Recent international research has proven what we have known for quite some time; simple mistakes in company spreadsheets can put a businesses at huge financial risk. In many large businesses, senior decision makers rely completely on their spreadsheets to make key financial decisions; from budgeting and forecasting, to making investment and pricing decisions.
While a number of larger businesses might have sophisticated ERP systems in place, they are often complex to understand and most of the actual work still happens in spreadsheets.
A common and recognised issue is that too often only one person knows how the financial spreadsheets are constructed. This person may have created unique formulas or special systems that make complete sense to them. What happens when that person leaves, in a planned or unplanned fashion?
Because of the complexity of the information and a lack of formal and easy to understand systems of working, other people can’t understand or double check the information. Where people who don’t understand the numbers or the spreadsheets are having to add or update information, the potential for errors is massive.
A very interesting research paper came out late last year. Dr Felienne Hermans of Delft University of Technology, had the opportunity to analyse almost 16,000 spreadsheets from within one massive failed business, the infamous Enron.
The spreadsheets were from the Enron email archives, part of the documents released after the finalisation of the legal proceedings. It gave the researchers a unique opportunity to analyse not only the spreadsheets themselves, but also the email behaviour within the company directly related to those spreadsheets.
Dr Hermans found that around a quarter of the spreadsheet formulas had errors; 59% of the unique formulas with errors had one or more dependent cells… meaning that those errors would likely impact in other areas of that, and other, spreadsheets. One simple mistake, the incorrect entry of a comma, and the domino effect could make the data in your spreadsheets unusable.
She also found that people within the organisation were sending more than 100 spreadsheets back and forth every day, proving that there was no agreed or standardised system in place; and of the 10% of emails sending or referring to spreadsheets, they were frequently discussing errors in, and updates to, those same spreadsheets.
Even though spreadsheets have been shown to be fallible time and again, they continue to be at the heart of innumerable financial information systems. The bigger you get, the more complex your business is and the more prone to errors your spreadsheets are; leading to financial losses, poor decision making and wasted time.
There is a reason that so many businesses are investing in specialised software that is easy to use and understand for financial and non-financial users. An investment in consistent, real-time systems that save you massive amounts of time, provide you with peace of mind that the numbers you are working with are a true reflection of your financial state, and thereby save you actual money; is an investment in the long-term future of your business.