- Cloud-based forecasting and reporting tools are growing rapidly with far-reaching potential
- Excel’s biggest problem is its scalability and flexibility once a model has been built
- Cloud-based management tools are genuine alternatives to Excel and will transform businesses
By Ian Bennett FCA
Corporate performance management (CPM) is on cloud nine. It was the section on CPM in my March article in Acuity “Excel is dead. Long live Excel” that generated the most reader feedback.
Cloud-based forecasting and reporting tools are growing at an amazing rate and there is far-reaching potential of this technology. It’s why PwC has built a cloud-based forecasting and reporting modelling capability which will be able to deliver the bespoke tools we usually create in Excel.
But in the previous article I made the error of listing by name the pretenders to the CPM crown. Of course, I was always going to miss someone’s favourite.
This time, I recommend you have a look at the Visionaries quadrant in Gartner’s CPM Magic Quadrant from April 2015. These deservedly so-called Visionaries are outwardly competing against each other, plus the three systems in Gartner’s CPM Leaders quadrant, but in reality the technology that they will replace more than any other, is Excel.
Excel’s amazing. Finance people love it because Excel is flexible. It loves consistency of design. We can make Excel do anything. Excel is universally available.
In many ways this makes Excel the perfect CPM tool. It’s cheap; anyone can use it, it’s immediately editable without making a change request to the IT department and you’re not constrained by the systems available in your industry, or the available reporting templates in your CPM system.
All you need to achieve success with Excel is an imagination and some financial modelling experts who have a tried and tested project approach and some design best practices.
But (although it pains me to say it) there are problems with Excel. Aside from being risky and uncontrolled, Excel’s biggest problem is its scalability and flexibility once a model has been built.
If a client tells me they have five business units (BU) I will intuitively build the model with one worksheet for each input, calculation and output for each BU. If they tell me they have 40 BUs, I’m going to put all BUs on the same worksheet. But, if they tell me they have five BUs and then, after I’ve built the model, they decide to buy a business with 40 BUs … I’m stuffed!
They’re not just a replacement technology ... they might just revolutionise how you think about your whole business.
Reframing the problem
When CPM and financial planning and analysis (FP&A) design is reframed as a replacement to Excel, the solutions are innovative and strategic.
What businesses need are tools that have an Excel-like front end, are ambivalent about the number of BUs/revenue lines/leases, are a one-source-of-truth accessible anywhere from any device, have user access controls and automated back-ups and are easily implemented by whichever business function needs them.
Too much to ask? It seems not. They exist and they’re in Gartner’s Visionaries quadrant.
Importantly these Visionaries were designed for the cloud. They have user friendly front ends that interact via powerful calculation engines with a real-time data cube that expands and contracts effortlessly with your business strategy and the granularity you choose to budget, plan and report your business.
The problem is that CPM IT is usually designed with reference to the capabilities of the dominant systems, which, along with the IT department’s natural bias towards using the established vendors, constrains the design. This approach inevitably leads to compromises.
Finance apps and beyond
But if we’re going to really leverage these cloud-based flexible tools, we have to go further than CPM.
Our team recently built a lease assessment app to allow our clients to see the impact of the new change in the leasing accounting standard.
We could have used Excel but instead we used Anaplan. The app can handle a million bespoke leases without blinking. We’ve been demonstrating it on iPads to our clients, and they love it.
The global real estate industry has a huge opportunity to break its software habits. A small number of industry-standard systems dictate how portfolios of tenants and properties are managed, forecast and reported.
We’ve built and reviewed many Excel real estate fund models, all of which are a reaction to the limitations of their systems. So we built a new app in Anaplan that will take you from units to fund internal rates of return (IRR) and let you run scenarios at the most granular level in an instant — something that currently takes our clients over a week.
These tools will be a catalyst for innovation throughout the whole business. They’ll simplify processes, connect information together, they’ll be your 13-week cash flow forecasting model, your production planning tool, your logistics optimiser, your promotion effectiveness tool, your bank models, your driver based costing models, and your CEO’s bonus calculator.
Crucially though, once all of these tools have been built, they’re all feeding off and into a single cube. Rather than being standalone spreadsheets, these tools feed directly back into your traditional budgeting and forecasting processes. Truly integrated planning.
This is not an IT article. I’m not a CPM specialist. I’m a modeller. We modellers solve business problems as tactically and efficiently as we can. In the finance function, we create Excel solutions because of the limitations of our large systems. Now, the cloud-based CPM vendors are genuine alternatives to Excel.
But they’re not just a replacement technology ... they might just revolutionise how you think about your whole business.
Ian Bennett FCA is the Deals Modelling lead Partner at PwC Australia
This article was first published in the June 2016 issue of Acuity magazine.