In the New Year, the world’s best business cartoon has highlighted a number of issues related to spreadsheets.
See below our take on these spreadsheet issues.
Errors in Spreadsheets
Our experience is sadly very similar.
Any spreadsheet built under any sort of time pressure and with last minute adjustments (and which spreadsheets don’t have these problems) will have errors in them.
Research shows that the majority of spreadsheets contain errors. Worse, these errors are costing real money and more and more such stories are being made known. In fact there is a whole website dedicated to these findings (see EUSPRG site)
As Dilbert highlights the spreadsheet error could be in
- the data assumptions,
- the formula, or
- just the look and feel.
Often it is a combination of these things.
In fact, sometimes the spreadsheet compensates for the errors in the different sections. So an error in data assumption is not as obvious because an (unrelated) formula error makes it look ok (see more on this issue in the next cartoon). Every spreadsheet user should look into using a Spreadsheet Auditing Tool to address all these concerns.
Better still anyone using spreadsheets to build decision making models should be properly trained in Financial Modelling.
The spreadsheet feels right so it must be right
This is a plus and a minus.
We do suggest that a person with experience in the business issue being modelled has a look at the spreadsheet to see if the numbers make intuitive sense.
However, there is often the complacency of assuming that as long as the numbers seem to make sense, the spreadsheet must be right. As a result, a proper spreadsheet review is not done. A proper spreadsheet review looks at the formula and assesses whether the numbers are correct AND whether they will still be correct if changes are made
As mentioned above, compensating errors sometimes hide serious flaws in a model. This may be OK if the numbers stay as is i.e. the number review is done at the very end, on the last version.
However, once the spreadsheet has been ‘vetted’ it is assumed to always be right, even when more changes are made. But the compensating error may no longer work and you could have a serious problem on your hands.
Occasionally you need to sit back and figure out where it should differ from normal expectations.
Better still do a proper spreadsheet review involving experienced people and appropriate spreadsheet review software to make sure that the spreadsheet is right and continues to be right.
An engineer, accountant, actuary etc etc know how to build a spreadsheet
Just because the person is clever does not mean they know how to build a spreadsheet. Often the issue with spreadsheets is over confidence. Anyone can make an error.
Some errors are exceptionally simple. Have a look as these simple errors that everyone makes to see how easy it is.
We are looking forward to more of Dilbert’s wisdom in the near future!