First introduced to the business world in the late 1970’s as a computerized representation of bookkeeping worksheets, spreadsheet software has become a staple in almost every office. Used in a wide variety of industries from manufacturing to retailing to professional services, from multinationals to the SME, spreadsheet functionality is loaded onto virtually every modern office PC and laptop in the developed world.
Businesses everywhere rely upon the flexibility, speed, and power of spreadsheets to track sales and expenses, help evaluate inventories, forecast demand, and generate decision-support analyses. It is one of information technology’s great success stories. Considered to be indispensable in many businesses, the skills required to manipulate spreadsheets and create the myriad reports that are available through the software are taught in every business school across North America. Spreadsheets have evolved into a highly sophisticated converter of data into information, and in the hands of a knowledgeable user, their output can almost “sing” to business leaders.
As powerful and remarkable as spreadsheets are – they do have limitations. If businesses rely upon spreadsheet software too heavily, their companies can be exposed to serious financial and operational risk.
Having acknowledged that spreadsheets are likely here to stay, and that they can be an amazing asset for any business, managers need to know when to use them and when to employ a more holistic technology that is safer, more consistent, and more robust.
The following is a brief selection of the shortcomings of spreadsheets that management should consider when planning their future technology needs:
Every IT professional knows about “garbage in, garbage out.” Spreadsheets are particularly vulnerable to this condition.
Entering data into spreadsheets manually is still very common, and with each piece of data entered by hand, there are ample opportunities for errors to occur. Many businesses try to avoid this problem by installing routines that require data to be downloaded from a data warehouse or similar, but even then, the user must query the right data for the analysis, and manipulate it carefully.
The quality of the output, in the form of reports, charts, graphs, or tables, is fully dependent upon the way in which the raw data makes its way into the spreadsheet. If mistakes are made during a download or through manual data entry, results can mislead and significantly distort reality.
2. Inconsistent Knowledge
Some analysts are brilliant spreadsheet super-users who can glide through the software’s functions with ease. These experts possess unique skills that enable them to craft the appropriate formula for almost every business problem and eventuality.
A less experienced analyst might be familiar with fundamental spreadsheet structure but challenged by higher levels of analytical complexity. A lack of advanced mathematical acumen may result in errors in a spreadsheet’s structure. Imagine a novice spreadsheet user who inadvertently inputs the wrong formula to calculate a percentage growth trend, or sorts data incorrectly for a Pareto Analysis; such mistakes could spell disaster.
It is very difficult for businesses to build and maintain a workforce that it highly skilled in spreadsheet development and manipulation. It is a constant challenge to train and retrain users who routinely change job responsibilities or move in and out of the company. When there is significant variation in the skill sets of the analysts, variation in the quality of output will result.
Further, even a team of highly-skilled analysts can have their own methods and preferences when it comes to problem-solving. Ten different analysts might take ten different paths to solving a problem or addressing a business need. Achieving consistency of approach is a chronic challenge.
3. Transfer of Knowledge
A given professional might be able to build a set of spreadsheets that work perfectly well for both the analyst and the business. But problems arise when management tries to “export” that approach to other analysts within the company.
By its nature, the computer spreadsheet is highly customizable. It is possible to “lock down” some cells, formulas, and processing macros, but that comes at a cost to the very quality that makes spreadsheets attractive: flexibility. When a user inherits a standardized spreadsheet from another user, the temptation to tinker, modify, and adjust might be irresistible. Certain valuable nuances considered when building the original spreadsheet can easily be lost as the spreadsheet is transferred from one user to another. It can be very difficult for one user to get into another user’s “headspace” to truly understand why the spreadsheet was constructed in the way that it was.
Transfer of knowledge required to achieve consistency of approach in many offices can be exceedingly challenging when trying to distribute spreadsheet technology broadly throughout the enterprise.
4. A Matter of Interpretation
Many business metrics are open to interpretation. As analysts gather data to populate spreadsheets, they must take great care in gathering the right data. It is important that we avoid comparing apples to oranges.
Consider, for example, the issue of “cost.” An analyst can easily query a data warehouse for cost information, but be unaware of the different types of costs that might exist in the master files. Should they use “ex-factory” cost, “net landed” cost, or “total cost of ownership” for a given analysis? Results will vary dramatically depending upon the level of business knowledge possessed by the user.
5. Potential for Fraud and Misrepresentation
Spreadsheet applications are vulnerable to security breaches, and open the potential for fraudulent activity and malfeasance if not managed very carefully. By nature, spreadsheets have open access by the user or users; manipulation and version control can be difficult to track.
6. Limited Sophistication
While spreadsheet software has evolved tremendously since the 1970’s, the software tends to be limited in its ability to calculate very sophisticated demand forecasts, plan complex materials requirements, and coordinate with other functional areas of the business when used for planning and budgeting purposes.
Today’s supply chain planning (SCP) software can simultaneously calculate forecasts, for example, using a variety of complex algorithms, and chose the forecast that provides the best “fit.” This is very difficult to achieve in spreadsheets even in the hands of super-users. Further, ERP and supply chain planning software will speak a consistent language across an entire business, facilitating the coordination of analyses and results across various functional areas.
Paradoxically, the speedy spreadsheet fails to support agile business strategies particularly well. They can be awkward to update, and require a considerable amount of human intervention to produce suitable reports. For the agile business that requires virtually real-time information, the spreadsheet can be decidedly slow.
Spreadsheets are indispensable in many workplaces, and the technology has been singularly successful over the past 40 years. It has earned its accolades, having saved billions of dollars and countless hours of processing time for financial reports, inventory analyses, sales analyses, budget creation, and many other activities. Being overly-reliant on this technology can, however, introduce significant risk to business.
Office spreadsheet applications are best suited to “ad hoc” analysis and report generation, under special or unique circumstances. Their flexibility and openness to customization allows users a high level of creativity, and fast manipulation of data. To rely on an analytical architecture based on spreadsheets over the long term can, however, lead to a number of problems and inefficiencies.
It is critical that companies achieve high levels of consistency in the generation of information, secure their data very tightly, allow for fast and efficient transfer of knowledge from user to user, and ensure that the right data is being used for the right analyses, thereby avoiding misinterpretation.
Enterprise Resource Planning (ERP) systems and purpose-built supply chain planning software systems, such as DemandCaster, are ideal for addressing many of the vulnerabilities encountered in spreadsheet-centric offices. Reputable ERP and SCP software systems are secure. They use common sets of data to produce consistent reports and outputs on a reliable schedule. They are robust, and use sophisticated algorithms, developed by experts in the field, to process vast amounts of data very quickly.
Know when to use spreadsheets, and when not to use spreadsheets to support your business needs. Your company’s bottom line will be the healthier for it.
Contact us if you are ready to reduce your reliance on risky spreadsheets and gain the agility needed to make supply chain planning a continuous driver of efficiency and profitability at your company.