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Financial Times interviews industry experts on error rates in spreadsheets

Financial Times interviews industry experts on error rates in spreadsheets

Spreadsheet error rates are high. Why is there not more testing practised to avoid potential disastrous situations? Financial Times' Lisa Pollack talks to Rickard Wärnelid and other industry experts.

Incorporation of a best practice standard can help reduce spreadsheet risk 

Organisations from all sectors rely on spreadsheets to perform the vital analyses they need to stay profitable. Using software like MS Excel supports companies in forming crucial decisions regarding investments, financial transactions, strategic planning, and operational analysis. Although, the use of this powerful analytical tool can backfire when you start relying on professionals that haven’t incorporated a best practice standard, and errors made can cost companies millions.

Listen to the Financial Times podcast

The Financial Times talks to EuSpRIG attendees about error rates in spreadsheets

The European Spreadsheet Risks Interest Group (EuSpRIG) gathers professors, consultants, and other industry experts annually to discuss this exact topic. With their 2015 conference just recently taking place, the well-known Financial Times was there to catch all the action. Columnist for the Financial Times, Lisa Pollack attended to talk to attendees about the alarmingly high error rates in spreadsheets, and why there is not more testing practised to avoid potential disastrous situations. Listen to the Financial Times podcast below, 'A testing time for spreadsheets'.

"Spreadsheets are big - you’re almost certainly going to have a bottom line error”

Ray Panko, Professor of IT at the University of Hawaii, provided some interesting insight into the frequency of errors performed. “When someone builds a spreadsheet, they will make errors in about 1-5% of all cells and experience doesn’t really matter. It’s rare, meaning you are correct about 95-99% of the time. Trouble is spreadsheets are big - sometimes with one-hundred unique formulas. You’re almost certainly going to have bottom line error.”

With experts like Professor Panko stating that errors are impossible to avoid, others like Mr. John Kid, a major program and software development consultant had a similar opinion, stating that 40% of his time is spent doing testing. “We wouldn’t be allowed to get away with not doing it, it’s routine for software engineering.”

More testing and training could reduce spreadsheet risk

Even with the consensus among attendees being additional testing and training could reduce risk, some were still sceptical about how often this could really happen. Rickard Warnelid, Corality Financial Group’s CEO, was interviewed and explained that it is far too expensive and time consuming to apply the level of rigor that others are suggesting. “You might see it in a reserve bank for one or two critical models, but not in a commercial environment where spreadsheets are used day to day, produced fast and relied on pretty much straight after. Even if we agree with the clients that it will decrease error rate, it’s a commercial impossibility.”

Researchers from Dartmouth College studied the impact of Excel spreadsheet errors 

Researchers from the prestigious Dartmouth College in the US studied the impact that spreadsheets errors can have by looking at five different companies, each of which provided five different spreadsheets for examination. The files from a small consultancy were mistake free, but of the ten spreadsheets provided by the two largest firms in the study, half had mistakes with an impact of over $10 million.

“We encourage organisations to adopt a financial modelling best practice methodology"

So the question remains; could error rates in spreadsheets be reduced if testing and training is implemented as rigorously as with other software?  Rickard Warnelid explains, “At Corality, we encourage organisations to adopt a best practice methodology to standardised their approach, which we feel does minimise risks and reduce error rates in spreadsheets. We have taken it a step further to develop our own globally acclaimed methodology, ‘SMART’, which is incorporated into all our financial modelling training courses and models that we build for clients. The tools are out there, people just need to know where to find practises that will work for their organisations and clients.”