Feature

Eight of the Worst Spreadsheet Blunders

Spreadsheet typos and oversights can wind up costing your company millions. Here's a look at eight big mistakes, and tips on how to prevent them from happening at your company.

August 17, 2007 — CIO — Spreadsheet errors can happen to the best of us. As a result, many public companies and government organizations are trying to wean themselves off their reliance on spreadsheets for complex and critical financial transactions.

Of course, to achieve such a goal, organizations need all the help they can get. Most businesses today rely on spreadsheets in some way. The multi-celled document is used heavily for finance and accounting, as well as supply chain, customer relationship and sales functions.

However, recent financial regulations, such as Sarbanes-Oxley requirements, have had a huge impact on how companies manage changes and controls in financial documents, such as spreadsheets. Because of their preponderance and the amount of digital fingertips that can touch these documents, spreadsheets have come under a lot of fire. In particular, companies lack the appropriate controls and repeatable processes to mitigate the risks.

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This isn't about software defects within the applications, such as Microsoft Excel or OpenOffice. The problems associated with a spreadsheet ordinarily do not reside in the software program itself. It's those imperfect human beings who are using the applications: inputting data, copying and pasting numbers from row to row and column to column, and writing inaccurate formulae.

Research abounds on the prominence of spreadsheet errors. One project found that 80 percent of spreadsheets contain significant errors. "That means that of every five spreadsheets, at most one will give the correct results," writes Louise Pryor, an actuary and consultant who specializes in software risk management. (A PDF document by Pryor contains tips for managing and preventing spreadsheet problems.)

The European Spreadsheet Risks Interest Group (EuSpRIG), a consortium of academics, researchers and professionals who examine spreadsheet risks and develop methods for prevention, holds a conference each year to talk about the spreadsheet's inherent dangers to organizations. (Last July's get-together was titled "Enterprise Spreadsheet Management: A Necessary Evil?")

"Research has repeatedly shown that an alarming proportion of corporate spreadsheet models are not tested to the extent necessary to support directors' fiduciary, reporting and compliance obligations," says the EuSpRIG website.

"Uncontrolled and untested spreadsheet models therefore pose significant business risks. These risks include: lost revenue and profits; mispricing and poor decision making due to prevalent but undetected errors; fraud due to malicious tampering; and difficulties in demonstrating fiduciary and regulatory compliance.

"These risks are ignored due to a widespread failure to inventory (keep records of), test, document, backup, archive and control the legions of spreadsheets that support critical corporate infrastructure," says the site.