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Host Analytics has introduced AirliftXL, a new feature of its cloud-based financial performance management (FPM) suite that enables its software to translate users’ spreadsheets into the Host Analytics format. I find it significant in three respects. First, it can substantially reduce the time and resources it takes for a company to go live in adopting the Host Analytics suite, lowering the cost of implementation and accelerating time to value. Second, it enables Host Analytics users who have the appropriate permissions to create and modify models and templates that they use in planning, budgeting, consolidation and reporting. This can enhance the value of the system by making it easier to maintain. Third, it can make it far easier to routinely collect and connect planning and analytical models used by all departments and business users as it has outlined in its planning cloud offering. Although it has limitations in its initial release, AirliftXL gives corporations a workable alternative to stand-alone spreadsheets and has the potential to substantially increase productivity and effectiveness of an organization in the full range of budgeting, planning, consolidation and reporting functions.

AirliftXL addresses a fundamental issue that diminishes the productivity vr_ss21_spreadsheet_maintenance_is_a_burdenof companies, especially finance departments. I’ve noted in the past that desktop spreadsheets are indispensable tools for individual tasks and ad-hoc analysis and reporting, but they are poorly suited to repetitive collaborative enterprise-wide functions such as planning, budgeting, consolidation and reporting. Spreadsheets are seductive because so many people are well trained in using them that they can translate their ideas into even complex models, do analysis and create reports. However, the productivity that spreadsheets afford in authoring is more than offset when they are used over time. Desktop spreadsheets have fundamental technological shortcomings that make them unwieldy for any repetitive, collaborative task. After more than a few people become involved and a file is used and reused, cracks begin to appear. Very quickly, a large percentage of the time spent with the file is devoted to maintaining and updating them, as our spreadsheet research has shown with up to 18.1 hours per month in maintenance that I have analyzed. Spreadsheets are notoriously error-prone. In addition to monetary losses, some of which have been spectactular, there is a drag on productivity as users try to locate the source of errors and discrepancies that routinely occur in spreadsheets and then fix those mistakes.

AirliftXL enables ordinary users to create spreadsheet models and reports in Microsoft Excel and then quickly convert these to the Host Analytics enterprise system. Those that “own” a model, analysis, report or process can control these in Host Analytics. This speeds the process of setting up Host Analytics because there’s no need for someone to “translate” the company’s current set of spreadsheet models, analyses and reports. This cuts the time (and therefore the cost) of setting up the new system.

It also means that whenever changes need to be made, those responsible can make the changes themselves. Allocations and analytical models used in planning and consolidations can become part of a company’s system almost immediately. These alterations can be effected by “exporting” the Host Analytics object to a spreadsheet, modifying it and uploading back to the system. As well, users can create new models, analytics and reports in Excel and import them into the Host Analytics system. There’s no need for resident expertise or consulting time to make such changes. AirliftXL provides an organization with the best of both worlds: first, the up-front productivity that comes from enabling the author, a subject-matter expert, to quickly translate his or her ideas into a spreadsheet and, second, the ongoing productivity that is achieved when the plan, analytic model or report is kept in a centralized, easily accessible and controlled environment. These same authors can update and expand their analytical models or reports. Host Analytics can render models back into an Excel spreadsheet and the owner – not a consultant or trained IT person – can make the necessary changes and then upload them back into the system. This is an important capability because change is a constant in businesses and these changes must be reflected in financial performance management systems.

Organizations have hundreds, sometimes thousands, of spreadsheets circulating that support a multitude of processes and users in every department and business unit. AirliftXL can help incorporate them into a controlled enterprise software environment. Information that today is kept in one part of an organization can be viewed and used by others. Budgets and integrated business plans can quickly incorporate the most up-to-date information. Complex models now held in spreadsheets can be more controllable, consistent and safely accessible to a wider group of users. Creating links across individual spreadsheets (say, sales forecasts prepared by the sales organization and a company income statement forecast prepared by Finance) is straightforward, although linking to external data sources (say from a spreadsheet to a relational data store) is a little trickier. As well, Excel’s built-in financial, statistical and logical functions are all maintained in Host Analytics.

AirliftXL has the potential to be an important differentiator for the company. IBM Cognos has had something like this in Cognos Insight but from my analysis it is not as easy to use as the Host Analytics feature. Some corporations have finance IT professionals with deep subject-matter expertise as well as IT systems skills, but even their presence does not address the root cause of the misuse of spreadsheets. Most people who understand the needs of the business lack the IT skills necessary to use their company’s systems. They default to using spreadsheets because it is more expedient than trying to transfer their knowledge to someone who understands IT systems.

While AirliftXL is an important first step in taming the spreadsheet problem, it has limitations. For one, it’s not possible at this point to create a dynamic model such as an integrated income statement, balance sheet and statement of cash flows. This is a snap in a two-dimensional spreadsheet grid but much harder when working with a relational or multidimensional database. Moreover, there’s no guarantee that the spreadsheets imported into Host Analytics will be free of formulaic errors or even if it is well constructed. Thus, companies will need to put quality control processes in place, especially if a spreadsheet can have a material impact on the accuracy of financial statements or could defeat controls for fraud. It also would be handy if some vendor would create a product that could automate the digestion of masses of spreadsheets floating around companies as described in this patent for extracting semantics from data.

Despite these reservations Host Analytics’ AirliftXL provides an VI_FPM_Hot_Vendorimportant capability that can cut costs of deploying and maintaining its software and increase its value to a company. This advancement builds on top of its recent rating as a Hot Vendor in the 2013 Value Index on Financial Performance Management.  I recommend that corporations looking to change or upgrade all or some of their financial performance management suite consider Host Analytics and how AirliftXL helps transition the use of spreadsheets to a dedicated application approach.

Regards,

Robert Kugel – SVP Research

One of the major issues IT executives face is how to charge their departmental costs back to each part of the business according to their usage. It’s a touchy issue that can be the source of end-user disenchantment with the performance and contribution of the IT organization. Ultimately, charge-back friction can hobble IT’s ability to make necessary investments in new capabilities and become the primary cause of misallocated IT spending. The two risks are related: Unless an IT department can calculate the real costs of the services it provides to specific parts of the business and charge for them accordingly, it is almost impossible for line-of-business department managers to assign priorities to the “keep the lights on” part of the budget, so even low-priority maintenance or upgrade efforts can crowd out all but the most pressing needs. The issue of allocating IT department costs spills over to Finance, which typically handles the allocations in budgeting and profit calculations. As a first step toward establishing an effective means of funding the IT function, I believe the finance department must establish better methods of allocating IT costs. Eventually the proper allocation of IT costs also becomes an issue for senior corporate executives as well because it has a direct impact on how effectively a company uses information technology.

To illustrate how using inept IT cost allocation methods can lead to bad results, let’s start with a very simple example. A company decides to lump together all IT costs and charge each department a prorated share based on some proxy; for example, headcount or floor space occupied or some combination of proxies. Any such proxy system inevitably will favor one department over another. Human nature being what it is, the inability to draw a straight line between the charge and the benefits delivered will leave everyone thinking they are paying more than their fair share. Moreover, in most companies, because business managers are not charged directly for their consumption of IT services, they have no idea how that impacts IT department costs. In the absence of price signals, unintended overconsumption and misaligned priorities are almost inevitable, and thus IT spending does not support the business as effectively as it should.

Our benchmark research illustrates the fundamental problem that companies have in allocating IT costs. Either they do not have the processes in place to ensure that they connect the right information to the appropriate action (for example, they do not charge costs accurately enough to end users so the users can’t make more rational decisions about what they are willing to spend), or they are not collecting the right information about the costs. Many suffer from some combination of the two. Having greater visibility into what a company actually is spending and on whose behalf and a better process for deciding what to spend money on are likely to increase the value the IT budget buys.

Our research also assessed the effectiveness of companies’ IT spending on a five-point scale from very ineffective (1) to very effective (5). The research finds that participants who said they have accurate systems for identifying and allocating IT costs have higher spending effectiveness scores (averaging 4.0) than those who said theirs were generally accurate (3.6), generally inaccurate (3.0) or very inaccurate (2.6).Tracking actual costs and charging them to specific users who incur them is the best way to be sure funds are spent well. Having visibility into the true costs of those IT resources and a process for controlling them promotes better use of the resources.

The research also finds that for IT departments there is a virtuous cycle in accurately measuring and charging IT costs. Companies that are more effective in using their IT budgets are also likely to have had greater IT budget increases in the preceding years than those that were less effective. In other words, a more accurate costing system gives a company more bang for its IT buck, which results in more bucks for IT. IT departments that give managers better visibility and control over IT costs charged back to them – and can demonstrate to their business clients that they are getting a positive return on their investment – are likely to be rewarded with higher budgets than those that do not or cannot.

Having the right data, the right analytical tools and the right allocation methods are all prerequisites to having an accurate IT charge-back system. As part of their overall responsibility to manage their portfolio of IT assets, CIOs must have the ability to track who and what is driving which IT costs. CFOs should play a larger role in the budgeting and expense allocation processes by ensuring that IT costs and cost drivers are more visible to the organization rather than relying on broad-brush allocations. Done correctly, I think this will improve the alignment of IT spending with the company’s needs. For their part, CEOs must understand the importance of achieving better alignment of IT spending and the strategic requirements of the company. They must ensure there is a formal process for periodically reviewing that alignment and capabilities to measure accurately spending on and use of information technology.

Regards,

Robert Kugel – SVP Research

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