We noticed you're browsing in private or incognito mode.

To continue reading this article, please exit incognito mode or log in.

Not a subscriber? Subscribe now for unlimited access to online articles.

Business Report

Bringing Down the High Costs of Business Forecasting

Cloud-based services now provide a way for companies to plan ahead without relying on cumbersome spreadsheets. But what’s a boon for smaller companies is disrupting the market for higher-end solutions.

It may not look like a crystal ball, but Microsoft’s venerable spreadsheet software, Excel, is often used as one by businesses trying to peer into their financial future.

Planning in the cloud: Companies are turning to cloud-based forecasting software so that teams can collaborate better in creating and choosing from a range of what-if scenarios.

The problem is that many companies have so many different budgets and divisions that many different spreadsheets need to be linked together. Errors crop up if formulas are off or different departments have different budgeting styles. That makes it difficult to “drill down” from one spreadsheet to the next, or to come up with a financial forecast for the whole enterprise.

Yet for many companies, this low-cost option made sense compared with the traditional alternative: sophisticated but expensive packages from giant vendors such as SAP, IBM, and Oracle. Those typically require new IT equipment and training that can send total costs for big companies into the hundreds of thousands, if not millions, of dollars. Now, a third path has opened up—thanks to a new class of cloud-hosted forecasting services that are sold through subscriptions costing about $500 per user, renewable each year.

These new tools, from Silicon Valley companies such as Adaptive Planning and Host Analytics, are “[letting] companies of all sizes replace their legacy Excel spreadsheet models with a more automated, less error-prone, packaged application,” says Craig Schiff, CEO of BPM Partners, an advisory firm focused on performance management. And because the software is hosted with the provider, companies avoid capital outlays for new IT resources. The systems can typically be up and running in less than a month.

When spreadsheets are used, typically only one or two people truly understand how they work—a situation that’s not conducive to collaboration and checking accuracy, Schiff says. “Adaptive Planning has adopted the ease-of-use mantra more than any of the other vendors in this category,” he adds. For instance, managers sometimes want to create new “what-if” scenarios. With spreadsheets, that means creating multiple versions that are hard to track. The Adaptive Planning software has built-in version management so that managers can browse the different scenarios.

That’s why fast-growing companies such as Zipcar and Pandora have signed up for these cloud-based tools. Such companies “undergo rapid—and significant—changes as they grow,” says Adaptive’s acting CEO, Greg Schneider. Those changes include introducing new products and services, expanding to new locations, adding new distribution channels, and changing pricing structures. Companies typically forward spreadsheets among teams of people, so that each member can review them and make changes in turn. But with the new software, managers can log in to a single version that tracks everyone’s notes and comments. The result is a system that promotes collaboration.

Any company that wants to grow fast requires this kind of agility—the flexibility to come up with new scenarios about the future and change plans accordingly. A recent survey by Adaptive Planning of some of its 750 customers revealed that the percentage of companies that re-plan, re-forecast, or run what-if scenarios more than three times a quarter has doubled. “It has always been important to know whether or not you are going to be able to meet your targets, and if not, what can be done to adjust your business in order to do so,” says Christopher Reale, director of corporate planning and analysis for Konica Minolta USA, a maker of imaging equipment that is among Adaptive Planning’s newer customers.

With these kinds of customers signing on, the new tools are disrupting the market for higher-end predictive modeling software—finally bringing this technology within reach of almost any company, no matter what its size. The lower costs and the simplicity, Reale says, mean “we’re able to involve more people, and include more detail in the budget and forecast processes.”

Become an MIT Technology Review Insider for in-depth analysis and unparalleled perspective.

Subscribe today
Next in this Business Report
Predictive Modeling

More and more companies are using sophisticated software to model future behavior and probabilities in their industries; applications range from disaster prevention to change management to anticipating the impact of economic trends to forecasting customer churn. We’ll explore how companies are employing software tools including data mining, business analytics, and neural networks to anticipate everything from this afternoon’s network traffic to potential crashes of communications satellites.

Want more award-winning journalism? Subscribe to All Access Digital.
  • All Access Digital {! insider.prices.digital !}*

    {! insider.display.menuOptionsLabel !}

    The digital magazine, plus unlimited site access, our online archive, and The Download delivered to your email in-box each weekday.

    See details+

    12-month subscription

    Unlimited access to all our daily online news and feature stories

    Digital magazine (6 bi-monthly issues)

    Access to entire PDF magazine archive dating back to 1899

    The Download: newsletter delivery each weekday to your inbox

You've read of three free articles this month. for unlimited online access. You've read of three free articles this month. for unlimited online access. This is your last free article this month. for unlimited online access. You've read all your free articles this month. for unlimited online access. You've read of three free articles this month. for more, or for unlimited online access. for two more free articles, or for unlimited online access.