Spreadsheet Software: Management Landmines; the Software That Increased Productivity Also Increased Potential for Disastrous Errors
Vogt, Eric E., Marsh, William S., Jr., American Banker
While today's headlines are devoted to the continuing crises of LDC debt, Supreme Court challenges to interstate banking, and yet another bank legislation "reform," the seeds of a far more pervasive and potentially more damaging crisis are being sown. The perpetrators of this sinister plot? Hundreds of individual employees, many of them trusted officers and managers, acting alone and unchecked.
The source of this impending crisis lies in spreadsheet errors, created on personal computers (PCs) using enormously popular financial planning software. Once buried in the thousands of floppy diskettes circulating through banks and major financial institutions, they represent a management minefield of staggering -- and growing -- proportions.
Most insidious is the fact that many of these landmines are as silent as they are deadly. Unlike the computer games of the neighborhood arcade, where driving off the electronic racetrack results in unmistable disaster accompanied by dramatic visual and audible explosions, most spreadsheet errors deliver their half-truths quietly and persuasively, with no warning that the vehicle is now off the course and out of control.
This description may well strike you as a bald exaggeration of the current situation. In reply, we can only observe that, to date, most of these landmines remain unexploded and largely undetected. Miscalculations
While the PC coupled with spreadsheet software has provided managers with a greatly expanded ability to do complex calculations, so has it provided managers with a greatly expanded ability to miscalculate. And because PCs and software are commonly used by individuals working alone, miscalculations can easily go undetected. Backed by the "instant credibility" that any computer printout seems to convey, important managerial decisions can be made on the basis of untested, or critically faulty, spreadsheet logic.
The major challenge of managing the proliferation of PCs and Spreadsheets is how to ensure reliability and safety without diminishing personal productivity.
The use of electronic spreadsheets to support decision making is so recent that most of the current spreadsheet users are, in fact, the authors. Thus far, only those who designed the minefield and laid the mines themselves have had to navigate through the uncharted and undocumented maze of cells and formulae that they have created. Within one or two years, however, as major financial institutions become increasingly dependent on the use of electronic spreadsheets, the normal course of staff turnover will install a new wave of managers to wander blindly (and blithely) through the electronic minefields laid down by their predecessors.
Although disturbingly likely, this scenario is far from inevitable. Having worked with hundreds of bankers and financial analysts, we have developed a brief set of precautions and procedures which can guard against the wholesale creation of these landmines and help document their locations for future generations of users. A clear understanding of the three most common categories of spreadsheet errors is the first step toward utilizing these safeguards effectively.
Even a small spreadsheet can consist of dozens of formulae and calculations, each offering the opportunity for error. There are numerous examples of simple logic or arithmetic errors that can invalidate a spreadsheet. Many PCs locate the minus key invitingly close to the plus key, with predictable results. It is remarkably easy to misplace a parenthesis or sum only nine-tenths of a column. And, as users know only too well, these inconsistencies may be duplicated through a twelve-month cash flow or a thirty-year funding projection with a few simple keystrokes.
Not all examples are disastrous. We recently heard of a small company who rushed to their banker to secure a loan for next month's payroll. A few days later, fortified with corrected logic in their spreadsheet, they returned and purchased a 60-day certificate of deposit! …