A recent study conducted by The College of Business Administration analysed businesses over 7 years and found that a whopping 88% of all spreadsheets contain errors and a portion of those errors posed a financial threat to the business.
But don’t take our word for it, the chaps over at JP Morgan know better than anyone. In a well-publicised fiasco, a spreadsheet error was relied upon for their ‘Value at Risk’ model that inaccurately forecasted volatility, resulting in a $6 billion trading loss for the company.
For your average SME, it is not just the chances of catastrophic errors that should be keeping the CFO up at night. They should also be concerned with the number of mind numbing hours’ employees put into coding these isolated islands of information.
Research has found that the average user spends an incredible 12 hours per month collaborating, modifying and correcting spreadsheets. This equates to about 10 per cent of their time, just on maintaining spreadsheets to prevent errors!
The reality is that Excel is being using in a vastly different way then what it was designed for. Originally, spreadsheets were designed as a tool for personal productivity, used for performing simple analysis, ad hoc research and storing small amounts of data.
Now they are used for complex analysis, forecasting models and storing vast amounts of data in a single file. Employees are often self-taught which decreases the consistency between spreadsheets, making it difficult for colleagues to understand the logic of a spreadsheet created by a team member.
But if the disadvantages of spreadsheets are so clear and measurable, why are SME’s still using them for such important tasks? The fact is that occasionally the existing IT systems can’t deliver, which leaves the end user with limited options. So what do they do? They create a work around, a.k.a, the spreadsheet.
For many years’ software companies have been building applications specifically designed to replace spreadsheets, yet Excel still dominates the business world. The reason for this is that Excel makes it possible to easily edit data, create useful models and produce reports without extensive training or experience. As a result, businesses are willing to tolerate spreadsheet errors in exchange for usability and data control.
To convince businesses to switch, software companies clearly need to do a better job of offering an alternative that makes it possible for employees to edit and display data with a user interface that is simple and flexible.
This reality is closer now than ever with an increasing use of API’s in software development for connectivity with other business systems. This means that in the near future software applications will become a truly viable alternative to spreadsheets. Hopefully eliminating the real dangers that spreadsheets represent to a business.