You’d think stock traders, of all people, would have the best data available. But that wasn’t the case when JPMorgan started bleeding billions on bad trades.
Investors got worried. The bank dismissed their concerns as “a tempest in a teapot.”
Turns out it was a tempest in a spreadsheet.
Excel: Most Dangerous Software on the Planet
That’s right. When investigators examined the famous “London Whale” trading scandal of 2012, they discovered employees at the world’s largest bank had been making decisions based on bad data from a broken Excel spreadsheet. (It wasn’t the sole cause of the scandal, but it did play a role.)
The business world is full of spreadsheet horror stories. A forgotten negative sign leaves shareholders expecting dividends that never arrive. A copy-and-paste error inflates a company’s profits by millions. These are just a few examples of why Forbes denounced Excel as possibly the most dangerous software on the planet.
“Excel is everywhere you look in the business world — especially in areas where people are adding up numbers a lot,” said law professor James Kwak.
No Warning When Excel 'Breaks'
It’s been called the world’s most popular productivity tool, and for good reason; anyone can use a spreadsheet to perform powerful calculations. But therein lies the flaw.
“The spreadsheets that people create with Excel are incredibly fragile,” Kwak said. “While all software breaks occasionally, Excel spreadsheets break all the time. But they don’t tell you when they break: They just give you the wrong number.”
A 2008 study of real-world spreadsheets found that a whopping 88 percent contained errors. That means most of us are working from incorrect data without even knowing it.
Yet nine out of 10 companies use Excel spreadsheets for financial reporting, budgeting, planning and forecasting, and 70 percent use them for other mission critical processes. With millions or even billions of dollars at stake, imagine how costly a single error could be. (For JPMorgan, the damage topped $6 billion.)
Forcing A Round Platform into a Square Hole
The problem isn’t the software itself. It’s when companies use it for business processes it wasn’t designed to perform, like storing employee data or collecting budget approvals. Yet many companies do it because it’s cheap and easy to use.
Even if it doesn’t cost you billions of dollars, spreadsheet abuse can cause your organization a lot of pain. Here are some of the biggest problems Excel users encounter in the workplace.
Problem No. 1: The Amateur Expert
You know those formulas in an Excel spreadsheet? They’re a programming language. Creating a spreadsheet complex enough to meet modern business needs is essentially an act of software development.
Yet the vast majority of people who create them aren’t programmers. As business researcher Raymond R. Panko noted, “few spreadsheet developers have spreadsheeting in their job descriptions at all, and very few do spreadsheet development as their main task.”
The problem is that Excel is so deceptively easy to use we’re often seduced into overestimating our own expertise. But the user-friendliness is just an illusion. As one software developer observed, it’s “dead easy” to get an answer from a spreadsheet—just not necessarily the right one.
As a result, we pump out spreadsheets that are:
- Riddled with errors. At least 1 percent of all formula cells contain errors. In a large spreadsheet with thousands of formulas, that can add up to dozens of mistakes.
- Untested. Spreadsheet creators rarely test their creations. Another developer checks only 17 percent of spreadsheets, allowing serious errors to go undetected.
- Rushed. Nearly one in five spreadsheet creators are time-crunched. They often don’t take time to use basic error prevention practices like cell-protection.
Problem No. 2: The Frankensheet
Many spreadsheets start out small, but over time they run amok.
Here’s how it happens: The business outgrows the spreadsheet—usually much faster than expected. Multiple people start adding onto it. But because no one really understands how the spreadsheet works, they end up cobbling on parts until the spreadsheet evolves from a purposeful tool into a “bloated mess,” said Michael Talve, founder of The Expert Institute.
As spreadsheets grow, they become:
- Overly complex. Most business spreadsheets are incredibly complicated. Nearly half use macros, more than a third are linked to other spreadsheets, and one in five are linked to databases.
- Unreliable. When multiple people are updating and altering a spreadsheet, there’s no way to control access or keep track of who edited what. It’s impossible to trace where a piece of data came from.
- Fragile. The bigger a spreadsheet is, the more likely it will break. It can also become slower to load and prone to crashing, said Alex Juel, senior specialist at Inflow. “Once you have a spreadsheet that starts to crash, it’s hard to get that data out and in usable form.”
Problem No. 3: The Data Shuffle
Here’s how a typical day starts in some companies: An employee copies and pastes data into a behemoth spreadsheet, then emails it around for approval. In some cases it might go to 50 different people, who respond with their feedback in clunky email threads.
When spreadsheets are used as databases or to perform business processes, employees end up shuffling data from place to place—and each shuffle puts your company at risk. Nearly a quarter of organizations have had data breaches that stemmed from the mishandling of data in motion.
Even Fortune 500 companies are guilty of it. Investigators in the JPMorgan scandal found that the company was making trading decisions based on a series of Excel spreadsheets employees had to complete manually by copying and pasting data from one spreadsheet to another.
The data shuffle poses a threat to:
- Data integrity. Every time data is copied and pasted, it’s an opportunity for error. Even if the mistake is caught, there’s no way to trace it back to its source.
- Employee privacy. Employees have a federally protected right to data privacy. But spreadsheets lack proper control and security features for sensitive information. When they’re used to share internal data (between HR personnel, for example), private info is placed at risk.
- Data security. Spreadsheets are one of the most common vehicles for data theft. As much as 25 percent of data stolen or lost internally is in the form of Microsoft Office documents.
Even if you don’t agree that Excel is the world’s most dangerous software, there’s no doubt it’s a ticking time bomb for businesses.
Yet many organizations feel they can’t live without it. However, with advances in machine learning, predictive analytics and push computing, companies have more options than ever before to abandon the spreadsheet and make business processes more efficient.