Analysis

Do You Really Know Your Numbers? It’s Time for an Enterprise Performance Management Tool

If you are still using spreadsheets to perform vital financial functions, you’re probably wasting valuable time, efforts and resources.

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A surprising number of companies are still using spreadsheets to do their financial heavy-lifting — even big companies. We know. We see it. And quite frankly, it’s a problem that needs to be addressed if your company falls into this category and intends to remain competitive.

If you can’t gather your company’s financial data for consolidation accurately and in a timely manner, you, in effect, are flying blind. And if you are still using spreadsheets to perform this vital function, you’re probably wasting valuable time, efforts and resources within your organization.

Truth and Consequences
Large organizations that still rely on spreadsheets for consolidations may be fooling themselves if they think the numbers are accurate and telling the true story about financial performance. Spreadsheets rely on human input, and human nature makes it a statistical certainty that at least some inaccuracies are entering the picture – unintentionally or otherwise. In a perfect world, of course, individuals entering financial data into a spreadsheet or “siloed” system are focused on accuracy and ethical actions. But that is not the world in which most do businesses.

In most cases, individuals are not “fudging numbers” for nefarious purposes – although that should be a valid concern. They very likely are doing it because their key performance indicators (KPIs) are tied to timely submission of the spreadsheet and the numbers they need from their business unit to complete the task may not be readily available, requiring the need for estimates or projections.]

And that is only half the issue: With this process, once the arguably shaky numbers are rolled up, there is no effective or accurate way to drill down to the unit level to see how those numbers were developed or where they came from.

This process is so common that it even has a name: “Plug and Chug” – plug in the numbers and keep chugging along.

Bottom line, there are two critical problems with a spreadsheet-based, manual input process.

1. There is no “one version of the truth.”
Even if the data in the spreadsheet is 99.99 percent accurate, it is going to be difficult to rely on the data for planning purposes. In a far-flung enterprise, each spreadsheet is going to be based on different assumptions and variances in local business practices. Each spreadsheet is going to tell its own version of the truth. There’s no way to do verification, or accurately compare one business unit with another. For all intents and purposes, the resulting margin of error renders the consolidated numbers unsuitable for forecasting.

2. There’s no time for analysis.
In a typical spreadsheet-based finance system, it can take 30 days or more to complete a consolidation, which puts you nearly halfway into the next quarter before you can begin to analyze the previous quarter’s data

These problems combine to create a situation where many very large enterprises are trying to spot trends by analyzing the data in their rearview mirror, and looking through a hazy back window. The situation will only get worse with increased pressure for faster period closes, along with improved performance and profitability analysis and reporting.

A Better Way Forward
As a financial executive, you need to know where money is being spent and whether you are spending money that you may not need to. The answers, as we will explain shortly, lie in an enterprise performance management tool for your business.

Ask yourself these questions:

  • Am I able to analyze all of my data right now?
    Can I assess the financial picture from business unit to business unit in the same way?
    From a finance perspective, are all of our operations on the same page?

 

In our 2015 Finance Priorities Survey (conducted in partnership with Financial Executives International), CFOs and finance executives called out strategic analysis, forecasting and profitability analysis as among the highly important areas to address this year. We agree strongly. If your company still relies on spreadsheets for finance consolidation, however, you are going to be too busy pulling data together to be able to analyze it and get a clear picture of the road ahead for your organization.

Think of the cost. How much time do you spend getting the numbers to where they need to be? Now, extrapolate that across your entire organization and all the resources devoted to performing tasks that could be handled faster and more accurately by automated enterprise performance management tools.

You may have an ERP system that can help, but ERP data is two-dimensional. You have the capability to add powerful business intelligence tools to the backend, but that’s just throwing good money after bad unless you improve the accuracy of the financial data coming from your business units and preserve the ability to drill back down from the top.
Enterprise performance management, or EPM, tools aren’t native to most ERP systems, but most ERP providers offer either a proprietary or partner-provided EPM tool.

If you’ve never worked with such a tool, you’ll be pleasantly surprised by the power they put at your fingertips. Without endorsing any one provider, we’ve seen versions that use a “stoplight” – green, yellow, red – dashboard, combining consolidated results over a map, allowing users to quickly identify underperforming regions in real time, and drill down to the specific areas warranting additional scrutiny.

Compare that with the old-school method of wading through stacks of green-bar reports with a highlighter, or requesting custom reports that are placed in an IT queue and run in a batch – making you wait, tying up other valuable resources and using data that may not even be reliable.

It’s Time to Shift Gears

Making the leap from spreadsheets to EPM tools is more than an incremental process improvement. Yes, it will help you check a regulatory compliance box, but if you are really looking to make a business case, you need to think outside the check box.

Online, real-time data consolidation means that not only will you be able to obtain one version of the truth, you can also untether from the idea of planning as a periodic or episodic process. With real-time planning, you’ll have line-item access to sales and expense data along with work-in-process, down to the business unit and even individual employee level.
Wherever you travel, and whatever project you are working on or reviewing, you will be able to drill down, in real-time, to the information you need. And it will be actual production data — not estimates, best guesses or fabrications provided for expediency on deadline or under duress.

Imagine being able to optimize your supply chain down to the SKU level because you have better insight into customer demand and real-time vendor data that allows you to place orders and target quantities to reduce inventories and avoid missed opportunities.

Imagine having all of that data at your fingertips, in actionable form, so you don’t have to spend time requesting it or waiting for it, or wondering if it is accurate.
Think also of the scenario planning you could do, on the fly, when it comes to sales and promotions, and even mergers and acquisitions.
And finally, think of your board of directors and other C-suite executives, and being able to answer their questions at the click of a button.

Which EPM Tool Is Right for You?

Given the transformative nature of moving from spreadsheets to an automated consolidation tool, you are going to want to be sure to assemble the right project team – both for vendor selection, and for scoping the potential uses and desired capabilities throughout the organization – for maximum return on investment.

Clearly you are going to want a system with a user interface that makes sense for your type of business and corporate culture. Not everyone is going to need a system with all the bells and whistles (and the resulting additional cost). You may only require something simple, or something in the middle. Consider, of course, how many business units and geographies are part of your organization, and research EPM tools that can meet your needs. And once the system has been implemented, you will want people to embrace it, and use it correctly.
You’ll want a system that meets your analytic and reporting needs – for regulatory compliance, yes, but more importantly for planning purposes.
Remember, too, that getting data into the system is only half the battle. If you can’t visualize the data easily – through stoplight reporting, graphs, cross-tabulation and drill-down capabilities – you’re missing out on the real power of the tool.

You may want a system that allows you to set parameters so it can alert you to performance anomalies.

In this era of big data and the emergence of predictive analytics, you need to make sure the system can handle a variety of data, including internal and external, structured, and unstructured. And in today’s mobile society, you’ll want to make sure you and your team can access it from mobile devices.
And then there are nuts-and-bolts considerations, such as

  • Cost – Acquisition, installation, operation, training, maintenance and upgrades
  • On-premise, hosted or hybrid
  • Integration – You’ll want it to “play nice” with your ERP system and broader IT infrastructure.
  • Business rules and permissions – How does it provide for different levels and types of user access to data and data inputs?
  • Support – How do you get it and what options are available.
  • References – Vendors can promise the moon. It’s always advisable to check with existing customers to see how the operational reality meets the marketing promise.
  • Expect Organizational Resistance and Plan Accordingly

A systemic change like this rarely comes without pain. There is bound to be organizational resistance because people know what they are doing now and may be comfortable with the old ways, even if the new ways with an EPM tool are more efficient. Your biggest pushback is likely to come from people who don’t know how the numbers are being used, and from those who have just been plugging in numbers to meet a job requirement.

There will be other challenges as well, which is why, as with any undertaking of this scope, you should consider all of the potential impacts on policies, process, people, reporting, methodologies and systems, and build a diverse project management team encompassing these functions and constituencies.
Never underestimate the people element of a change like this. Frequent communication is key. Keep all affected parties in the loop not only on the expected benefits, but also the implementation timeline, and any additional training required as part of the transition.
Recognize, as well, that some people are not going to welcome additional scrutiny of their financial data – especially those who do not understand the technology and data, as well as those who, in one way or another, have been gaming the system. You will need to have a remediation strategy for dealing with any such situations that might come to light.

Welcome to the Future

This is a complex topic with a lot of moving parts, but it gets to the heart of what we hear from organizations every day. They want better and more accurate data and reporting. They want the time and ability to perform strong strategic and profitability analysis tied to customers, products, operating units and geographies. They want a single version of the truth in their numbers. If your company is still using spreadsheets for consolidation, you really need to ask yourself why
Enterprise performance management tools pay for themselves in time savings alone, but the real return on investment is in the transformative power of real-time data analytics. Once you make the leap, you’ll wonder why it took you so long.

Ryan Senter is a managing director and Joel Frantz is a director with Protiviti (www.protiviti.com), a global consulting firm. They are leaders in Protiviti’s Business Performance Improvement practice.