of assets in Excel and have people request assets from that catalog. Faculty and staff want to choose potential budgeted assets from a catalog and let the system determine which assets should be expensed, which should be capitalized, and the correct depreciation method. Therefore the asset budgeting piece of the process is offline, done separately, and centralized, when it should be distributed in a controlled environment. XLerant gives you the ability to give an approved catalogue of things that faculty and staff can request... and allow them to just point and click what they want to budget and when they think they're going to need it -- and the system will do the rest of the work. If it's expensed, if it's depreciated, how it's to be depreciated, etc. Now this doesn't mean that they can buy it. This just means that they're requesting it 8

9 and this goes into the approval process. But the beauty here is the system takes care of all the mechanics. That's what we mean by Budget Intelligence. 14. You can't have Pre-packaged and Practical, Guided What-ifs. It can take hours or even days to do some typical what-if analysis. For example, it's the 11th hour and the Board says you've got to reduce spending by 1% or 10%! You want to be able to easily explore options such as, "What if I delay my new hires by three months?", or "What if I take down my discretionary spending by 3%?" Sometimes that deficit can be closed just by delaying new hires by two or three months. But you may want to pinpoint exceptions and delay just some hires, not all. But analyzing data this way in Excel is too hard and time consuming, so we don't do it. It's equally daunting to set up spreadsheets to take down the standard salary increase from 5% to 3% or making some across the board change. So while you want to have this type of analysis available within a few mouse clicks, it just isn't practical in Excel. 15. You can't use Excel as a reliable, controlled database for reporting and analysis. Since Excel isn't a database, there are a lot of serious limitations when it comes to reporting. In fact, Excel reporting means relying on linked spreadsheets which are very fragile. It also means setting up one report for each unique view of the data. If you've got 50 Departments, for example, it means setting up the same report 50 times. Same format, sure, but still 50 unique reports. XLerant draws against your BudgetPak database, popping it into Excel and allowing you all the possibilities for formatting in Excel that you want..but dynamically populating that report from a source that's protected so people can't blow it up. Since XLerant plugs Excel directly into the underlying database, not only is the data secure, but you can create one report format that all 50 Departments can use. Just change the name of the department and all the underlying data changes. You can then use the power of Excel within the protection of an intelligent application. You can run adhoc requests to populate spreadsheet-based reports. These reports can then be turned into your standard reports and run for any department, time period, scenario, currency or whatever else is variable to your specific use of the application. This powerful embedded Excel capability can also be used for complex calculations or models that you may want to leave in Excel. Under this scenario, which is different than the title of this section, model assumptions to calculation edits can be done in Excel and the application can dynamically use them. Summary We feel that these specific items are the 15 most important things that you can't do with Excel for budgeting, but should do for a mission critical application in higher education. There are additional points that are also important to consider in evaluating your continued use of Excel 9

10 versus a specially developed budget application. We would welcome the opportunity to discuss all of these points with you. Excel just does not have the Budget Intelligence that you need to manage your budgeting process. Resolving these 15 things will make an enormous difference in the quality and integrity of your budgeting process and add user flexibility and financial control at the same time. We Know edu Budgeting. 10