Amateur Excel wizards-the simplicity, scale and incredible consequences of their errors

Nobody imagines they can copy a bit of code off the internet and write the next messenger app, or heart monitor, but frequently people, whose position and professional standing suggests they ought to know more, make a hasty edit to an excel sheet in between meetings with extraordinary consequences.

* An accountant omitted a single minus sign resulting in their dividend estimate spreadsheet being out by a $2.6 billion.

* A simple cut and paste error resulted in TransAlta over paying $24 million for US power transmission hedge funds. “Cut and paste” can you believe it?

* In a written statement, Jayne Shontell, Fannie Mae’s vice president for investor relations put a $1.3 billion reporting error down to an “honest mistake in a spreadsheet”, but did not go into detail about the error.

* “ JP Morgan, was running huge bets (tens of billions of dollars, what we might think of a golly gee gosh that’s a lot of money) in London. The way they were checking what they were doing was playing around in Excel and not even in the “Masters of the Universe” style that we might hope, all integrated, automated and self-checking, but by cutting and pasting from one spreadsheet to another. And yes, they got one of the equations wrong as a result of which the bank lost several billion dollars”. Again, “Cut and paste” the mind boggles! http://www.forbes.com/sites/timworstall/2013/02/13/microsofts-excel-might-be-the-most-dangerous-software-on-the-planet/#5f70ad0772ae

* Reinhart, Rogoff… in 2010 published an influential report, “Growth in a Time of Debt”, used by economists globally, but specially in US and Europe to argue against fiscal stimulus. Now anyone with a grasp of economics had to be wondering about this straight away, however, it was not until a student, Herndon spotted not just flaws but what looked like careless weighting of data ranges and blew the whistle that the scale and arrogance of the mistakes came to light. Who knows what impact these errors had on millions of human lives. http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_301-350/WP322.pdf

* A report published in January stated that poor spreadsheet protocols were primarily to blame for JP Morgan’s estimated $5.8bn (£3.8bn) of trading losses racked up last year from credit default swaps, including by a trader nicknamed “The London Whale”.

Spurned by a continuing list of catastrophes, regulators around the world, including the Basel banking committee and Britain’s Financial Services Authority, have focused their attention on spreadsheets as a key component of best-practice corporate governance.

You may not be running J P Morgan, but the figures you are dealing with have equally big consequences for you, your staff, your customers, your shareholders. The stark reminder here is that code is not for children, cut and paste is something we don’t even discuss in polite company, methodical approaches with sufficient testing and oversight is the bare minimum and I’m not even discussing regulation or compliance. Serious decisions should be made using reliable information that has been quality checked and is understood for what it is.
The average executive playing with a few formulas and macros in Excel could soon be risking a Jail sentence and certainly eventual ruin is inevitable.
Software engineering is now a mature profession and when allowed, let alone encouraged to do it right, the profession will follow proven procedures and well-trodden paths to ensure a very low risk of highly expensive errors. It is easy to understand the temptation for a subject matter expert to ignore the need for a software expert and just paste in some data, but increasingly this kind of foolishness is being identified and outlawed and it can only be a matter of time until “Honest mistakes” come under more serious scrutiny.
A few simple steps now and an achievable plan could pay big dividends in a short time frame and besides,  a seasoned pro can achieve more safely in a few days or even hours sometimes and not only cut out the risk and delays, but save you money into the bargain.

If you are concerned about any of your  processes, please do get in touch for a confidential chat.

 

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