By: Kenneth Jarvis
Nov. 22, 1999 (SmartPros) — Whether you use Excel, Lotus 1-2-3, Quattro Pro, or any other spreadsheet package; the spreadsheet application is one of the most commonly used.
Due to this widespread availability and the increased demands in the workplace, spreadsheet models and schedules have significant risks without established quality control practices. Some spreadsheet errors are small and may have little to no impact on your organization’s operations, however, following are some instances where errors did impact their organizations.
Excerpts From Business Week
The following are excerpts from Business Week “How Personal Computers Can Trip Up Executives”, (2861) September 24, 1984, pp. 94-102:
- Forecast for a new product. Forecast sales of $55 million for planned computer product. Forgot planned price discount on key components to one supplier. Forecast was $8 million over. It was caught in time to prevent damage.
- End users shared diskettes containing old data. In one case, person ordered 30,000 units of a $4 part; but the plan had changed and the company only needed 1,500.
- A midwestern firm’s estimated taxes were $5,000 off from a correct paper and pencil value. The spreadsheet has an incorrect formula for assessing salvage value.
- Two spreadsheets with 15,000 cells were used to project the market for CAD equipment. Numbers were rounded off to whole dollars. But the inflation multiplier, which should have been 1.06, became 1. Without inflation, the market was underestimated by $36 million.
Sometimes a Spreadsheet Is Not the Right Tool
Spreadsheets are great. In fact, I can type a nice memorandum in a spreadsheet and I can store and retrieve records of data in a spreadsheet. Some of you may laugh, but I have seen a number of business professional type a memorandum in a spreadsheet.
Of course, most of us know it is more appropriate to write a memo in a word processor since they include specific utilities that cater to this type of task. However, when it is necessary to determine whether to use a spreadsheet versus a database, it is a little more complicated since there are many more issues to consider.
Unfortunately, the majority of individuals do not even consider a database for various reasons. These reasons may include a lack of training, exposure, and/or mindset. The spreadsheet vendors do not help matters much since they are including more database functionality into spreadsheets. On a positive note, this extra database functionality is making today’s spreadsheets more versatile.
There should be some form of quality control to ensure business professionals make this initial assessment before spending considerable time on a spreadsheet. Determining whether to use a spreadsheet or a database is not always black and white: Often the best solution is a combination of both.
To assist in the application selection process, it is important to have an experienced business professional that knows the strengths of spreadsheets and databases. Some strengths include the following:
Database Strengths
- Easier to share
- Security is easier to manage
- Increased Data Integrity (assuming database is properly designed)
- Larger data capacity
Spreadsheets Strengths
- Learning curve is typically shorter
- More individuals are comfortable with spreadsheets (an unfortunate reality)
- Easier manipulation of data (i.e., models, what-if scenarios with small data sets)
- Quicker initial input/output
Good Design
Unless you are a genius, designing spreadsheets is not something learned overnight. The process of developing solid spreadsheets involves working with colleagues and learning from your mistakes. However, the preferred method is to learn from others mistakes. So what is good design? Since many spreadsheets are unique, it really depends on all of the facts in the situation. Nonetheless, here are some good rules to follow that will help increase the integrity of spreadsheets:
Data Entry Area – Spreadsheets generally consists of data input, calculations, and/or other objects such as graphs. It smoothes the workflow when the data is in a centralized location. For example, with larger spreadsheets I prefer to dedicate one worksheet for data inputs. Furthermore, I always color the data input cells with a consistent color that represents a data input field so that I can visually see where I need to enter data.
Name Cells – Naming cells or ranges of cells will decrease spreadsheet risks. When reviewing formulas, it is easier to analyze the correctness of formulas when using cell names versus cell references (i.e., A1, C3, E54, etc). For example, if I wished to review the relationship of Training to Net Sales, I could write the formula as @Training/NetSales (Excel =Training/NetSales) instead of =J4/M9.
Please note that in the event cells are named and used in formulas, they do require a periodic review to ensure cell references remain as intended.
Avoid Data Input in Formulas – Try to restrict worksheet formulas to cell references instead of data input. For instance, instead of placing the interest rate directly into a financial worksheet function, use the data entry area (Rule 1) to store the interest rate. If it is necessary to change the interest rate, it is only necessary to change it in one place.
Protect Formulas – For all of the leading spreadsheet applications, there are methods to protect individual cells, worksheets, and workbooks. If more than one individual is regularly working with a workbook, consider protecting certain formulas to prevent inadvertent or unauthorized changes.
Protection may require a password, so whatever you do, do not forget the password. Companies should also consider the use of passwords in their policies and procedures since this is often an issue when the relationship between the company and employee is severed for whatever reason.
Function Libraries – Spreadsheets come with built-in worksheet functions. When users use one or more of these built-in functions within a cell to derive a specific value, the length of the formula makes it more difficult to read. Other times, it is a good idea to ensure everyone calculates values the same. Function libraries help companies achieve this goal. To learn more about function libraries, please refer to my prior article, Pump Up Your Spreadsheets With UDF’s.
It is very easy to include quality control practices when designing spreadsheets. Again, it must include an experienced professional that has a good record of accomplishment in the design area. A quality control practice not only helps reduce spreadsheet risks, but it should also assist in the professional development of staff.