You’re the CEO of a mid-level SaaS business. You run your business predominantly off your laptop, using a combination of documents, spreadsheets, emails, and other software. It’s the end of the week and you’re exhausted. It’s been a busy one to say the least. You need to think of methods to decrease your rising churn rate, and you have a nagging feeling that this is impacting your growth rate.
Opening a spreadsheet, you browse through endless tabs until you find this month’s data. Realising you also would like to check out your MRR, you open a dashboard put together by your developer. You copy and paste numerical information into your spreadsheet, without checking if it’s in the correct column. Switching your laptop off, you feel back on top of your business data. But you are oblivious to the potentially fatal mistake you’ve just made.
Spreadsheets: capitalism’s dirty little secret?
Spreadsheet errors are rife in business. Business forecasting company F1F9 — who are bold enough to label spreadsheets “Capitalism’s Dirty Little Secret” — found one in five large businesses have suffered financial loss as a result of errors in spreadsheets and that 33% of businesses report poor decision making due to spreadsheet problems.
Using these figures, we could predict that out of the 7,700 large businesses (a business with 50+ employees) in British Columbia, Canada, 1,540 are subjecting themselves to financial losses due to spreadsheet misusage.
Unfortunately, there are many ways spreadsheet abuse occurs in business. Don’t fall foul of these common mistakes and pitfalls.
Data entry errors
Inputting endless amounts of data isn’t the most thrilling of tasks. Business owners — no matter their level — cut and paste information from various sources into a spreadsheet and think that this method is failsafe. It isn’t, as banking firm JP Morgan discovered in the now infamous London Whale incident.
According to Bloomberg, the company’s biggest reporting loss stemmed from “an error prone risk modelling system that required employees to cut and paste electronic data to a spreadsheet. Workers inadvertently used the sum of two numbers instead of the average in calculating volatility.” The impact of this reporting error was a catalyst in the loss of more than $6-billion USD.
Closer to home, Calgary-based energy company TransAlta also lost $24 million CAD in a “cut and paste error”. Something to think about next time you reach for the CMD+C keys.
You may think that inputting the information and constructing formulas to take care of the rest is a bulletproof way to secure your data and ensure accuracy. Think again. In 2011, U.S. security group MI5 wrongly collected subscriber date on 134 telephone numbers, as a result of a “spreadsheet formatting error”.
An error such as this doesn’t exactly put faith in the secret service’s ability to obtain sensitive information with complete accuracy. This ruins customer trust — a huge red flag when it comes to business.
Failure to spot spreadsheet errors can tarnish a once infallible business reputation — as was the case with Harvard University.
An academic paper on Growth In The Time Of Debt, written by two academics at the prestigious U.S. institution, was found to have an error that excluded high-debt and average growth countries — including Denmark, Canada, Belgium, Austria, and Australia — out of their average calculations. The original paper presented growth rate at -0.1%, whereas with the correct formula indicated a +0.2% growth.
The error was found by a group of students at the University of Massachusetts, who analysed the paper when attempting to replicate its findings in a comparative study. We can only assume Harvard analysed their work, skimmed past the error, before sharing the report across the world. Whoops.
What’s the impact of making mistakes?
When it comes to using spreadsheets, mistakes can cost your business. A prime example is Enron. Once ranked the sixth largest energy company in the world, the U.S. energy company learned this the hard way in the early ‘00s. Whilst under investigation for overstated earnings, inspectors found that 24% of Enron’s spreadsheets contained errors. Ultimately the company execs were jailed for fraud and the once profitable company collapsed.
A study by The University of Hawaii found that 9 out of 10 spreadsheets contain errors. If you’re thinking of presenting sensitive payment analytics data via this method, you might want to reconsider. Spreadsheets are a silent business killer. CEOs need to smarten up and eradicate their usage before a major error occurs that have negative repercussions on their company.