The big five accountancy firms have warned that the inappropriate use of spreadsheets can result in catastrophic consequences, yet every day hundreds of thousands of executives bypass their multi-million pound enterprise resource planning (ERP) systems and spend their time tinkering with the same data in a spreadsheet.
Research by the "big five" has found that computational errors, mainly buried in spreadsheets, alone result in costs to business amounting to hundreds of millions of pounds.
Finding a technology that gives managers all the benefits of spreadsheets without the dangers is now becoming mission-critical. A number of of large organisations have established think-tanks to address the dilemma and some are quietly piloting new-technology solutions.
Neil Hogg, a partner with Arthur Andersen's Business Modelling Group, gets a good overview of what companies are using for financial modelling and how well these "solutions" do the job.
"The majority use desktop spreadsheets even though they adopt enterprise-scale solutions for most other key systems," he explains. "Nevertheless, when it comes to 'designing the future' managers like to build models and play with them on their desk, it is a personal thing. And even organisations that do actively use enterprise solutions such as ERP find the plan that quantifies future business strategy is either derived from, or presented in, a spreadsheet."
Hogg says that, to many users, none of the "abbreviations" - ERP, MIS, CRM, etc - feel right. It is not that they can't use them, it is just that they prefer spreadsheets.
"The good old spreadsheet may solve the immediate problem but it highlights a variety of strategic planning issues," Hogg warns. "Some of the biggest problems come from the 'simple' model and the 'ambitious' model, where literally hundreds of millions, and sometimes billions of pounds, are at stake."
Barry Pettifor, a director at PriceWaterhouseCoopers (PWC) takes a similar view. "PWC sees a huge variety of financial plans from customers," he says. "The models we see are getting more complex and the strategic issues raised by spreadsheeting remain. If anything, things are getting worse. On the one hand, we can see simple errors leading to potentially really bad decisions and, on the other, we see companies wasting huge amounts of money reinventing wheels."
Pettifor believes that many of the spreadsheeters are way behind the times. "Everything we see people build is a hand-crafted piece of personal mathematical art - doing it this way is inefficient and expensive. We are always looking at new technologies that can address this problem. Things have to change in terms of more robust tools and management processes," he says.
The pain experienced in using spreadsheets has triggered the development of database-centric solutions. The established suppliers in this field, such as Hyperion and Comshare, have made good progress into the Fortune 500 companies but are barely noticeable in the greater scheme of things. A decade after they first appeared, they still count their customer base in tens of thousands. By contrast, the big five accountancy firms estimate there are more than 30 million business-planning spreadsheeters.
With such criticisms and the lack of desktop penetration there are opportunities for new players. Indeed, the challengers are already on the horizon.
A common thread between the two first challengers to appear is that they are calling their new breed of technology an "object planner". Object planners are end-user technologies for building financial plans and models from objects or components. The objects hold both the end-user calculations and the end-user data. In object-planning terms, a plan is merely a loosely associated set of objects. Behind the scenes, the object planner may be connected to a database.
An object plan might, for instance, comprise sales, marketing, departmental and staff objects. The dimensions of data held "inside" the objects are unrestricted, as is the relative timing of events modelled by the objects and the structure that associates the objects.
Defining and creating objects and new formulas is a low-skill end-user task, and the objects will be compatible with a company's existing chart of accounts and database. Plans can be instantly consolidated regardless of content.
Both Hyperion and Comshare express the view that object-based planning systems using database back-ends are interesting and feasible but were unwilling to comment on any plans they may have in this area.
The UK's first object-based planning technology has been built by a company called Brixx. Gary Simon, senior partner at Deloite and Touche, has seen it and was impressed. "Overall, planner is an amazing tool for the corporate planner. The challenge for Brixx is to enable enterprise deployment of the system over the Web so that more users can enjoy the benefits of this powerful application." he says.
Hogg has looked at object-oriented (OO) planning as an alternative to spreadsheets. "We started looking at OO business planning two years ago," he says. "Since then, we have been busy building and experimenting with a library of object-based reusable components. By comparison with spreadsheets, these technologies are new - even the most mature is only three years old - but we can demonstrate that the approach addresses many of the key strategic issues."
Using the example of a large organisation with 50 business planners using a wild assortment of spreadsheets, Hogg says, in spreadsheeting terms, rolling out an upgrade to specific cells across diverse spreadsheet applications simply will not work. However, he adds, if everyone's business models conform to an underlying object standard, the task becomes trivial.
"We think that businesses should take a fresh look at all their spreadsheet applications and question whether the job is being done right or whether the right job is being done," Hogg says.
The first factor to identify is whether there is any threat posed. Hogg says that if a model is personal, used only by the author, then it should not be seen as a threat. If it is shared, by which he means viewed or edited by users other than the author, the situation should be reviewed.
The job then becomes one of deciding on some simple metrics and costings for assessing the economic impact of your findings. This is purposefully a gross simplification but it tells you whether you should take a closer look at how your company builds its financial models and plans.
Some spreadsheets will demand action, others will have a negligible effect and can be discounted - but none should be ignored.
The trouble with spreadsheets
Why users resist databases