May 20, 2014
A client came to us with a problem. A business critical Excel workbook of theirs had become too complicated to manage safely and they wanted it automated. It sounded simple enough.
Then I opened the workbook. Inside I found six chaotic spreadsheets all cross referencing each other or external databases. Sure we could handle the job, but why does the finance industry continue to operate on rickety spreadsheets?
Microsoft released Excel in 1985 to compete with then spreadsheet king, Lotus 1,2,3. In ten short years, Excel overtook Lotus to become the killer app of the corporate world. If you have any doubt how pervasive Excel is in finance, glance at some business analyst resumes and note how many times you see the words “Strong Excel Skills”.
The key to Excel’s success is its ability to wrap powerful mathematical modeling inside an easy to use interface. Excel will update numbers and formulas as fast as you can type, allowing analysts to model with incredible speed. But while Excel is quick to warn that you entered an inconsistent formula, it will never tell you your numbers are off.
The lack of negative feedback – and proper review and oversight – has been wreaking havoc across business for years. It’s staggering how easily a typo can turn into multimillion dollar mistake.
Here are just a few Excel blunders that grabbed headlines in the recent past:
|J.P. Morgan||London Whale||Key formula divided by sum instead of average, lowering VaR estimate||$2 – 9 Billion in trading losses|
|Harvard Economists Reinhart and Rogoff||Academic paper on the effect of public debt on economic growth||Formula omitted cells from average, completely skewing results||Misguided economic policies calling for austerity|
|AstraZeneca||Financial Forecasts||Inadvertently embedded confidential information in public spreadsheet||Drop in share price and investor confidence|
|London Olympics||Swimming Event||Typo overbooked event by 10,000 tickets||10,000 unhappy customers|
This only scratches the surface. According to researchers, over 88% of spreadsheets contain errors.
Excel was a revolutionary tool that expanded what was possible in the business world. Its versatility and accessibility continue to make it a welcome addition to any desktop. But, like the calculator and notepad before it, it is time to move Excel off center stage and on to a supporting role.
More Excel Horror Stories from the European Spreadsheet Risks Interest Group.
Professor Ray Panko’s research on Spreadsheet Errors.
Learn how your firm can reduce your reliance on Excel and increase security and risk controls.