In this article, We’ll explore what-if analytics and modeling functionality built into some of today’s budgeting software for planning that accounts for variables with Microsoft Dynamics.
Budgeting is a task that requires actual data, research, goal setting, and teamwork, and depending on your planning process, a lot can happen to change the course of your budget. Thus, I would argue that besides historical actuals, there are enough variables in the context of financial planning for your company that makes budgeting a challenging task at times. If you like to see some options and dynamically approach planning by being adaptable and exploratory with different outcomes, what-if analyses and modeling will allow you to do just that. In this article, we’ll explore what-if planning and modeling functionality that comes with some modern budgeting tools for Microsoft Dynamics customers.
Let’s start by breaking down the term, “what-if analysis.” Basically, a what-if analysis boils down to the business end user altering the values in the cells of your budget spreadsheet to illustrate how certain changes can impact the results of your formulas. Because a lot of companies are using Excel for budgeting, including Excel add-in planning software, we’ll talk in Excel terminology. For example, one term we will use is “scenario,” which is a set of values that Microsoft Excel saves and can use automatically in your budget worksheet. Users can design and save multiple sets of values on a worksheet and then substitute these scenarios into the financial plan to see the difference in outcomes. One example would be if you would like to budget for your most ambitious goal setting, something in the middle, and the worst case scenario. You can put together these three scenarios on the same spreadsheet and then, easily switch between them to see what thresholds you would need to cross to reach the results you established in your scenarios.
As we all know, budgeting is rarely a one-person responsibility, so people across the organization have to bring together actual figures and projections for the next period to set a financial plan. If you have multiple people offering particular data in disparate spreadsheets that you’d like to utilize for scenarios, you can gather these workbooks and integrate their scenarios. Some of the more modern solutions allow you to distribute password protected access rights, so that can smooth out collaboration and privacy concerns. Once you have configured and assembled all of the scenarios that you want, you can produce a summary statement that includes data from these scenarios. This report showcases all of the scenario data in one table on a new spreadsheet.
Another Excel term that has to do with what-if analyses is a data table. Data tables only work with one or two variables, but can include many different values for these variables. Therefore, if you are employing a formula that has one or two variables – or even several formulas that all utilize the same variable, you can employ a data table to view all of the results in one space. In terms of business user friendliness, data tables are easy to understand and share because you are zooming in on only one or two variables. While data tables are limited to just two variables, a data table can use as many different variable values as you need whereas scenarios cap out at 32 different values. Additionally, if automated recalculation is set up for the workbook, the information in your data table recalculates automatically for fresh, real-time data.
What-if scenarios do have their potential drawbacks. Because their purpose is to determine the risk and probability associated with the marketplace, evaluating past performance and projections for the future, there is a chance that the worst case scenario can happen because of the way the variables roll out in the business world. The worst case scenario can more or less occur even though a what-if analysis establishes that outcome as an outlier – and can you tolerate that result? One way to be more prepared and aware of the variety of results is to do a random factor analysis, running thousands of independent trials with your software to randomly assign values to your factors. The most prevalent kind of random factor analysis is called a Monte Carlo analysis, which randomly assigns factor values from a data set configured for the variable’s specific probability distribution.
Historical actuals help decision-makers understand past performance with straightforward simplicity, but revenue and expenses from last year have no influence on future performance, risk or return. Therefore, what-if analyses can model multiple ways that your future can play out, so you can prepare to meet your own informed goals, objectives, and plans for the year. Luckily, Microsoft Dynamics customers have a lot of options in terms of planning software.
What-if analyses and modeling are just pieces of the pie in regard to budgeting – and now couldn’t be a better time to start considering a modern, powerful budgeting tool. While most companies are relying on homegrown processes in Excel or Microsoft’s mature budgeting offering, Forecaster, independent software vendor (ISV) products are becoming more prevalent in finance departments around the world. Simply, this is due to the consumer-driven features and functionalities in third party offerings that provide an easy-to-use, secure, and collaborative planning for business end users. You should consider several things, so you can pick the right solution for your planning needs.
When looking at third party software, you’ll want to evaluate which platform will best serve your team (Excel, Web, and/or proprietary), how secure the program is for powerful collaboration, whether the software is positioned within a fully integrated, comprehensive suite of BI tools, and how business user friendly the product is for your colleagues to utilize. In addition, you’ll want to make sure that the tool comes with important functionality, like what-if analytics, modeling, multiple year budgets and rolling forecasts, etc. You have a lot to consider, but budgeting as a corporate task is worth your time, money, and energy to find the premier software that can take your planning processes to the next level. Solver offers an Excel- and Web-based budgeting module stand-alone and as part of the comprehensive suite of BI modules and would be happy to answer questions and generally review BI360’s easy-to-use Planning solution for collaborative, streamlined decision-making capabilities, like what-if analyses and modeling, with Microsoft Dynamics.
By: Matthew Felzke