Why spreadsheets are costing you money

In the early days of computing, the spreadsheet was the original killer app.  This was the tool that improved productivity for countless financial and accounting professionals.  Through its efficiency and flexibility, the spreadsheet became the Swiss army knife of computer applications.  When nothing else fit the task, one could always shoehorn the results into a spreadsheet and quickly refine the equation and arrive at the desired results.

But when we look closer we see that the very flexibility that the spreadsheet exhibits becomes an obstacle to more disciplined and structured solutions.  Let’s see how.

1. With spreadsheets, there are no audit trails.  How do we verify if an important adjustment is reflected in the sheet?

Financial statements and schedules are always changing.  There are corrections, adjustments, offsets and a myriad of other changes that need to be entered and reconciled to previous versions of the financial data.  Spreadsheets are highly regarded for their flexibility.  But they are not good tools to track changes over time or to highlight adjustments or changes.  For example, has the traveling expense been included in the current version of the sheet or not.

Significant amounts of time are necessary to verify and reconcile financial data when maintained in spreadsheet form.

2. Spreadsheets lose their historical perspective – What version am I looking at?

In reviewing spreadsheet results, there are always questions related to versioning.  Does the spreadsheet you are reviewing on Tuesday contain the same data as the one you were working with last Thursday.  How do you verify that they are the same?  And, if they are not the same, how do you find the differences?

3. As the number of clients or accounts grows, where are the economies of scale?

A financial company has 4 clients.  Records for each client are maintained in an elaborate, multi-tab spreadsheet.  In reality, each of the client spreadsheets has similar formulae or equations that produce the results.  But how do we know that the math is identical on each of the 4 sheets.

Now, as the financial company becomes even more successful, the 4 clients increases to 34 clients.  And the spreadsheet tabs increase from 4 to 34 as well.  The problems of verifying results and realizing economies of scale become even more pronounced.

4. Spreadsheets make delegation of work much more difficult.

An important and valuable feature of a spreadsheet is the ease with which a new idea can be modeled and refined.  But once completed, as daily, weekly, and monthly data are added, the desktop process turns into a production environment.  At this point, the creator of the spreadsheet wants to delegate the ongoing data entry and maintenance to an employee or associate.

However, with spreadsheets, it is difficult to delegate work because there is a strong likelihood that inadvertent mistakes will be made by other spreadsheet users or maintainers.   In fact, it frequently occurs that the originator will spend more time trying to correct an error made by others than the originator would spend to perform the production tasks in the first place.

So we see, spreadsheets make it even more difficult to delegate work.

5. How do you validate the calculations and ensure they are applied EVERYWHERE?

With spreadsheets, the calculations are repeated for many cells in a column or many cells in a row.  When rows or columns are added or removed, care must be taken that all of the calculations are still correct.

To make matters worse, if we have 34 similar but different spreadsheets, as we do in item 4 above, the problem of uniformity and accuracy rapidly increases.

And if new calculations need to added, how do we ensure that we made them to ALL of the spreadsheets.

6. Loading the spreadsheets can be time consuming and error-prone.

It is often not practical to load data into spreadsheet manually.  Often data is loaded from other sources of information – Corporate databases, Portfolio management systems, cloud-based information systems, etc.  With spreadsheets, this data loading process is a heavily manual process that is highly error prone.

So what is the solution?

Spreadsheets are still the ideal modeling tool.  They are essential to our ability to experiment and refine our mathematical tools.

But once established, the spreadsheet needs to be migrated to an industrial-strength database solution.  Often, the database solution is deployed on the internet or company-private and secured intranet environment.

The database solution addresses each of the shortcomings of the spreadsheet.  It enables you to save thousands of person-hours and tens of thousands of dollars in the conduct of your business.

About Howard Zien
Howard P. Zien is the president of Business Logic Incorporated. He has been in the consulting and software development field since the early 1970s. A graduate of Princeton University, Howard earned an MBA in accounting and finance from New York University's Stern School of Business.

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