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The Risks and Costs of Spreadsheets

When first starting, most businesses use Microsoft Excel to manage financial processes such as budgeting, planning, forecasting, consolidations and reconciliations. Spreadsheets are great for small businesses, but as they scale up, the challenges of spreadsheets become a definite risk and cost that is worth exploring.

Spreadsheets have a role to play in FP&A, but the business case for FP&A Automation includes stating the facts about their inherent risks and costs.

Is this a good spend of time?
You will have seen lists like this before, but it is worth restating the deficiencies of poorly designed spreadsheet processes. In a manual Excel-centric process, FP&A teams spend a majority of their time performing manual tasks such as:

  • Formatting spreadsheets
  • Copying actuals from source systems
  • Rolling over and distributing spreadsheets, templates and reports
  • Collecting and consolidating spreadsheet data Re-keying data
  • Incorporating late submissions and changes Identifying and correcting errors
  • Tracking status of the overall process
  • Formatting and distributing reports
  • Managing process checklists

Spreadsheets Cost Money

Take a look at this blog post that focuses on the business case for FP&A automation.  FP&A productivity has only increased by two-percent in the last decade.  The reason? Spreadsheets are holding back productivity.

Based on a recent APQC survey, FP&A participants reported spending 75 per cent of their time gathering data and administering finance processes, down only two per cent from the results from a similar study in 2010.

These means that whatever your current finance FTE costs, 75 per cent of this is spent gathering and administering data in spreadsheets. 

According to PayScale the average financial analyst salary in FP&A in the USA is ~$60,034, which is the equivalent of $239 per working day (in 2019). What if instead of 75 per cent of this cost being spent spreadsheet jockeying, FP&A teams are equipped with the tools that drive greater value-add to the business?

 

Spreadsheets Errors

There is a very extensive research base on the risks of using spreadsheets within business [Panko, 2000] [Panko & Ordway, 2005] [Powell, Baker & Lawson, 2007]. Much of the research has been coordinated and progressed by EuSpRIG (European Spreadsheet Risks Interest Group), an impartial investigation into the use and performance of spreadsheets.

It may seem like a dry topic, but there are well-documented spreadsheet horror stories that have cost businesses millions. Many errors never make it to the light of day. The strategic risks and limitations of spreadsheets include:

Strategic Risks of Spreadsheets

Human Error -- The majority of spreadsheets (>90 per cent) contain errors. Because spreadsheets are rarely tested these errors remain. Recent research has shown that about 50 per cent of spreadsheet models used operationally in large businesses have material defects. Approximately 50 per cent of executives surveyed had encountered spreadsheet related problems up to and including staff dismissal.

Fraud -- Because of the ease with which program code and data is mixed, spreadsheets are the perfect environment for perpetrating fraud. For example, the $600m fraud perpetrated by John Rusnak at AIB/Allfirst was spreadsheet related. Other spreadsheet related frauds have occurred and have been notified to regulators, but have not been openly reported.

Overconfidence -- Because spreadsheet users do not go looking for errors, they don’t find any or many. Spreadsheet users are, therefore overconfident in their use of spreadsheets. This translates into a business problem and lead to a position where decision-makers may act in the belief that decisions can be made with confidence on the output from a spreadsheet despite evidence to the contrary.

It is a fact that billions of dollars of spreadsheet related errors, fraud and restatements have been reported for decades.  Will your company be next?

 

Explore the Business Case for FP&A Automation

Spreadsheets do have a role to play in FP&A.  In face many modern FP&A systems integrate seamlessly with them and address many of their inherent weaknesses.

To help our clients to capture and document the process improvement and cost-saving opportunities possible by investing in FP&A Automation and moving aways from spreadsheets, we have created the FP&A Business Case Builder.

The modeling tool helps to build a clear picture of:

  1. The challenges and inefficiencies of the current planning, budgeting, forecasting, and reporting processes.
  2. The FTE costs within finance and outside of finance of planning, budgeting, forecasting and reporting.
  3. The forecast cost of continuing to operate as is, including the ability to model increase costs.
  4. The budget to invest in FP&A Automation.
  5. The forecast cost savings as a result of FP&A Automation.
  6. An ROI for the business case.

It takes about thirty minutes to complete the Business Case Builder model, and the results are immediately available. A summary report is automatically generated and sent via email, with a more detailed follow-up review led by one of the Qubix business advisory team.

If you would like to see the potential ROI of investing in FP&A Automation for your business, please start the process here.

 

 

 

 

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