The rise of digital transformation has been accelerating in recent months with organizations understanding the need for digital systems to enhance governance, agility and collaboration. Organizations now are more distributed than ever; one tool that has been a staple of the enterprise has been the spreadsheet. The convenience of a spreadsheet is well noted however with increasing separation and distancing of organizations the governance around these assets becomes problematic. As a result, organizations are looking to improve governance and revenue acceleration and are hence investing in Configure Price and Quote (CPQ) systems in order to avoid the use of the spreadsheets that have exposed them to risk. The benefits of CPQ are clear, when the right implementation and support is provided from a CPQ vendor. However, unfortunately, this is rarely the case, which leads to 50% of transitions from spreadsheets to CPQ systems failing and organizations finding themselves reverting back to the ancient spreadsheets. Undoubtedly, it is a double-edged sword.
In the 21st century, the spreadsheet continues to cause havoc for organizations across the world with almost one out of every five large businesses suffering financial losses as a byproduct of spreadsheet errors. In most cases, it is small to medium sized organizations that are unable to digest these costly errors, thus leaving these businesses permanently scarred.
Why are there so many errors?
Spreadsheet ‘blunders’ are constantly occurring and with the complexity and room for human error at any point whilst using spreadsheets, these costly mistakes will long continue. Furthermore, as a spreadsheet grows, the complexity and opportunity for mistakes increase; meaning that even the most basic spreadsheet has the potential to grow into a complex error-prone tool for an organization.
Highlighted below are some of the most significant spreadsheet errors in history which caused significant damage to not only these businesses finances, but also their reputation within their markets:
- Fannie Mae – The United States Federal National Mortgage Association
Fannie Mae relied on a spreadsheet when changing its accounting system in order to generate some vital calculations required for a new accounting standard. The issue being that the spreadsheets contained significant errors that altered the results by over $1.1 Billion. The company later spotted a $1.137 Billion error in total shareholder equity due to “honest mistakes made in a spreadsheet used in the implementation a new accounting standard” The result was hundreds of hours of work to restate its 2003 third-quarter financials and a permanently tainted reputation.
- Fidelity – American Multinational Financial Service Corporation
Fidelity were forced to cancel a $4.32/share year-end dividend distribution. Human error was once again at fault for this disaster as an employed tax accountant omitted a minus sign when they transcribed the net capital loss of $1.3 billion from the fund’s financial record to a spreadsheet. This turned that loss into a gain, causing the dividend estimate to be off by $2.6 billion.
- JP Morgan – American multinational Investment Bank and Financial Services
Due to several faulty equations in a spreadsheet (used to model risk) and a process that mandated the copying and pasting of a large number of cells, JP Morgan severely underestimated the downside of its synthetic credit portfolio, which ultimately led to the bank suffering approximately $6.5 billion in losses and fines.
- London Olympics Games 2012
A member of staff who was working on a vital spreadsheet accidentally inserted “20,000” into a cell instead of “10,000” which led to the London Olympic Committee selling 10,000 tickets for non-existent seats at four minor heats of synchronized swimming. This blunder not only damaged the reputation of the committee but enforced a financial cost as they were forced to upgrade the ticket holders to tickets for major events- causing a great financial loss.
- TransAlta – Multi Billion Electricity Power Generator and Wholesaler
TransAlta one of the largest electricity providers within Canada experienced a cut and paste error in a spreadsheet which in turn cost the organisation $24 million. This mistake lead TransAlta to acquire more US power transmission hedging contracts at much higher prices than it should have.
Listed above were five of the most significant errors in recent decades that have come out to the public however, not every organization states when a spreadsheet error has occurred. These unstated spreadsheet blunders may not be made public in a hope of preserving reputation however the internal financial damage cannot be hidden.
Despite the clear fundamental flaws of the spreadsheet, it is a tool that can be used successfully for small, less complex tasks. However, when trying to configure prices and quotes, it is fundamental an organization has an accurate reliable system with strong governance in place, in order to avoid the costly errors demonstrated above.
For more information on how to finally defeat the ‘zombie’ spreadsheet check out the Broken CPQ/Zombie Spreadsheet blog.
With the new reality of a distributed work force, companies have been working to improve governance and reduce errors with the digitization of systems and slowly moving away from spreadsheets. Which has benefited them by speeding up processes and driving good revenue. All organizations thought they had good governance and control, however in the move to remote work, the organisations have come to identify the risks of using spreadsheets without good governance. The movement to a distributed workforce has, in fact, been a catalyst for the rise of digital transformation.