Enterprise Spreadsheets & the “Titanic Effect” – Do We Have a Problem?

In a recent webinar, I presented some data from the internet about the cost of spreadsheet errors, and proposed that based on the articles published to date, the problem is at least $11.5 Billion. That is, of the articles published on the internet to date about errors, non-compliance, and fraud due to uncontrolled and unmonitored spreadsheets, the issue has collectively cost companies at least this much. To quantify this amount (in approximate figures), you could compare it to the following:

>> National US debt: $12 Trillion

>> Cost of U.S. healthcare bill: $1.1 Trillion

>> Cost of spreadsheet errors: $11.5 Billion

>> Cost of NASA space shuttle Endeavor: $1.7 Billion

Enterprise Spreadsheets – The $11.5 Billion Problem
OK, so it turns out that spreadsheet errors are an order of magnitude off from the real big issues threatening our economy today, but at $11.5+ Billion, the cost of these errors due to risks associated with mission critical spreadsheets is significant, and must be dealt with at a corporate level. Yet, most companies are not really addressing the issue to the extent they should. I call this the “Titanic Effect.”

When it comes to Spreadsheet and end-user computing (EUC) risk, most companies “don’t know what they don’t know.” They can’t see the risk or the scope of the problem until it’s too late. Yet, spreadsheets are used everywhere within their business – monthly and quarterly close, account reconciliations, actuarial processes, underwriting, tracking and executing trades, tracking inventory and cost, tracking revenue and pipeline, executive compensation, 401k contributions, journal entries, and the list goes on. Just like the Titanic – a supposedly “unsinkable” ship which hit an iceberg and suffered a catastrophic failure – most businesses are cruising along smoothly until they notice there is a problem (e.g. a material error, a fraud case, audit deficiencies, material weakness, etc.). By the time the problem occurs it’s too late. Spreadsheet and end-user computing risk is the same way – many organizations have not evaluated or assessed the risk, so they don’t even know if their mission critical spreadsheets being used to close the books on a monthly, quarterly or annual basis even have errors in them. To check my math, you can visit the EuSpRIG web site and Cases of Fraud & Errors on this blog, and simply add up the costs.

Understanding the Risks & Exposure to Your Organization
So what you need is an assessment to uncover the problem – just like going to the doctor for an X-Ray, CAT Scan or an MRI. Ask yourself these simple questions:

• When was the last time an auditor checked your key financial and operational spreadsheets for errors?
• What processes and tools do you have in place to make these routine checkups happen within your business?

If you’re like most companies, you might not have good answers to these questions. So, then it’s time for a check-up. To get started, you can peruse this blog for articles on auditor guidance and best practices, or check out the leading technology solution to address spreadsheet and EUC risk, the Prodiance Enterprise Risk Manager (ERM) System.

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