MS Excel is a common tool used for a variety of activities, it was built to store, organize data but it was meant as a personal productivity tool, not for complex business data. According to Jedox, 80% of companies of all sizes and around 85% of midsize businesses are using Excel spreadsheets for budgeting, planning and forecasting activities. True enough that Excel is a familiar and go-to tool whenever you need to do calculations, plans, tracking and many more but using it to store and process confidential company data might have much more risks and hidden costs that can jeopardize your company’s operations.
What are the limitations of using Excel Spreadsheet?
Limited collaboration features MS Excel was built as a personal productivity tool and hence it lacks features for collaborative work and mobility. FP&A are collaborative activities that require the exchange of data, ideas and files from different teams and individuals and yet due to the design of MS Excel working simultaneously on the same worksheet is impossible. The results in time delays as a member must wait for another member to finish their input, preventing efficient use of their time.
Problems can arise when team members are unable to gather in the office, separate by large distances and their only way of exchanging the data is by email and when there are multiple people accessing the same spreadsheet with their inputs on cloud storage.
Each time there is an excel file download or input, it is a piece of insolated information and possibly incomplete information as you are unable to view the real-time changes in data made by another member because Excel was designed for work in isolation.
The exchange of data via email or cloud storage makes it susceptible to untraceable errors, duplicate files with incomplete data, loss of data from overwriting and multiple versions of truth. This will require the re-input of each member and a tedious manual consolidation to get a single version of truth. This is absolutely time consuming and adds on to the employee costs as your highly paid employees, managers are spending time with lowered productivity on this avoidable mistake instead of doing higher valued tasks.
Lack of real-time updates and ability to get data on-the-fly As mentioned in the previous point, an excel file is a piece of isolated information. When the values in this excel files are used to derive a figure for a report or as data for analysis to make an “informed decision” it becomes a new file with no connection to the original values. Adjustments in the original file are not reflected in the other excel files which information is obtained from, resulting to inaccuracy of plans, decisions and can be a tedious task.
Using Excel as for data collection and preparation slows down your ability to make decision fast in face of unexpected changes as everything is manual from the data entry to checking, consolidating and creating dashboards for analysis. Without real-time data, the higher risk an organization faces. Real-time data can deliver current insights, allow your organization to stay on trends, make fast and more accurate decisions as compared to analysis based on a series of past events that are not depicting the current picture of the situation.
Lack of audit trail
When there are changes to the Excel file, it is extremely tedious to track who made the changes and what are the chances. If the Excel file is saved in a shared drive or central database, we can have some level of transparency to see the date, time and last user that opened the file, but we are unable to pinpoint the changes made.
An audit trail is also especially important for maintaining information and system integrity, reconstruction of events when an investigation is required such as audit investigations, prevention of harmful events from happening, identifying suspicious behavior such as unauthorized access to ensure security and compliance.
The lack of transparency and records makes it hard for the company to ensure user accountability, data integrity and security. By being unable to identify the user and record his/her actions it encourages inappropriate user behavior, unauthorized modifications intentionally done to hurt the company and higher risk of an undetected security breaches and data leaks.
Limited security controls
Excel’s security functions such as the worksheet/workbook password protection function is extremely weak. It has a simple encryption system for workbook protection based on password and can be cracked with hacking software or office file password recovery programs readily available on the internet. It is acknowledged by Microsoft that it is meant as a “display feature” to stop casual users and cannot be relied as a security feature. It was meant to prevent accidental damage to work and is unable to protect sensitive confidential information.
Companies are unable to track the total number of files, location of duplicate files and who has a copy of the file apart from those in its official destination/location such as a designated departmental shared drive. Also, when Excel files are used, there will be a temporary file stored in the user’s local drive which greatly increases the risk of leaking sensitive confidential information. According to Jedox, 64% of organizations experienced leakage of data offline into local files.
Lastly, Excel is unable to restrict file access to registered user, assign role-based access and have customized permissions to administrators. A MS Excel file can be shared with anyone and everyone can create unlimited and unmonitored changes that can lead to data integrity and accountability issues.
Lack of documentation in planning and assumptions
Assumptions used in data entry are often left out when planning and what-if scenario analysis. Changing of the values in cells based on unrecorded assumptions and the inability to track changes can lead to confusion of which assumption was used and then inaccurate analysis. The lack of documentation and ability to track changes makes it hard to validate incorrect data and purge wrong data from the company’s database. It is a challenge to companies trying to keep quality records.
Susceptive to errors
Excel lacks the ability to check, verify the quality of the information, prevent versioning issues and ensure data accuracy. Errors can occur from manual data entry, formatting errors, lack of automation, and data silos from multiple copies of corporate data in personal data stores that are extracted for ad-hoc reports as and when needed. Below is some of the biggest excel-based consequences of all times
Barclays Capital
In 2008, Barclays capital prepared an excel sheet that listed the contracts it intends to purchase from Lehman Brothers during their bankruptcy proceedings. Within the excel spreadsheet rows included contracts that Barclays did not intend to purchase which were hidden instead of being deleted. Unfortunately, when the excel file was passed to a junior executive for reformatting work, he/she was unaware of the hidden rows within the document that should not be part of the deal. As a result, when formatted as a PDF and presented in court, Barclays Capital was legally committed to making the purchase of 179 bad contracts.
JP Morgan
In 2012, A formula mistake of addition instead of averaged costed JP Morgan chase $6.2 million. In the same year, it’s Value-at-risk (VaR) model was created using excel and operated through a series of spreadsheets that had to be completed manually. An Excel copy-and-paste error from one spreadsheet to another caused the VaR model to understate the company’s risk and resulted in a $6 billion trading loss.
Time consuming consolidation and reporting
In order to generate a report, the end users must collect data from different files stored in data silos everywhere in the company. Facing challenges like multiple versions of truth, manual merging and consolidation of information from numerous spreadsheets and building dashboards. It might be relatively ok for a small company with little data but for bigger organizations the more complex your data the harder it is to generate a report. Highly paid managers are doing low-value tasks and burning hours to produce reports that can be easily generated with automation/software. Reporting with excel is time-consuming, tedious, a waste of high-level efforts and no longer feasible.
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