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$10B Annual Tab for Spreadsheet Errors?
theodp writes "According to PWC and KPMG, more than 90% of corporate spreadsheets have material errors in them. With each error costing between $10K and 100K per month, one expert estimates corporate America loses in excess of $10B annually through the misuse and abuse of spreadsheets." From the article: "The key point about spreadsheets is that you need to know which ones are critical to your business, which ones are merely important and which ones you do not have to bother too much about. Once you know that, you can start to apply appropriate policies depending on the criticality of the spreadsheet involved."
That's a $10 Annual Tab for Spreadsheet Errors. Misplaced a decimal!
Documents have typos. Film at 11.
Spreadsheets aren't costing money, any more than pencil and paper costs money. It is the bad math that costs money.
I'd bet a LOT of money that fewer mistakes are made with spreadsheets than by people who think they can do perfect math in their head, or perfect long division or multiplication on paper.
One small problem with spreadsheets is that people sometimes use them instead of databases, I guess because the interface seems simpler than making a properly developed interface to a database from the getgo. Then you get locked into the solution, etc.
This was definitely a problem at my old job. They wanted to create a payroll sheet to keep track of hours, and the easiest way to do it was via a spreadsheet. I was the most programming-savvy person there (heh, you can already smell their doom), at so, not having any database training, I created a really suped-up spreadsheet that handled it for them. It was GREAT, until we had a work situation in which some people worked past 12:00 at night. At that point, people's total shift hours came out negative. We got it fixed eventually, but it involved some really nasty calculation, and it was a problem that could have much more easily fixed if it'd been done by database from the start.
The scary thing is the suggestion that the IT department should take over spreadsheets. Many people use a spreadsheet for applications that would better be served by a database with the appropriate front end and back end, or a dedicated software application. This article mentions managers specifically, but lots of employees whip up a spreadsheet and throw in some macros then find that the spreadsheet grows to a point of some real usefulness.
It's when the spreadsheet becomes useful that people realize it's not scalable (maybe they don't use that word, but I do) and can be tough to maintain.
Not to single out IT departments in particular, but I think the reason that these spreadsheets start up and grow is specifically that it's often difficult to get someone in another department to understand your needs well enough to make the tool that you really need.
Today managers can't fund a good solution because their budget doesn't allow for the necessary development. Tomorrow they won't be able to afford to get the support they need to get a spreadsheet done.
I don't have a great solution outside of better training for people on how to make spreadsheets that serve their needs.
more of the same on Twitter.
I fixed the problem in the spreadsheet, and then dug through all the existing orders that were about to be filled and corrected them. The problem had cost GE about $300,000 and was about to cost them another $120,000 in the next month. The interesting thing, is nobody had really cared to do anything about it until an intern came along, and dumped it on me. They just don't see $10,000 as a whole lot of money in the grand scheme of things, so I'm sure stuff goes on like this all the time.
>It is the bad math that costs money.
Wrong, it's not bad math it's wrong use of math. It's more the case of using wrong models to solve problems.
>fewer mistakes are made with spreadsheets
That should read, more mistakes are made faster with spreadsheets. Take a simple example like a spreadsheet to calculate the cost of some project. Lots of places they use a template, filling in some values and the spreadsheet does the rest. Small mistakes in the template can become seriously expensive when all is accumulated.
Rule1 - Never! Never! Never! put your busness on a speadsheet.
Rule2 - refer to rule 1
There is nothing wrong with speadsheets and they are very usefull for analysis but what happens is people try to use them for everything and eventually you have a spreadsheet that is used as a company database.
Yes I am aware you can lock a spreadsheet but how long before someone (usually a manager) makes a "special" change and before long all sorts of "special" changes occur and things start to get rapidly out of synch.
A simple analogy is how may people have ever seen simple Unix groups work really well, now take that one step further to ACL's and it starts to get interesting. This is particularly true when you have many people wanting to make changes. The poor Sys Admin can only duck and run for cover.
The big problem with spreadsheets is that they are increasingly being used to implement software, but that the architecture they provide (a matrix of expressions) makes it almost impossible to validate the code.
If the CFO of $COMPANY produces a spreadsheet demonstrating that all is well with the company finances then it is difficult to prove him wrong.
This may be what went wrong with companies like Worldcom. They could have had one spreadsheet for insiders and another for auditors.
http://michaelsmith.id.au
The big problem with spreadsheets is that they are increasingly being used to implement software, but that the architecture they provide (a matrix of expressions) makes it almost impossible to validate the code.
Looks like they could have found a new line of business: give professional advice how to solve the problems generated by their professional advice, whoops... this is the old consulting business model!
Andrea