Excel spreadsheets for strategic planning – use with care!

Are you one of those strategic planners who rely on Excel spreadsheets? Don’t worry, you are not alone. Excel is and remains fairly popular in strategic planning. However, there is no denying – Excel is not the perfect solution for this purpose. There are some significant risks and downsides.

In this article, I discuss the pros and cons as well as the alternatives, and share my experience with Excel spreadsheets in strategic and financial planning.

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The Pros – Advantages of using Excel spreadsheets for strategic planning

The biggest advantage is straightforward: Excel* is well-known software that sits on many desktop and notebook computers around the world. Almost everyone is capable of using Excel.

To achieve company-wide acceptance for strategic planning process is difficult enough. This task gets even harder if you force everybody involved to get familiar with another new software tool. The well-known Excel might ease the pain a little bit.

There are some other positive aspects on top of that:

  • Excel is an extremely powerful tool in the hands of an advanced user.
  • It is a very flexible tool that allows creating solutions for many functions, like questionnaire design, scenario analyses, analyses of large amounts of data, visualization of results and more.
  • You can handle the whole process in-house – from the initial design of input to calculation and output as well as later adjustments. You do not rely on an external software supplier who may or may not be there in five years.
  • Excel is compatible with the other MS Office products. Especially, it works well together with PowerPoint. Thus, results are easy to transfer into the final strategy presentation.
  • There are many different templates available for strategic planning purposes

The Cons – Why Excel is not the perfect solution for strategic planning

If you do a Google search for “strategic planning excel spreadsheets” you’ll get countless results, the vast majority of them offering some sort of Excel templates for strategic planning for free or for sale. At the time of this writing, there is only one critical text on page one of the search results: Excel is a great tool, but it’s a dumb one for Strategic Planning.

There is much truth in this one post. The overwhelming supply in excel templates may easily hide the fact that the use of Excel for strategic planning has its downsides:

  • All self-developed Excel tools are prone to error
  • Excel tools are easy to manipulate – intentionally or unintentionally
  • There is no real function for user permissions, just a simple password protection
  • There is just a very simple revision tracking function, which I don’t consider very functional
  • Excel spreadsheets do not support you to manage and track your whole process
  • Spreadsheets tend to become large, confusing and unclear
  • When used for very large amounts of data and complex calculations, Excel quickly reaches its limits
  • If you work with several linked files, special care is needed when moving or renaming files. Those links are prone to get lost.

One more point here, although I do not consider this a real weakness: Excel doesn’t know anything about strategic planning processes. You have to set up the whole process in every detail by your own. The results from your Excel spreadsheet will only be as good as the formulas you have entered.

Of course, Excel does not help you to design your process. However, thus it forces you to think through your whole process from A to Z by yourself. This is not necessarily a bad thing.

Practical advice for using Excel spreadsheets

My experience

Let me share some personal experience with the use of spreadsheets for strategic planning.

Excel spreadsheets are often used as a template for strategic planning

Strategic planning template based on Excel

 

Despite all downsides – I guess almost every business does it to some degree.

I once attended a presentation event from a specialized service provider for banks. They presented us a case study on how they set up a software solution for the complete financial planning process for a particular bank. It was tailored to their specific needs, allowed collaboration and process monitoring, had data interfaces and anything you could dream of.

In our small talk during coffee breaks we participants discussed how we do it in our banks. Each and every one of us said something like

“I have to admit, we do all this in Excel. I know we should migrate to a professional system. However, Excel works so well for us …”

At that time, I too worked with a financial planning tool for an entire bank that was solely based on Excel and Access. Over the years, we had developed our own system to handle the 30+ linked files. We were able to deliver reliable, replicable and explainable results and were well accepted with our tool.

In another company, I worked in the strategic planning department. We were given the task to develop a company-wide strategic planning process from scratch. I guess I do not have to explain how challenging this was. In year 1, we started with Excel and PowerPoint only. The handling of the many files alone was a pain in the neck. However, we were developing the whole process and system in real time; there was no trial run. Excel gave us the flexibility to make adjustments as needed.

In year 2, we had a specialized software application developed for the questionnaire and calculation part, based on our experience from the first year. That turned out to be a reasonable approach.

Why I do not use predefined forms and templates

As mentioned, there are plenty of Excel spreadsheet templates available for all aspects of strategic analysis and planning. I never actually used one of those. For one simple reason:

I have no doubt that these tools are well thought through and are based on best-in-class strategic thinking. However, they inevitably are designed to fit as many businesses as possible. They cannot offer anything but standard approaches.

None of these tools was developed for your individual business in your individual market. But that is what strategy is about: Look at what makes you unique, find a unique angle in the overall business and build your unique strategy on that.

What I recommend: Get a few of these tools and carefully analyze them. Then,

  1. take the best ideas from them,
  2. use what really fits your situation,
  3. adapt the rest, and
  4. put together your very specific and individual tool.

Excel spreadsheets vs. specialized software

Of course, there is a third solution. Specialized consultants will happily develop your tailor-made collaborative software solution for your strategic planning process.

This has a number of advantages:

  • You can utilize the combined knowledge and experience of experts
  • The tool will have all the functionalities you need
  • The consultants will help you to develop your specific planning process and develop the tool according to this process
  • Thus, you save yourself the process of trial and error
  • You get a stable process that you can rely on for several years
  • (positive side effect: if something goes wrong, you can possibly blame the consultants)

However, there are some disadvantages too in comparison with a home-made Excel spreadsheet solution:

  • It’s obvious: It is far more expensive
  • It is prone to sunk cost dilemmas. There is always a risk that even such solutions do not work out as expected. Since tailor-made specialized software requires a significant investment in time and money, executives tend to stick to it, even if it does not live up to the expectations.
  • In most cases, you will need external help again, as soon as you want to change or adjust something.

Tips for using Excel models for strategic planning

I have seen poor financial models, good models and excellent financial models based on Excel. What distinguishes the excellent ones from the good is the strict application of financial modelling best practices.

There is a follow-up article that discusses financial modeling best practices in great detail. Here I list focus on those practices that I came to appreciate most in my own work with Excel:

  • Develop your own / your teams / your companies’ general system and structure for Excel tools and rigorously apply it: color codes, naming conventions, formats, table structures etc. Thus, other users will find it easier to orient themselves in your tools.
  • Make sure your tool looks professional and trustworthy. It has to work neatly without any error messages. Have a user interface for data entries and results. The actual calculations should take place on other sheets. In doing so, you raise your tools chances to earn trust, acceptance and credibility.
  • Even if it is a pain in the neck: Write documentations on the tools you build. This is not so much about transcribing the formulas. You should rather explain what the tool calculates in which where, which way and why this way, i.e. what does the tool actually do.
  • Always have somebody else check your tool from tip to toe. This may even be a job for external consultants. Thus you can eliminate existing errors, get valuable advice for improvements and significantly increase your tools credibility.
  • Generously offer to explain your tool in any detail to everybody interested. This is about credibility again. Moreover, you also have to make sure that your tool is well understood by all users and by the recipients of the results.
  • Do sensitivity tests, also for limit ranges. Do your results change as expected, if you change particular input values? Document these tests and tell everybody about them.

Summary

Excel spreadsheets are not the perfect solution as a support tool for strategic planning. They are, however, not as bad as it seems. Excel can be a good starting point, especially when you are developing and testing your process.

Nevertheless, it is important to consider the downsides of self-developed Excel solutions. Alternatively, you can rely on predefined templates or have external specialists develop a specific software solution for your planning needs – or go for a combination of those.

All these alternatives have their pros and cons. There is not ultimate right or wrong solution. It is part of the design phase of your strategic planning process to determine which one works best for you.

*Excel, PowerPoint, Access and MS Office are trademarks of Microsoft Corporation.


Our book recommendations on financial modelling with Excel:

  • Excel Data Analysis: Modeling and Simulation
    Hector Guerrero
    This book is written for the students and practitioners who are looking for a single introductory Excel-based resource that covers three essential business and analytical skills—Data Analysis, Business Modeling, and Simulation of Complex Problems. The focus of the book is clearly on analysis of problems for decision making, yet detailed explanations regarding how to use Excel tools are provided.
  • Next Generation Excel: Modeling In Excel For Analysts And MBAs
    Isaac Gottlieb
    While many businesspeople are quite familiar with the reports created with financial models, most are not as familiar with the creation of the models themselves. This book shows them how to build an accurate and effective financial model using the solid functionality and easy usability of Excel.
  • Financial Modeling
    Simon Benninga
    Basic and advanced models in the areas of corporate finance, portfolio management, options, and bonds are explained with detailed Excel spreadsheets. Sections on technical aspects of Excel and on the use of Visual Basic for Applications (VBA) round out the book to make Financial Modeling a complete guide for the financial modeler.
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  1. Excel spreadsheets for strategic planning? Use with care!

    Do you rely on Excel spreadsheets for strategic and financial planning? Don’t worry, you are not alone. Excel is fairly popular in strategic planning. However, it is not the perfect solution. This article discusses the pros and cons as well as the alte…

  2. Excel spreadsheets for strategic planning? Use with care!

    Are you one of those strategic planners who rely on Excel spreadsheets? Don’t worry, you are not alone. Excel is and remains fairly popular in strategic planning. However, there is no denying – Excel is not the perfect solution for this purpose. There…