Excel: benefits, limitations, and alternatives
Excel has been a cornerstone of financial planning for decades. Many businesses, ranging from small startups to companies with billions in revenue, have used Excel to effectively manage their operations. However, as companies grow in complexity, relying only on Excel limits financial planning & analysis (FP&A) professionals – especially in collaboration, data integration, and managing large data volumes.
Excel: A powerful but limited planning tool
Excel remains one of the most used tools in finance. Its flexibility, widespread familiarity, and accessibility make it an essential part of the corporate toolkit. Companies using Excel to plan take advantage of its customizable interface to build budgets, projections, and reports.
Excel has, unquestionably, improved its functionality and usability over the years, making it suitable for modern bookkeeping and financial planning. While these certainly have benefits and extend Excel’s financial planning capabilities, they also come with their own learning curves and limitations.
However, it is important to mention the human factor. All cells that must not be manipulated have to be locked – and those setting up the Excel models need to be aware of this. Sloppiness can easily result in users entering information in cells where they should not, or filling cells with inaccurate data. Such human error eventually cascades down into planning outcomes, jeopardizing the very foundations business decisions are based on.
Finding and fixing these errors afterward is both time-consuming and labor-intensive. Another risk for Excel spreadsheets is when people add rows and columns without telling others, affecting formulas and their results. In Excel spreadsheets, users don’t necessarily have live data to work with. Plus, changes to source data aren’t necessarily visible to everyone, which means many errors aren’t recognized right away.
Excel can work for FP&A teams’ financial planning and forecasting, at least up to a certain level of scale and complexity. However, to work well in a collaborative and dynamic work environment, spreadsheets in Excel need to be consciously and deliberately set up perfectly from day one – which, realistically, is next to impossible. So, when planning in Excel, at some point challenges arise – particularly when it comes to what’s required for successful integrated financial planning.
Best practices for Excel-based financial planning
For businesses that rely on Excel for financial planning, the following best practices can help offset some of the most common and pressing pain points:
- Establish and maintain financial modeling standards: Implement standards like color-coding formulas (e.g., black for formulas, blue for inputs, etc.) to improve transparency and readability for all.
- Prevent unjustified changes: Avoid adding unnecessary rows and columns that lead to models’ increased susceptibility to errors.
- Use consistent templates: Stick to consistent formats and templates to reduce errors and ensure scalability.
- Perform maintenance regularly: Only put what’s necessary into Excel spreadsheets and throw out what’s not. Poor data will result in poor insights.
Where planning in Excel falls short
As companies grow and data sets expand, planning in Excel can quickly become a burden. Large amounts of data slow down calculations and increase loading times. Changes in underlying assumptions are often hard to track, especially in teams where models are shared.
One of the primary pain points is collaboration. Planning in Excel tends to become difficult when multiple team members need to work on the same document. Spreadsheets are prone to version control issues, and changes to source data are not always immediately visible to all stakeholders. Without clearly defined role-based permissions that regulate the access to sensitive data, the data integrity can easily be jeopardized by human error that can go undetected for a long time.
Excel is not a large database. It grows organically with a company’s use cases and business challenges, numbers keep accruing and, as data sets grow, they become more cumbersome to process and work with. Eventually, the organization reaches a point where a large-scale database is needed. A few hundred or even a few thousand data records, importing large csv files from other folders, or tapping into preexisting systems can all cause Excel to fail.
Data visualization
One of Excel’s strengths is its ability to generate data visualization through charts, graphs, and PivotTables. However, Excel’s visualization tools are often limited when compared to modern business intelligence platforms. Companies that need to visualize large, complex datasets may find Excel’s capabilities lacking.
An advanced financial planning software provides enhanced drag-and-drop data visualization capabilities that make it easier to analyze and present financial and operational data. These tools allow for better analysis across multiple dimensions – such as product lines, regions, and currencies – while ensuring reports are visually engaging and informative.
Moving to an Excel alternative
Excel is undeniably a powerful spreadsheet software, offering flexibility and a broad range of features. Yet, as companies grow, they quickly realize Excel alternatives are essential to support more complex financial planning needs and keep operations running smoothly. While Excel offers a strong foundation for financial planning, it’s not a database and wasn’t designed for large-scale, multidimensional data management.
When considering Excel alternatives, companies need to look for software solutions that provide greater collaboration, real-time data integration, and robust automation features. Enterprise performance management (EPM) platforms offer an Excel-like interface, making the transition easy for finance teams already familiar with Excel’s user experience and UI.
Summary
As organizations grow and become more complex, Excel’s limitations – particularly around collaboration, real-time data access, and scalability – start to surface. Excel will remain a fundamental tool in FP&A professionals’ daily work, whether they work for small businesses or multinational corporations. However, as with any tool, Excel was designed for a specific purpose, and modern FP&A planning challenges have outgrown its capabilities. Therefore, it’s important for Finance professionals to assess if Excel still meets their needs.
A powerful planning software, like Jedox enhances companies’ financial planning capabilities with better collaboration, automation, and real-time insights – ensuring that their financial models can keep up with their evolving business needs. With Jedox, FP&A professionals can keep using Excel while eliminating its shortcomings, such as spreadsheet chaos and difficulty handling large data volumes.
To discover Jedox and the power of an integrated financial planning platform in action, contact us.
