To Err Is a Spreadsheet

Back in the olden days, spreadsheets were considered the finance team’s dream data structure. Many accountants developed complex algorithms to turn a spreadsheet into a full blown application and fully managed their finances through their spreadsheets. In 2004, CFO.com found that out of 14 technologies discussed with finance executives, spreadsheets were one of the two most widely used tools for running their departments.

It’s important to take a step back and ask ourselves, “Why have spreadsheets become a thing of the past, and should we keep them there?” The answer is yes: Using spreadsheets to manage your business expenses is a risky move that should be avoided. Data collected from several of the world’s biggest auditing firms revealed that the error rates associated with spreadsheets are consistent with human error rates. We know that “to err is human,” and now we can say the same for our spreadsheets. While spreadsheets will mathematically do exactly what they’re told, auditing firms have found them to contain consistent mechanical errors, logic errors and omission errors.

Brown & Gould’s “Experimental Study of People Creating Spreadsheets” gave three spreadsheet development tasks to nine senior spreadsheet developers. Each developer made at least one error resulting in 63% of the spreadsheet being incorrect! Interestingly, the developers rated themselves as extremely confident in their spreadsheet’s accuracy.

The studies of spreadsheet calculation errors are endless. Thankfully, with today’stechnologies there are financial applications built by teams of people to turn out a solid-quality product with sophisticated business-intelligence reporting. Data can be manipulated in many different ways without introducing any human errors. Keep using your spreadsheets for viewing data, but when it comes to building a finance application, leave that to the experts who have made building your application their life mission.