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By Erica Konieczny
April 8, 2016
More than 1.2 billion people—that’s one in seven people on the planet—use Microsoft Office, a bundled collection of productivity software. First released in 1983, Microsoft Office has become the standard in the workplace and schools, and of its programs, Excel is one of the most commonly used. Nearly every business dealing with any type or amount of data uses Excel as a spreadsheet, from small companies all the way up to Fortune 500 corporations.
Excel includes basic database features, allowing users to perform mathematical operations, display numbers and equations, create macros to automate tasks, and provide functions to manage data. Most employees currently in the workforce claim proficiency in Excel, and a huge portion of the world’s economy is managed in this particular software.
Despite its popularity, criticism of Excel is starting to come to light. What originated with rumblings among IT professionals and tech blogs has recently expanded into major business and technology publications, such as Forbes (who suggests Excel might be “the most dangerous software on the planet”), Fortune (who accuses Excel of “ruining the world”), and ArsTechnica (who declares Excel to be “the ruiner of global economies”). Harsh words, but why the criticism and what can be done to protect you, your company, and your data against Excel’s shortfalls?
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Not As Easy As It Looks
If it were possible to use Excel with a zero percent error rate, the usefulness and power of the program might be hard to argue with. However, even the most experienced computer user makes mistakes, and Excel was not designed to be forgiving of errors. Audits have shown that nearly 90 percent of all large spreadsheets, (de ned by the auditors as spreadsheets with more than 150 rows), contain serious errors and that users have up to a 1.79 percent chance of making an error per cell. Those statistics would suggest that when a spreadsheet gets to be tens of thousands of cells large, there are going to be a lot of mistakes...which leads to costly repercussions.
But why are user errors considered to be more plentiful for spreadsheets, compared to other types of programs? Some experts blame the interface, which is simple—deceptively simple.On the resumes of most people currently in the workforce, you’ll likely find Excel listed as one of their proficiencies. And while it’s true that Excel can be used by almost anyone for simple tasks, for most people, their knowledge of the program ends with basic data input. It takes time to develop competence with Excel and the learning curve can be steep, as it is an incredibly complex software. For example, each individual cell can contain any of the following: operational values, document properties, file names, sheet names, file paths, external links, formulas, hidden cells, nested IFs and macros; each workbook can contain hidden sheets and “very hidden” sheets (ones that do not appear in the Unhide dialog box, whereas hidden sheets do). For those who do venture into the more complex functions of Excel, the process can be very intimidating. And even for users who are only attempting basic data entry, it’s easy to unintentionally get bogged down in formulas and equations with a mis-click of the mouse.
Using Excel is a lot like cooking—the average person can throw some ingredients together and end up with a (mostly) edible meal. But true culinary artistry involves training in food science and technology, and there is a noticeable difference in the output of an occasional weekend cook versus a trained chef.
Compounding the issue is the lack of an automated self-checking process in Excel. Users must create their own tests to check for errors in their spreadsheet, and while there are tutorials online to do so, it’s not practical to expect every Excel user to seek them out and implement them correctly. Unfortunately, Excel does what is referred to in the industry as GIGO—“Garbage In, Garbage Out”—which means it will execute the tasks entered whether they are accurate or not.
Several large corporations learned the hard way that using a spreadsheet program that doesn’t check itself can bring catastrophic results. In 2012, JP Morgan Chase suffered a $6.2 billion trading loss that was eventually traced to a quantitative analyst in London who was manually copying and pasting data from one Excel spreadsheet to another. The second spreadsheet, a VaR (Value at Risk) model that was intended to help JP Morgan Chase determine risks and rewards of trading, had a user error in it that led risk officers at the bank to believe that credit derivative bets were half as risky as they actually were. This debacle, known as the “London Whale,” cost the bank billions of dollars and embarrassed them on an international stage.
JP Morgan Chase’s experience highlights another weakness of Excel: the lack of automatic data transfer across datasets. Excel requires a lot of manual data entry, which encourages users to cut and paste information. This opens the door not only for mistakes to occur, but to compound and spiral out of control. Excel’s dependency upon user-created formulas and formatting also creates many opportunities for errors.It’s worrying to think of a simple user error causing such chaos, and it happens frequently on all levels of business in virtually every industry. For example, Excel is relied upon in the construction industry for job costing, estimating, accounting, and other tasks that have a profound impact upon a business’s bottom line."
To read the rest of the eBook, "Construction + Spreadsheets = Risk," click here.
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