The traditional spreadsheet might be comfortable, familiar territory for finance teams, but that does not make it the right medium for handling complex operational and financial modeling. Enterprises that continue to do so are risking more than they might think.
Cloud-based modeling software that is built on an Enterprise Performance Management (EPM) platform, on the other hand, overcomes these obstacles to deliver an intuitive and highly efficient enterprise system from which to improve business forecasting and management decisions. So, why are cloud EPM platforms an ideal choice over spreadsheets?
Why is modeling what-if scenarios important?
Financial and operational modeling can be used to visualise a variety of likely scenarios based on different business drivers. Rather than creating a budget or forecast based on past results, forward-thinking companies will strategically analyse what "could" happen in the future and then roll the desired results into the corporate plan. This may be increases or decreases in headcount, production changes, the introduction of a new product or many other factors relevant to the business. By modeling these scenarios effectively, companies significantly reduce the potential risk of business decisions on overall financial results.
Spreadsheets cannot handle the analysis enterprises require
Companies want accurate forecasting, and they want to feel confident about the forecasts they use and make known to stakeholders. According to BPM Partners, these are probably the primary reasons companies should discourage modeling on ungoverned spreadsheets. While what-if scenarios can be run in spreadsheets, it's likely that users will encounter many of the same spreadsheet challenges they face when creating a budget or forecast. Executives responding to a KPMG study on modeling accuracy estimated that forecast errors knocked 6 percent off their companies' share prices. This is not uncommon, as studies have shown that 88 per centof spreadsheets have errors.
According to research by the Hackett Group, approximately only 25 per cent of businesses have real-time access to financial performance and forecast data necessary for modeling.
Why? Probably because spreadsheet-based modeling is an incredibly tedious and drawn-out process due to the complexity of calculations and the need to track and compare multiple scenarios. Even then, conveying the results for use in the corporate plan entails a further layer of complication - spreadsheets typically lack the collaborative functions of cloud-based EPM software. Many growing businesses soon find that relying on Excel to support critical financial processes is risky as a long-term strategy. Our recent article on why EPM software is replacing spreadsheets is also worth a read.
Increased energy and attention is being given to extending business performance management modeling capabilities beyond Finance. This allows operational departments to better plan for the future and manage performance in sync with corporate plans by modeling and forecasting their business activity based on the approved numbers. This makes having a system for collaborative modeling even more important.
Running what-if scenarios is a completely different experience in a sophisticated enterprise system, designed for financial modeling in a cloud-based environment.
Efficient cloud-based modeling software that is built on an EPM platform, can provide an Excel-based user interface, offering familiarity for users, while also offering multi-dimensional ad-hoc modeling capabilities that are intrinsically linked to the financial planning process. So as you model, if you choose, you can easily see the impact on budgets, forecasts and the overall financial plan.