Don't Let This Happen to You!

The Perils of mismanaged spreadsheet-based operations


With complicated calculation lasting through the eleventh hour, meaningful review and decision making was nearly impossible. Execution was compromised by the proliferation of versions – it was too easy to create new marching orders based on idiosyncratic assumptions or agendas. While this calamity floated on an undisciplined and process-poor operational ocean, the root cause mistake here was not quickly recognizing and addressing the need for scalable infrastructure. When building a handful of service nodes, spreadsheets seemed adequate. When deployment scale increased to thousands, millions of wasted dollars and months of delay in delivering service and revenue ensued. A new Supply Chain executive had the daunting job to establish basic infrastructure during large-scale chaos.

Protecting Your Company

Protecting your company takes two steps:

  • Deciding which applications are suitable for spreadsheets or other tools
  • Removing risk from new and existing spreadsheet-based processes

The suitability of applications for spreadsheets involves two considerations, as in the table above: the consequences of mistakes, and execution risk.

The digital service site build-out example clearly belongs in the upper right quadrant, where both consequences and execution risk are very high. Spreadsheets should not be used here, and existing ones should be phased out quickly. The other examples were situations where consequences were high, but execution risk was lower, and hence caution was needed. With appropriate processes and reviews in place, forecasting Support Center demand was made to work well. In the case of over-ordering seasonal print materials, once again the demand forecasting piece can be made to work well with reviews and process control. However, it is almost always a better idea to limit the spreadsheet to forecasting, and manage planning and procurement activities within an ERP system where the benefits of integrated data and process safeguards outweigh the flexibility needed in forecasting.

Assessing spreadsheet-based execution risk is the mirror image of reducing those risks. It can be done by using a framework consisting of stages of spreadsheet-based operations along with the people and process context in which any process is run. This framework is a useful categorization and provides a checklist for assessment and mitigation efforts.

Using this framework, several best risk management practices are listed below. Many of these apply beyond spreadsheets. Some truths about information and execution are universal.

  • Establish systematic review of assumptions/changes – propagate understanding broadly
  • Reduce the number of data dependencies and human touches
  • Verify data integrity and accuracy early each cycle
  • Establish procedure and automate steps, especially data handling
  • Test outputs against independently known/verified results – and retest when changes are made
  • Institute regular management reviews of spreadsheet results for business sensibility
  • Impose appropriate degree of control on spreadsheet distribution/version proliferation
  • Increase the number of people understanding the spreadsheet structure/methods
  • Raise staff quality; spreadsheet-based processes require more broadly skilled people than enterprise applications, for the same risk
  • Improve standardization and quality of surrounding processes

Spreadsheets are ubiquitous in business, and they are not going away. Ensure they are useful tools rather than hidden risks in your business.

About the Author: Bill Schneiderman is the founder and CEO of The Results Group. Building on his experience as a university professor, line manager and consultant, Schneiderman and his team have built a client list that includes many of Silicon Valley’s established and emerging companies, along with selected companies in traditional industries. The author can be reached at bills@resultsgroup.com.

Takeaways:

  • The suitability of applications for spreadsheets involves two considerations: the consequences of mistakes and execution risk
  • Decide which applications are suitable for spreadsheets or other tools
  • Remove risk from existing spreadsheets
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