Spreadsheet typos and oversights can wind up costing your company millions. Spreadsheet errors are becoming so common these days that, as a result, many public companies and government organizations are trying to wean themselves off their reliance on spreadsheets for complex and critical financial transactions.

Of course, to achieve such a goal, organizations need all the help they can get. Most businesses today rely on spreadsheets in some way. The multi-celled document is used heavily for finance and accounting, as well as supply chain, customer relationship and sales functions.

However, recent financial regulations have had a huge impact on how companies manage changes and controls in financial documents, such as spreadsheets. Because of their preponderance and the amount of digital fingertips that can touch these documents, spreadsheets have come under a lot of fire. In particular, companies lack the appropriate controls and repeatable processes to mitigate the risks.

This isn't about software defects within the applications, such as Microsoft Excel or OpenOffice. The problems associated with a spreadsheet ordinarily do not reside in the software program itself. It's those imperfect human beings who are using the applications: inputting data, copying and pasting numbers from row to row and column to column, and writing inaccurate formulae. Research abounds on the prominence of spreadsheet errors. One project found that 80 percent of spreadsheets contain significant errors.

The European Spreadsheet Risks Interest Group (EuSpRIG), a consortium of academics, researchers and professionals who examine spreadsheet risks and develop methods for prevention, holds a conference each year to talk about the spreadsheet's inherent dangers to organizations.

"Research has repeatedly shown that an alarming proportion of corporate spreadsheet models are not tested to the extent necessary to support directors' fiduciary, reporting and compliance obligations," says the EuSpRIG website.

"Uncontrolled and untested spreadsheet models therefore pose significant business risks. These risks include: lost revenue and profits; mispricing and poor decision making due to prevalent but undetected errors; fraud due to malicious tampering; and difficulties in demonstrating fiduciary and regulatory compliance. These risks are ignored due to a widespread failure to inventory (keep records of), test, document, backup, and archive and control the legions of spreadsheets that support critical corporate infrastructure," says the site.

In addition to research and prevention duties, EuSpRIG pulled together an extensive list of more than 80 public reports of spreadsheet errors from business, government and academia.

Can Software Trump Wetware?
Microsoft's Excel is the most widely used spreadsheet application. Chris Caren, the general manager of Office business applications at Microsoft, says Microsoft Office (which includes Excel) can be found on some 450 million desktops today.

Caren says he's aware of the risks of spreadsheet mistakes—what he terms ‘errors of input’. He says Microsoft has tried to address these with new features in Microsoft Office 2007 and the Microsoft Office PerformancePoint Server. For example, instead of a sales manager having to manually cut and paste data from document to document, he can now have an application do it for him. Caren says,"It's relying a lot less on the individual, especially when he is working with complex formulas."

Caren notes that Microsoft has made significant investments in fixing those problems, and the recently released Microsoft SharePoint and Office 2007 have substantial version-control features.

If you're sweating after reading this, first, take a deep breath, and second, initiate a conversation with your CFO about what controls are in place to make sure these kinds of events don't happen to your company.