All of our clients use spreadsheets. I am regularly impressed with the skills they demonstrate in creating sophisticated spreadsheets that do everything from calculating depreciation of fixed assets to salesperson commissions. Some of these spreadsheets are so automated as to be considered applications in their own right - which is great. Spreadsheets are an accessible way to develop custom solutions for many needs.
BUT very few people appreciate both the risk & prevalence of significant errors that occur in these tools. According to some research out of the University of Hawaii, 88% of spreadsheets contain errors! Seem hard to believe? Consider the following:
- Very few spreadsheet authors have been formally trained as programmers. Often they are accountants or administrative staff. Which is not necessarily a bad thing, except when these non-programmers use spreadsheets to create complex tools / applications. When this level of complex spreadsheet is created by accountants or administrative people, there is rarely any formal testing, or review processes for these tools. This leads to rampant, often undetected errors.
- Anyone can edit or update the application. It is way too easy for someone to override/change formulas on the fly with little to no audit trail. This is often one of ways that good spreadsheets go bad.
- Very few people have received formal spreadsheet training. They have gained the skills solely through trial and error and often over-estimate their skill level. It seems that in the world of spreadsheets, everyone is an expert.
I am always gratified to see articles about these risks as they are so under-appreciated. One recent article that will be of interest if you use spreadsheets as a key tool in your business can be found in Finance Week.