It looks like spreadsheet errors can affect even the most well-established of organisations. Just recently, M&S’ financial results were incorrectly released, stating that sales had risen by 1.3 per cent, when in fact they had fallen 0.4 per cent over the course of the quarter. The company then had to retract and re-issue its results after analysts revealed a double counting error within the spreadsheet in question. This had an understandably negative impact on their share price.
There is no doubt that spreadsheets are a fantastic tool for the end-user: customisable, flexible, and agile, they have offered finance departments worldwide the opportunity to manage increasingly larger data sets, financial records and business plans in order to cope with the ever-growing demands of a business. Few would question that Excel is a fantastic tool. But when company or market changes require rapid intervention, especially when it comes to finance, it is unclear why so many organisations rely quite so heavily on it.
A problem on a global scale
M&S is not the first firm to have suffered from spreadsheet stress, nor will it be the last. In 2012, shares in SuperGroup lost over a third of their value in a single day after it was forced into a profit warning because plus and minus signs were mixed up in its forecasting spreadsheet. Reports also suggest that JP Morgan lost a quarter of a billion pounds due to a spreadsheet slip up a year later. In each of these cases, it is clear that the manual checking of these datasheets is not up to scratch in terms of rigorous financial reporting. Instead, spreadsheet use is uncontrolled, leaving firms in all sectors vulnerable to errors in planning, forecasting and reporting.
Recent research from Accountagility has shown that 72 per cent of CFOs feel their business is too reliant on spreadsheets. Another worrying statistic comes from F1F9’s whitepaper ‘Capitalism’s Dirty Secret’, which revealed that 16 per cent of large firms in the UK alone have admitted to finding inaccurate information in spreadsheets at least ten times over the past year. Even so, Excel underpins the operation of most finance departments globally. Due to a lack of market alternatives, this software has claimed an unparalleled share of the corporate market.
So, why Excel?
Excel is one of the few accessible tools which simultaneously processes data and presents the information in graphic form. As a result, users feel in control. This has led to a preference for managing data in a spreadsheet. The issue here, however, is that using the program in this way places too much focus on presentation of the data, and not enough on processing it.
In businesses across the globe, only a handful of employees, if not just one individual, have the knowledge of how the financial spreadsheet models are constructed. Whilst customisation and the ability to tailor a spreadsheet to a single person’s requirements is undoubtedly a selling point of Excel, it also helps to perpetuate human error – and it’s easy to see why. How can you solve a complex spreadsheet error if the original designer has left the company?
End users tend to take ownership of any problems that arise within spreadsheets, which means that they often end up trying to solve them as well. As a result, it’s almost impossible for these documents to be replicated, as calculations and formulae often need to be re-designed if the original user is no longer present within the finance function. There is also one particular problem: the lack of ability to find errors in Excel (the technical term is no de-bug feature), which is why so many hidden mistakes remain, awaiting to strike. Furthermore, Excel enables individuals to approach a task in a variety of ways at both the design and event execution levels, making it very difficult for a firm to maintain consistency and control across spreadsheet usage.
The advances that spreadsheets have brought the finance function are undeniable, but with recent industry reports highlighting the sheer potential for errors, the challenges of fixing these errors and the risks that can arise within large and complex spreadsheets, it is no wonder that organisations are looking to address this vulnerability.
A straightforward solution is to use Excel for reporting rather than processing. Newer software tools can complement it, in order to eliminate version control issues and offer greater consistency and compliance support, thus reduce the amount of wasted time and effort. There are even solutions which allow spreadsheets to be removed from finance departments altogether.
Typically, the larger a business becomes, the more spreadsheets are used, creating greater the headaches for the finance department. Whilst Excel is indeed a central business tool, in light of yet another large company suffering a spreadsheet mishap, it is high time for organisations to look towards finance-friendly alternatives which address these risks, whilst also respecting the need for customisation and flexibility.
Robert Gothan, CEO and Founder of Accountagility
Image source: Shutterstock/Garry L