While spreadsheets are used in the preparation of British company accounts worth up to £1.9tn and the UK manufacturing sector uses spreadsheets to make pricing decisions for up to £170bn worth of business, many people who use them every day have never had any formal training.
Sixteen per cent of large businesses say they have experienced inaccurate information in spreadsheets more than 10 times in the last year – the financial risks are colossal.
The report, entitled Capitalism’s Dirty Secret, was commissioned by financial modelling experts F1F9 to examine the true extent of the uses and abuses of spreadsheets in the corporate world. The findings paint a gloomy picture of unidentified risk that potentially puts billions of pounds of investment at risk.
Kenny Whitelaw-Jones, managing director of F1F9, said: "The failure to take seriously the risks posed by spreadsheets is Capitalism’s Dirty Secret. This YouGov report looked at businesses here in the UK but we’re confident that by extension this is a global issue.
"More often than not just one person in a company has the knowledge of how the financial spreadsheet models are constructed. Other people are unable to understand and therefore check the analysis. The potential for errors is massive.
"Companies must act now to confront these challenges head on if they are to reduce their exposure to the significant financial risks hidden away in spreadsheets that simply aren’t fit for purpose."
Real life examples of the spreadsheet catastrophe are common:
Stephen Walker, professor of accounting at University of Edinburgh Business School, said: "For several decades academic and business surveys have pointed to the issues surrounding the use of that most accessible and flexible aid to financial decision-making, the spreadsheet. The results of this important study alert us once again to some enduring concerns.
"They have limited awareness of how to build spreadsheets that minimize error and have the capacity to self-audit. The widespread use of the spreadsheet in diverse modern-day organizations means that this educational challenge should be addressed at various levels. It has long been argued that businesses need to invest in more comprehensive training and raise awareness of the risks surrounding spreadsheets.
Stuart Wilson, VP of EMEA, Alteryx, spoke to BQ about their experiences: "Excel has - and arguably always will - play an important role in business. But this is why businesses need to look towards more modern analytics tools to complement Excel.
As greater volumes and types of data become necessary for making critical decisions, blending these data sources to gather insight is more important than ever. Many business analysts try to accomplish this using data in spreadsheets, and - frustrated - turn to their IT department or data scientists to write code and manually build the analytic dataset they need, losing precious time and control."
The report highlights several high-profile examples of the consequences of poorly managed spreadsheets including recently released documents from the collapse of Enron in 2001.
Felienne Hermans, of Delft University of Technology, analysed 15,770 spreadsheets obtained from over 600,000 emails from 158 former employees – the data is publically available now that all legal proceedings form the collapse of the energy firm have concluded.
The results of this study supported the findings of the F1F9 research. Twenty four per cent of Enron spreadsheets with formulas contained errors and there were 755 files with more than a hundred errors, with the maximum number of errors in one file being 83,273.
Rob Davis, Head of Technology, Sage UK Small and Medium Business Division, told BQ: "Spreadsheets will always have a place in modern business. They contain a wealth of useful information, but their static nature means the data can become outdated quickly and from an accounting perspective version control can be a real issue. Combine this with the tendency for human error, and you have the financial risks this research has highlighted.
"Running accounts on spreadsheets means it can take significant time to dig into the data itself and extract the insights different people within the business require. For senior managers, this in itself is a restriction.
"We are increasingly seeing customers move to cloud-based software to circumvent these issues. One of the main drivers for this is accuracy, ensuring that information is both real-time and available to access by a greater number of parties, helping improve decision making. At the same time, the risk of human error is reduced through improved auditing and data entry checks."
Dr Hermans said: "The Enron case has given us a unique opportunity to look inside the workings of a major corporate organisation and see firsthand how widespread poor spreadsheet practice really is.
"What’s truly shocking is that there seemed to be a culture of total acceptance that mistakes were simply part of working with spreadsheets.
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