Enterprise Excel Blog

The CFO’s Guide to Agile Financial Modeling

Table of contents

Introduction

Section 1: The agile approach to corporate finance

Section 2: What exactly is Agile Financial Modeling, and how does it work?

Section 3: The use case for Agile Financial Modeling

Section 4: The Financial Modeling Agility Quadrant. Finding the tools to support agile budgeting, forecasting & what-if analysis

Introduction

As a CFO, your role has never been broader. No longer just the bean counter, your job is to see into the future — a month, a year, a decade — to mitigate your company’s risks and capitalize on opportunities.

More than ever before, the rest of the business is looking to you and your team to inform key decisions and evaluate future strategy. This is borne out by the diversity of business functions in which you now play an active hand. According to research from management consulting firm McKinsey, the number of business functions reporting to the CFO increased from 4.5 in 2016 to 6.2 in 2018, with board engagement activities and digitization becoming regular concerns. Additionally, risk management and corporate strategy now play an even bigger part in the day-to-day working life of the average CFO.

Yet while finance chiefs have more on their plate than ever, their core responsibility — and the greatest source of pain and frustration for the whole finance department — is to “see” and model the future. You need to model future scenarios fast. You need to model in detail. And your models must be error-free.

Why standard Excel is no longer sufficient

The more the business relies on your input, the more pressure is placed on your team. Adding to their stress, desktop Excel — likely still your default tool for budgeting and forecasting — is notoriously inadequate. Your average Excel modeler could be spending as much as 90% of their time and effort on grueling spreadsheet maintenance, leaving only 10% for activities that really add value — the all-important what-if analysis at the core of most business decisions.

Where many modern financial teams are concerned, “vanilla” Excel is simply no longer up to the task — a fact reflected by “Benchmarking the Accounting & Finance Function”, a major report compiled by the Financial Executives Research Foundation and recruiter Robert Half. According to the study, the proportion of US companies that use Excel as their primary tool for budgeting and planning dropped from 69% to 63% between 2017 and 2018, while an even greater downturn — from 78% to 68% — was reported in Canada. Among smaller businesses (those with sub-$25 million annual revenues), Excel’s dominance dipped by nine points to 69% over the same period.


We’ve weighed up the merits of Excel as an FP&A tool. Find out more in our article:The Pros & Cons of Excel for Corporate Finance


In short, desktop Excel may still be the first choice for budgeting and forecasting, but its lead is slipping, and with good reason. So what should you be looking for in an alternative?

“One version of the truth” is no longer enough

When it comes to adopting new digital tools and systems to improve budgeting, forecasting and what-if analysis, for years the holy grail has simply been to establish a “single version of the truth” — in other words accuracy, scalability and security. In today’s world, that’s no longer enough. If your team is going to deliver the insights upon which modern businesses depend, creativity, speed, and versatility — what we call Agile Financial Modeling — are everything.


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So what does Agile Financial Modeling look like? How can it help your department to better serve your executive team with faster, more detailed, more robust forecasts and what-if analyses? And what skills, traits and software are required to successfully implement it at your organization? Read our ultimate guide to find out…

Section 1: The agile approach to corporate finance

The term “agile” has become a management buzzword. Just like every other buzzword, many have heard of it, but few understand what it actually entails.

Created by 17 software developers at a Utah ski resort back in 2001, agile methodology was designed around a set of principles that allowed users to prioritize:

  • Individuals and interactions over processes and tools
  • Working software over comprehensive documentation
  • Customer collaboration over contract negotiation
  • Responding to change over following a plan

Their efforts proved revolutionary and far-reaching. Agile is now being used sometimes, often or always by 71% of organizations, according to the Project Management Institute.

What does “agile” look like in the corporate finance world?

They may be very different disciplines, but the overarching principles that work so well in software development can be applied to the world of corporate finance. In the finance department, an “agile” approach translates as follows:

  1. Collaboration: Empower your Excel modelers with tools that enable intimate collaboration and feedback from your “stakeholders”, including end users, executives and department managers.
  2. Analysis Speed and Confidence: Empower your Excel modelers with technology that promotes speed, detail and accuracy, “flipping the ratio” from 90% maintenance of spreadsheets and 10% analysis to 90% analysis and 10% maintenance. Quicker and more frequent analysis cycles is where it’s at, whether budgets, forecasts, what-if scenarios, or sensitivity analyses.
  3. Creative Freedom and Empowerment: Your Excel team is deeply talented. They understand your business and financial systems, and they are creative wizards with Microsoft Excel. For your finance team to truly add value, they need to be empowered with the tool they know and love. Beware of products that eliminate or diminish Excel forcing your team to swap back and forth to Excel where the creative heavy lifting takes place.
  4. Versatility: As a CFO, you’ll rarely — if ever — make the same request twice. Your team must have the skills and systems to cope with whatever you throw at them. Do you need a budget involving every manager with budget authority company-wide? Or do you need a rapid, yet rigorous, reforecast involving just a few users in order to course-correct for changing conditions? Or are you exploring “what-ifs”, peering into the future under creative scenarios, testing changes to macro and micro-economic drivers and changing business assumptions?

Agile Financial Modeling delivers rigor, detail and security without compromising creative freedom, speed of analysis, collaboration or versatility.

Over the next sections of this guide, we’ll expand on why agility is such an attractive prospect, how it works, and the specific benefits it provides within the corporate finance realm.


“Prediction is very difficult, especially if it’s about the future.” Niels Bohr, Nobel laureate in Physics


Why CFOs are striving for agility

It used to be that “one version of the truth” i.e., accuracy, reliability and security set the bar for successful solutions to financial modeling. No longer. The bar has been raised. Today, speed of analysis, creative freedom and versatility are must-haves; key difference-makers.

This combination — scalability, reliability and security with no loss of speed, creative freedom, and collaboration — sets a new bar: Agile Financial Modeling.


“Some things are so unexpected that no one is prepared for them.” Leo Rosten in Rome Wasn’t Burned in a Day


The CFO’s new reality

Your role has become decidedly more complex, requiring you to engage and collaborate more closely with sales and operations teams. According to PwC, most finance teams are proactively striving for continuous transformation. Tellingly, just one in seven are transforming out of necessity, signifying a desire on the part of CFOs to keep their teams ahead of the curve.

Half of CFO respondents to the same PwC study say their transformation efforts are being driven by a desire to innovate and creatively reinvent existing practices. Crucially, you need software that empowers finance professionals to go deeper than traditional financial KPIs to explore more statistical and operational-level metrics. Less tangible indicators — such as brand reputation, customer satisfaction and human capital — are being used to deliver more accurate forecasts, unearth new business opportunities and mitigate risk, according to a study from the American Institute of CPAs and the Chartered Institute of Management Accountants.

The search for agility also goes hand in hand with the desire to add value. In the PwC survey, a staggering 92% of CFOs cited efficiency improvements and process optimization as a motivating factor behind their transformation efforts. But this isn’t merely a cost-cutting exercise; efficiencies allow finance teams to have far greater influence on key business decisions. Nilly Essaides, Senior Research Director in the Finance & EPM Advisory Practice at The Hackett Group, explains:

“By more fully embracing digital transformation, finance can substantially diminish process cost, while successfully re-deploying talent to value-added activities.”

In short, agility is your new best friend. Agile Financial Modeling enables your team to add more value, work more efficiently, and model with greater creative freedom.


We really care about bringing agility to your budgeting and forecasting. Find out more in our article: “A3 Solutions is Passionate about Budget and Forecasting Performance


Section 2: What exactly is Agile Financial Modeling, and how does it work?

No approach to budgeting and forecasting can be deemed truly agile unless it allows finance teams to work collaboratively, at speed, and with complete creative freedom. But what does that look like in practise? In this section, we discuss the characteristics of Agile Financial Modeling and explain the benefits it can provide to your team.

The foundational characteristics of Agile Financial Modeling

Five foundational characteristics differentiate Agile Financial Modeling from other approaches to budgeting and forecasting. As we’ll go on to detail throughout this guide, other solutions proclaim to offer scalability but lack creativity, or vice versa. Only Agile Financial Modeling checks all of the following criteria:


  • Effortless, error-free modeling at enterprise scale

For large and/or rapidly growing businesses, an enterprise-scale approach to budgeting and forecasting is required. Agile Financial Modeling ensures complete scalability without abandoning the sanctuary of Excel.

From your team’s perspective, you retain all the features and concepts you love and rely on day in, day out, without the fragility and capacity constraints of desktop Excel.

More than a “single version of the truth”, Agile Modeling gives you fingertip control to explore and manipulate your financial model without proliferating thousands of spreadsheets in the process. Effortlessly create what-ifs, then compare them while drilling down from consolidated corporate reports to division and departmental level, and even to the transactions.


  • Creative freedom and empowerment

Excel, while empowering, simply doesn’t scale. Many alternative solutions deal with the scalability issue by forcing your team out of Excel and onto a foreign platform — typically a scalable web solution — stripping you of the familiar Excel experience.

By contrast, Agile Financial Modeling keeps your team in the Excel environment and fully leverages your advanced Excel skills without forcing you to learn a new, unfamiliar platform whose limitations ultimately drive you back to Excel for the heavy lifting.


  • Increased speed of analysis, with reduced cycle time on budgets, forecasts and what-ifs

True agility isn’t just about creativity and reliability. Speed is a crucial piece of the jigsaw. Your budgeting and forecasting solution should allow for rapid, interactive, detailed and accurate creation of budgets, forecasts and what-if analysis.


  • Easy, intuitive collaboration and workflow

Your advanced Excel modelers aren’t the only ones participating in budgeting and forecasting cycles. Numerous stakeholders also require access, and their experience must match their skill set, with easy, intuitive and action-oriented models that are appropriately color-coded and protected. Every submission and approval should be tracked without sacrificing security, flexibility or system response time.


  • Minimal disruption in deployment and adoption, with lower total cost

Transitioning to an agile budgeting and forecasting solution should be non-disruptive and self-paced. Simply subscribe and, at your own pace, begin migrating your desktop spreadsheet models to scalable, Excel-friendly cloud cubes. There should be minimal dependence on outside consultants and IT.


“Some things are so unexpected that no one is prepared for them.” Leo Rosten in Rome Wasn’t Burned in a Day


What benefits does Agile Financial Modeling provide?

Based on experience working with Fortune 500 companies, the following are cited as the biggest benefits of adopting the agile approach:

  1. The “productivity ratio” is flipped from 90% spreadsheet maintenance and 10% analysis to 90% analysis and 10% spreadsheet maintenance.
  2. Like an “instant promotion”, Excel modelers — with supporting detail at their fingertips — will be invited to the decision-making meetings.
  3. Executive decisions will be better informed, and made consistently faster and with greater confidence.

Want to learn more about the real-world benefits of Agile Financial Modeling? Find out how we helped Affiliated Computer Services meet its demanding forecasting requirements.


Section 3: The use case for Agile Financial Modeling

Adopting an agile approach to corporate finance may sound appealing, but not every team or business is well suited to work in this way. One must consider the qualities of your team members and the needs and openness of the business to change.

What are the ideal traits of an Agile Financial Modeling team member?

Talented finance professionals share key skills — we are analytical problem solvers and we pay close attention to detail.  You must qualify your team carefully. A joint study from Scrum.org and McKinsey & Company identified the following key characteristics in agile team members:

Personality traits:

  • Conscientiousness: Diligent and hard-working
  • Agreeableness: Warm and empathetic
  • Ability to handle ambiguity: Work well in unstructured environments

What are the ideal traits of an Agile Financial Modeling business?

Even if your finance team has the requisite technical skills and traits to thrive in an agile environment, the characteristics of your business may be barriers to adoption.

Given that any degree of change — however seemingly minor or familiar — will be met with some level of resistance, it’s important to understand the suitability of Agile Financial Modeling for your business. Three key drivers should inform the adoption of an agile approach to corporate finance. Ask yourself the following questions:

  1. Does your business have a complex financial model (usually a complex revenue model)?
  2. Does your executive team demand frequent budgets, forecasts, what-ifs and one-off analyses?
  3. Does your finance team possess strong Excel skills?

If you don’t answer “yes” to all three, an alternative solution may be more suitable for your business.

In Section 4 we provide a guide to available financial modeling solutions, pros and cons of each, and how each ranks in the Agility Quadrant.


“If you can look into the seeds of time, and say which grain will grow and which will not, speak then unto me.” William Shakespeare


Section 4: The Financial Modeling Agility Quadrant. Finding the tools to support agile budgeting, forecasting & what-if analysis

Agile Financial Modeling tools can be viewed by measuring their strengths along two competing — some might say mutually exclusive — feature sets:

  1. Scalability, Security, Reliability (aka a “single version of the truth”)
  2. Speed of Analysis, Creative Freedom, Collaboration, Self-Sufficiency

Consider the “Agility Quadrant” for financial modeling below. In the far lower right you have standalone Microsoft Excel, which delivers the ultimate in creative freedom, self-sufficiency and speed of analysis. In the hands of an expert, Excel is extremely effective — so long as the size, detail and complexity of the business do not exceed Excel’s capacity. This is why Excel is so beloved by financial modelers. When the CFO requests an analysis — boom — it’s done.

Unfortunately, Excel does not scale. It begins to fail when:

  • The business increases in size or complexity
  • The demands for analysis speed or detail increase
  • The number of participants in the analysis processes — the annual budget or rolling forecasts — grows beyond just a few

When any of the above occurs, versions proliferate. Errors propagate. Process grinds to a halt. Analysts become overwhelmed and stressed with the demands of maintaining a proliferating set of models.

The solution to the problems of Excel, for years, was to replace it with a scalable, secure, reliable web app — a “single version of the truth”.

Unfortunately, forcing financial modelers to relinquish their spreadsheets for the reliability and compliance of a web app strips finance teams of the speed and creative freedom they take for granted in Excel. In fact, upon close inspection, you will find that most finance teams in businesses that have adopted traditional, process-oriented web solutions instantly fall back on Microsoft Excel for all of their what-if analysis and heavy lifting.

In short, they start in the lower right quadrant and end up in the upper left: slightly better off, but far from an Agile Enterprise.


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The Financial Modeling Agility Quadrant

Leading tools can be broadly broken down into three categories, based on their suitability for certain types of finance team:

  • Small creative teams: Solutions within this sector offer excellent levels of creative freedom, but fail to scale.
  • Large process-oriented teams: These solutions provide good scalability and security, making them attractive for big business with compliance concerns and risk aversion. However, these these top-down systems impose a layer of rigidity that disempowers your financial modelers.  Not only are these solutions costly to implement, they come at a cost to the speed, creative freedom, collaboration and self-reliance that your Excel team relies on to get the job done.
  • Agile enterprise: By contrast, consider an Agile Financial Modeling approach that entrusts your finance team to design and manage your company’s financial models, no longer in files on their desktop, but at scale with Excel friendly models in the cloud. Leverage your Excel skills, leverage your intimate knowledge of your business and empower your team to conduct your financial modeling at scale, in the cloud, without reliance or interference from IT or outside consultants.

The Financial Modeling Agility Quadrant measures the combination of Analysis Speed and Creative Freedom along the x-axis vs Scalability, Security, Reliability on the y-axis. No longer mutually exclusive feature sets, Agile Financial Modeling sets a new bar measuring both.

For reference, we have placed some of the market leaders in budgeting and forecasting within the quadrant and will be adding others over time.

Introducing the Financial Modeling Agility Quadrant

Comparing the different solutions

Agile Financial Modeling is not for every company. How can you be confident that you’re picking the best solution for your business and your team? Here, we detail the pros and cons of tools within each quadrant, as well as the types of finance team most likely to benefit from each budgeting and forecasting tool.

Small creative teams (lower-right quadrant)

Strengths:

  • Leverages native Excel in an unconstrained a form. Finance professionals with traditional strengths love Excel and the self-sufficiency and creativity that Excel confers.

Weaknesses:

  • Fails to scale. Once your business reaches a certain size, the sheer quantity of spreadsheets floating around on people’s desktops becomes unmanageable
  • No single source of truth, which makes it needlessly difficult to ensure that critical business decisions are being informed by the right set of numbers
  • Lack of scalability forces users to work in individual silos, presenting a barrier to agility for teams that require it

Suitable for:

  • Small finance teams of skilled spreadsheet modelers who relish the creative freedom provided by Excel. If scalability isn’t a current concern for your business — and isn’t likely to become a concern in the near future — these are the solutions for you

Large process-oriented teams

Strengths:

  • Provides structure and process rigor. Guarantees accuracy and security and, therefore, compliance.
  • You can be sure that everyone is looking at the same data, providing greater certainty around decision-making
  • Increases standardization across the business — everything happens via the same platform, so there’s only one way of doing things

Weaknesses:

  • Restrictive. Users have to operate within the confines of the non-Excel platform, which can hamper your finance team’s ability to model creatively
  • Lacks some of the core functionality of Excel. If the only way to regain this functionality is to swap back to Excel for the heavy lifting, you haven’t solved a problem — you’ve created a new one
  • Disempowers your finance team by relinquishing control to IT and consultants.
  • Expensive to deploy and maintain. Requires your team learn a new technology.

Suitable for:

  • This is the realm of traditional CPM solutions that achieve the scalability and compliance of the cloud, without the speed and creative freedom of native Excel.
  • Large companies concerned with accuracy and process, whose Excel teams may not be ready to apply their skillset to scalable cloud models.
  • For watertight control over repeatable processes, you’ll find it within this quadrant.

Find out more about the strengths and weaknesses of CPM platforms in our article: “CPM vs. Excel: Why Harvard Business Review Is Wrong


Agile enterprise

Strengths:

  • Analysts can continue to work in Excel, fully leveraging their Excel skills
  • Analysts design and manage Excel friendly models at scale in the cloud, eliminating Excel’s fragility and capacity limits. No more files, links, email or macros
  • Avoids dependence on IT and outside consultants
  • Eliminates time-consuming spreadsheet maintenance, freeing up time for analysis and what-if analyses

Weaknesses:

  • Requires advanced Excel skills and deep understanding of your business financial model across your core finance team.
  • Requires an enterprise level “systems” awareness among your Excel modelers in order to administer

Suitable for:

  • Skilled spreadsheet modelers who crave the functionality and flexibility of Excel, but require a scalable solution to meet the needs of large or fast-growing businesses

Still not sure which option is right for your finance team? Find out how A3 Enterprise Excel helped the City of Reno accelerate its financial decision-making.


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