I recently came across research by Dr Felienne Hermans that got me thinking. She had the opportunity to analyse 16 000 spreadsheets from within Enron, and her research highlighted some uncomfortable facts on spreadsheets.
There is a repository of spreadsheets that researchers use as a data point. It contains spreadsheets from a variety of sources, but they aren’t all company spreadsheets and they are rarely from a single source such as a business. That’s why this research is unique – it gives a perspective into spreadsheets in the specific context of a large business.
Although the data is from one company, the researchers feel that the findings are representative of the behaviour of many large businesses working with spreadsheets across the world. I would, from my experience, agree with this hypothesis.
Dr Hermans found that a quarter of the spreadsheet formulas had errors; 59% of the unique formulas with errors had one or more dependent cells. They also discovered that there was little diversity in the functions used in the spreadsheets, with 76% of those studied using the same 15 functions.
Think about that … One mistake, the incorrect entry of a comma, and the domino effect could make the data in your spreadsheets unreliable. The same spreadsheets that you rely on to make financial decisions for your business; from budgeting and forecasting to investment and pricing decisions!
She found they were sending more than 100 spreadsheets back and forth every day. There was no evidence of any agreed method of entry or exchange and no standardised system in place. Of the 10% of emails that mention spreadsheets, the majority were discussing errors in, and updates to, them.
To my mind, the research has confirmed what we have felt, suspected or known for quite some time; spreadsheet errors can put businesses at risk.
Spreadsheets have repeatedly been shown to be fallible and yet they remain at the heart of innumerable financial information systems. The more complex your business becomes, the more exposed your business is to this risk. If it doesn’t make you think, it should …
Author: Kevin Phillips CA(SA) is Managing Director of idu Software