How Stratex Online Outperforms Spreadsheets for Capital Budgeting
Using spreadsheets for capital budgeting can cause serious waste and enterprise under-performance. Despite the ubiquitous adoption of spreadsheet tools such as Microsoft Excel, Google Sheets and Smartsheet in the capital budgeting process, many organizations are blinded to the inherent risks associated with the use of spreadsheets.
Spreadsheets are powerfully flexible and can do almost anything. By contrast, Stratex Online is purpose built to provide a seamless capital budgeting process from innovative idea to productive asset. Outlined here is a compelling case for the adoption of a specialized solution such as Stratex Online to support one of your most critical business processes, capital budgeting.
The Spreadsheet is Dead.
Long Live the Spreadsheet.
Long Live the Spreadsheet.
The Spreadsheet is Dead. Long Live the Spreadsheet.
Anyone advocating for the elimination of spreadsheets is certain to fail. Excel continues to be the world’s most highly utilized productivity tool. Excel will continue to be an essential tool of business for the foreseeable future as a feature-rich end-user application, reflecting decades of experience in the market with feedback from hundreds of millions of users, and the benefit of billions of dollars in ongoing investment. For most finance professionals, Excel is a key tool they’ll take with them throughout their career, leading to near ubiquitous adoption, familiarity and expertise.
The utilization of spreadsheets for capital budgeting will continue to play a useful role in the process of budgeting and monitoring. However, spreadsheets need to be used in the right way: as a complement to the capital budgeting and monitoring process, and not as the platform itself.
Pitfalls with using Spreadsheets for
Capital Budgeting and Monitoring
Capital Budgeting and Monitoring
Limited Data Scope
Data scope refers to the breadth and depth of information captured. It is ironic, given that spreadsheets present a virtually unlimited number of columns and rows to complete, that data scope can then be considered as a weakness. The main reason is that business cases contain complex data, and the inherent risk of spreadsheets is that investment proposals get over-simplified into only two dimensions as outlined below:
Investment Options
Every investment opportunity should consider alternative options. For example, when replacing an ageing forklift, one should consider both gas and electric models and different manufacturers at different price-points. Sponsors and executive decision makers should have ready access to assess both the opportunity and the proposed options and to make an optimal decision. A common pitfall of spreadsheet-based budget wishlists, however, is that opportunities get confined to a single row. This limits decisions to binary inclusion or exclusion choices, and refinement opportunities are forfeited.
Dynamic Evaluation Criteria
The columnar nature of spreadsheets invites a standardized classification of projects by common-denominator attributes. This inhibits a more tailored evaluation of projects with respect to their investment reason, size and complexity. For example, the construction of a new factory would require significant more data collection than the replacement of ageing equipment. There is thus an increased risk of inadequate evaluation of more complex investments, leading to poor project selection and potentially budgeted wastage if costs overrun or purported benefits fail to materialize.
Poor Data Quality
The joy of spreadsheets is the virtually unfettered freedom they provide the user. Of course, the downside is that the quality of information contained in spreadsheets for capital budgeting is equally variable.
Inaccurate and Inconsistent Formulae
Financial estimations and metrics are fundamental to the capital budgeting process, and spreadsheets provide excellent calculation features. Standardized formulae exist for financial metrics like Net Present Value (NPV) and Internal Rate of Return (IRR). The consistency and accurate usage of even simple formulae can, however, radically diminish over time and versions. We’ve all experienced the fearful realization, right before our financial presentation, that we may have forgotten to fully extend a formula for some last-minute inserted columns or rows.
Out of Date Information Silos
Spreadsheets are a useful medium of data exchange. Planning and budgeting information is frequently shared via workbook. The problem arises when spreadsheet data becomes a source of truth. Unless tightly controlled and highly centralized (which largely negates the value of spreadsheets), there is an extreme risk that the data we’re relying on is out of date. When using spreadsheets for capital budgeting, that data may be the budget, the latest forecast, the business case metrics, actual project costs or any of the other critical information involved in the capital budgeting process.
Invalid and Inconsistent Data
Spreadsheets have basic field validation functionality. Dates, however, are notoriously misleading when dealing with different regions. Currencies require consistent conversion to be meaningful at group levels. Master data classifications are only as good as the list of values in the hidden sheet. Financial metrics such as payback period, are only comparable if the same calculation methods are being consistently and accurately employed.
Poor Accessibility and Usability
Users love the simplicity and flexibility of collecting and presenting financial information and charts in spreadsheets. However, when spreadsheet data is the source of truth, for example the capital budget, then access to this data is often highly restricted.
Spreadsheet-Based Reporting Provides Limited Drill-Down Capability
Spreadsheets for capital budgeting solutions are loved by the few controllers but become a black-box to the many other participants. Whilst beautiful charts may adorn management reports, self-service drill-down and analysis by executives can be limited, often due to the complexity of the data roll-ups incorporated to produce the final reports.
Spreadsheet Templates are Not Dynamic or User-Friendly
Most organizations employ spreadsheets extensively in the data collection process: from budgeting wish-lists to business case submissions, to project forecasts all the way through to the final fixed asset details. As data collection templates, spreadsheets are not ideal as the user-experience is very static. Without extensive macro-enabled functionality, spreadsheet templates do not react dynamically to individual scenarios. The same entry form and columns tend to be presented irrespective of whether the investment is for a new factory or for a forklift.
Poor Data Governance
The use of spreadsheets can have a significant impact on data governance. Here are some key effects:
Limited Data Security
Spreadsheets do not effectively secure information at a data element level. Any confidential projects would thus typically be visible to anyone with spreadsheet access. There is no practical way of limited data visibility by investment reason, asset class or legal entity. Consequently, preparation of budgeting data is distributed into numerous files, that require an administrative process to consolidate and then control centrally.
Lack of Audit Trails
Changes to spreadsheet data are practically hard to review, especially when data is spread amongst various departments and users. Consequently, maintenance of spreadsheets for capital budgeting is typically centralized.
Key-Person Dependency
Control of spreadsheets for capital budgeting processes is frequently entrusted to one or a very limited number of people. The Excel gurus who understand how the complex mesh of interconnected workbooks and worksheets. Who magically collate original plans, budgets, actuals, and forecasts to produce meaningful results. This dependency is, however, an inherent risk to organizations due to reliance on their individual expertise, and in the event of their unavailability.
Business Benefits of Stratex Online compared to Spreadsheets for Capital Budgeting
Organizations that make use of Stratex Online for the capital budgeting process are more efficient in their use of professional staff, accelerate approval cycles, waste less on bad investments, make better investment choices and mitigate risk more effectively than those organizations relying exclusively on spreadsheets for capital budgeting processes as outlined below:
Productivity
Stratex Online eliminates the need for central capex controllers to distribute and consolidate spreadsheets and produce financial reports manually. This enables senior finance staff to redirect their efforts to more value-added activities such as working with project managers to review and refine business case submissions.
Initiators are also more efficient as they can submit information directly into the system more easily through a dynamic and intuitive web application. Real-time validations, lookups and automated calculations eliminate their need to source data externally or require support in completion of requests.
Approvers are more productive with Stratex Online as they can access all authorized information instantly. They can see what is coming their way, access supporting documentation, ask questions, inspect options and assess financial analyses directly without needing to resort to email exchanges and endless committee meetings.
Timeliness
Increased confidence in the reliability and consistency of capital allocation requests helps reduce approval hesitancy and delays.
Workflow automation ensures that all the right technical specialist are included in the endorsement process, and that requests are escalated in accordance with delegation of authority policies to streamline and expedite timely approval.
Integration with downstream systems means that approvals are instantly actioned, and requestors can initiate and execute urgent project and procurement activity without delay.
Effectiveness
Stratex Online is not limited by spreadsheet columns but provides highly flexible scoring models to help effectively evaluate capital investments to help prevent wasting budget on poor investments and to help select the most valuable initiatives.
By eliminating spreadsheet administration, the efficiency of the budgeting process allows for a more frequent reassessment of project priorities. Given an unstable operating environment, this increased agility to respond faster than their competitors, helps organizations succeed.
Spreadsheets for capital budgeting processes are typically managed by batching up initiatives and submitting these on an annual basis. By contrast, with Stratex Online, great ideas can be submitted at anytime, can be fairly and consistently evaluated, and can be included in agile budget replanning processes on a regular basis.
Risk Mitigation and Governance
With Stratex Online, both inaction and delivery risk are thoroughly assessed to ensure that expected returns are commensurate with the risks assumed.
Furthermore, Stratex Online mitigates against exposing confidential initiatives and becoming dependent on a few key individuals. As a robust software as a service solution, Stratex Online provides a highly secure and fully auditable platform for managing your most critical process. Safely harness the ideas and fund the investments that will transform your organization and help you achieve your strategic goals sooner, in full compliance with your delegation of authority policy.
Stratex Online allows you to quickly collate expenditure forecasts to enable timely and effective monitoring of your project portfolio performance to ensure every dollar is wisely invested and your fiduciary duties fulfilled.
How Stratex Online works differently to Spreadsheets for Capital Budgeting
Spreadsheets are highly flexible blank canvases that rely on the skills of end-users to define and manage the capital budgeting process. Conversely, Stratex Online is a specialized platform for managing the identification, evaluation, selection, budget allocation and monitoring of projects to deliver strategic objectives sooner, at lowest cost and least risk. The key differences between Stratex Online and  Spreadsheets for capital budgeting processes are outlined below:
Single Source of Truth
With Stratex Online all data is securely stored in a centralized database in the cloud. The single source of truth is then directly accessible by all process participants as and when and in whatever format is required.
Collaboration
With Stratex Online information is easily shared and exchanged and supplemented in a collaborative manner without need to email versions of a document to monitor changes.
Integration
As an enterprise application, Stratex Online provides comprehensive integration capabilities to downstream financial, procurement and project management systems.
Authentication and Accessibility
All staff have access to Stratex Online everywhere on any device with single sign-on enterprise authentication. Access to functionality and individual initiatives is tightly controlled in accordance with fine-grained authorization controls.
Scalability
Stratex Online runs on the industry leading AWS technology platform and is highly scalable to meet the needs of users in all regions, in any currency.
Deeper Evaluation
As opposed to single-row information, Stratex Online supports analysis of multiple options, detailed risk assessments, sophisticated financial analyses, and strategic alignment assessments to provide a more effective scoring and ranking of investment opportunities.
Intelligent Portfolio Selection
Offering more than spreadsheet sorting, Stratex Online provides advanced portfolio selection functionality to ensure your project portfolio is optimized within funding and resource constraints.
Real-Time Monitoring
Combining plan, budget, approvals, actual and forecast information from both manual and integrated data flows, managers are able perform real-time monitoring of their project portfolio to mitigate wasteful expenditure early and re-prioritize funding as required.
Improved Accuracy and Consistency
With a flexible and intuitive web-form user-interface, Stratex Online ensures all required information is easily and completely captured and validated at point-of-entry.
Workflow Automation
Automatic workflow routing and approvals are built into Stratex Online to ensure compliance with delegation of authority levels and expedited approvals.
Auditability and Governance
Every update and approval in Stratex Online is thoroughly tracked and auditable to clearly demonstrate probity of changes and decisions made.
Stratex Online vs Spreadsheets: A Process Comparison
Spreadsheets are highly flexible blank canvases that rely on the skills of end-users to define and manage the capital budgeting process. Conversely, Stratex Online is a specialized platform for managing the identification, evaluation, selection, budget allocation and monitoring of projects to deliver strategic objectives sooner, at lowest cost and least risk. The key differences between Stratex Online and  Spreadsheets for capital budgeting processes are outlined below:
Overview of a Typical Spreadsheet for Capital Budgeting Process
- Traditionally, budget item wish-lists are submitted on spreadsheets by department.
- Capex controllers then consolidate these initiatives, and standardize the list down to the most basic common attributes, often to simply description and cost.
- When the capital committee assesses the proposed budgeted items list they often don’t have sufficient understanding or standardized comparability between the items so will often require supplementary data from the requester. Any adjustments will require the preparation of a new spreadsheet version to be submitted.
- The committee might then present the budget proposal to an executive board. This may not reflect the strategic priorities of the board, or exceed available funding capacity, and the process reiterates.
- The outcome is a stand-alone document owned by a central person who must then advise departments whether or not there is budget allocated and available for each expenditure request.
The Stratex Online Capital Budgeting Process
- With Stratex Online, ideas can be submitted at any time.
- Departmental managers can filter and promote urgent and high value initiatives with ease.
- Project portfolio planning is done objectively based on consistent metrics and scoring.
- Executives have full drill-down analysis capability of each initiative to avoid going back to the requester.
- Each step is enabled with real-time workflow.
- Because of the increased efficiency, budget allocation can be done more regularly to accommodate changes in the operating environment.
Spreadsheet vs Stratex Online Process Comparison
The key benefits with Stratex Online are more efficient collaboration based on a single-source of truth and automated workflow, more effective initiative evaluation based on standardised business case metrics, and better optimized project portfolio selection due to more agile reprioritization.
By adopting Stratex Online in place of spreadsheet-based budgeting processes, organizations can ensure capital budgets are allocated to the most valuable projects and thereby achieve strategic objectives sooner, at lowest cost and least risk.
Case Studies of Spreadsheets for
Capital Budgeting Process Failures
Capital Budgeting Process Failures
Real-life examples of the risks inherent in spreadsheets for capital budgeting processes include the following:
Faulty Business Case Evaluation in the Building and Construction Industry
Working with a large Australasian building and construction conglomerate we identified a significant calculation error in the business case evaluation of a vessel. The standard business case template was designed for a 10-year return on investment calculation. The new vessel was, however, expected to have a useful life of 13 years, so the financial analysis had been extended accordingly, by adding additional columns to the supporting Excel spreadsheet. However, in doing so, a formula error was introduced, with the result the calculated payback period was mis-stated. This could have led to an inappropriate investment decision. In Stratex Online, financial analysis templates are easy to use, yet rigorous and fully automated to avoid spreadsheet formula errors from being introduced.
Budget Reconciliation at a Global Manufacturer Identifies Discrepancies
Introduction of a digital capital budgeting process at a global explosives manufacturer successfully achieved real-time reconciliation of budgeted items and capital expenditure requests. However, this exposed an unexpected change management challenge. In the previous spreadsheets for capital budgeting process, the items comprising the capital budget were contained in stand-alone spreadsheets in each department and factory. In effect, the budget amount requested simply became a bucket of available funds for each area, and the details of the constituent projects used to justify the budget amount was frequently not being reconciled to the actual capital expenditure during the financial year. The risk of this approach was that funding set-aside for important initiatives could be consumed on a first-come first-served basis by less important initiatives.
Stratex Online helps ensure that capex requests are directly linked to budgeted items. And to ensure that more urgent or valuable initiatives identified during the year can be appropriately funded, the efficient budgeting process supported by Stratex Online allows budget reallocation to be done on a more regular basis. Stratex Online therefore provides the best of both worlds: a detailed strategic capital budget allocation, that can be regularly reallocated as the operative environment changes or more important initiatives are identified.
Capex Controller Retires Leaving a Web of Inter-Connected Spreadsheets
A European logistics group experienced the inherent risk of a home-grown spreadsheet for capital budgeting and monitoring solution. Whilst the system was effective for their immediate needs, operating the complex array of spreadsheet submissions from each country and business unit required the skills of an experienced central capital controller to administer. And when that capex controller retired, and the organization realized that their legacy system was high-risk and unsustainable. With Stratex Online, the capital budgeting process is based on best practice, standardized templates and tailored workflows.
How to use Spreadsheets for Capital Budgeting Effectively
Spreadsheets will likely remain an essential tool of project managers, financial controllers, and executives, and provide a vital complement in the capital budgeting process. As opposed to driving the entire process on spreadsheets, an integrated capital budgeting platform such as Stratex Online should be employed. However, spreadsheet can still be beneficially employed in the following areas:
Data Analysis and Presentation
Stratex Online provides access to all your project data via real-time service so you can leverage your spreadsheet skills to analyze and present your information with confidence that you’re accessing a reliable and secure single-source of truth.
Financial Modelling and Estimation
The free-from nature of spreadsheets makes them an ideal tool for detailed cost estimation and benefit determination. However, once the duration and sequence of work breakdown structures is determined, the data should be updated in Stratex Online to effectively identify the timing and demand for capital and technical resources. Once calculated, long-term savings and benefits should similarly be transferred to Stratex Online for consistent evaluation including currency translation, tax shield calculation, and net present value determination.
Forecast Uploads
Many end-users will leverage specialist project management tools and spreadsheet estimations to accurately forecast expenditure of in-progress projects. With Stratex Online these forecasts can be efficiently uploaded for analysis and monitoring purposes.
Manual Integration where Required
Within some environments, it may not be justified to develop technical integration between financial systems and Stratex Online. In those cases, direct upload from spreadsheets into Stratex Online is a supported and viable work-around.
Unleash Your Capital Budgeting Potential: Maximize Performance in Capital Budgeting with Stratex Online
Unleash Your Capital Budgeting Potential: Maximize Performance in Capital Budgeting with Stratex Online
Spreadsheets for capital budgeting are valuable. There is however much to be gained from adopting a specialist capital budgeting solution such as Stratex Online. Contact us today, for a tailored demonstration of how Stratex Online can help you maximize the return on investment of your capital resources and achieve strategic goals sooner, at lowest cost and least risk.
