The Cost of Decision Making
So the outcome of your review process is that change is needed. If you didn’t arrive at a clear outcome from your review process, here are some other factors that you may want to consider – the immeasurable costs that are often overlooked and undervalued.
Budgeting on the devil you know
We’ve discussed the possibility of leaving your existing (probably spreadsheet based) reporting and budgeting system (the devil you know), for a dedicated Corporate Performance Management (CPM) system (the devil you don’t). If your role is finance/accounting related, you would logically look for the cost benefit, the trade-off, the value vs cost questions. It’s easy to measure these by setting up NPV calculations, pay-off periods for investment in new assets or refurbishing existing assets.
But when it comes to deciding between your existing system versus an integrated forecasting, budgeting and analysis tool, what do you do about the immeasurable costs?
For example, how do you calculate the following:
- What is the price or cost of covering the risk of your existing solution becoming unworkable at a critical point?
- If the Finance team are late in producing reports, what is the damage to their internal reputation? Or the direct and indirect costs of overtime in order to get the reports out on time?
- What is the value gained from structuring data so that it enables more efficient and effective analysis, even without transitioning to another platform?
As one CFO puts it,
“We were getting to the point where Excel was a nightmare- formula errors, crashes, multiple versions of the same spreadsheet, single users, data security/consistency… For me to actually present a five year plan to the Board based on Excel was getting problematic. There was a risk factor that the numbers weren’t going to be accurate enough.”
Anthony Denman, FCPA | CFO at Anglicare Tasmania
Whether we explicitly recognise spreadsheets as a CPM or not, those sprawling interrelated workbooks are a database as surely as SQL or Oracle are. It’s just not as well structured.
Frequently, your IT support team also aren’t that excited about supporting spreadsheet functionality. They won’t care if you use an INDEX(MATCH) combination instead of an HLOOKUP, and they aren’t usually equipped to help you when it breaks. This means you probably have an Accountant who is your in-house spreadsheet wizard who puts it all back together again when a staff member inserts a new column into the VLOOKUP. Have you considered what the cost is to maintain that resource?
When we start to think along these lines, it becomes another in-house or outsource question, and you might find that the alternative of contracting a development team is cheaper in the longer term rather than retaining an internal resource to maintain it.
Taking all these into account, even without considering the implicit cost of maintaining your existing system, the immeasurable factors/costs alone might be enough to warrant a transformation of the CPM tool you use..
What is your company struggling with? We will continue to explore this topic further in our next posts – drop us a line if you want to have a chat or stay in touch with our updates.