Microsoft Excel spreadsheets are the junk food of the world of financial management. Even though finance professionals know there are applications that would be better for their organizations in the long run, they continue using Excel spreadsheets because they're quick and easy. Plus, the repercussions probably won't be felt for a while.
But repercussions there will be. Upon reviewing spreadsheet field audits conducted by a variety of companies between 1995 and 2007, Ray Panko, professor of IT management at University of Hawaii, found that 88% of spreadsheets contain some type of error.
This begs the question, why use spreadsheet software -- most notably Microsoft Excel -- to handle as important a task as closing the books at the conclusion of a month, quarter or year? Does the rampant anecdotal practice imply that using Excel or other spreadsheet software is a viable alternative to implementing dedicated financial management applications?
Far from it, according to Philip Howard, research director at European IT consultancy Bloor Research. "The ungoverned use of Excel means more errors, broken links, unrepeatable processes, untested applications, fraud -- you name it, it is bad," Howard said. "It looks like it saves money, but the remediation required for all of the above probably means that it ends up being more expensive."
What's more, once a company starts relying heavily on spreadsheets, the practice often spreads like wildfire. Sanjay Agrawal, director of product marketing at Cimcon Software, a vendor of spreadsheet management tools, says it's not uncommon for the world's largest companies to have tens of millions of spreadsheets spread around the globe.
But to be fair, Agrawal says spreadsheets aren't the problem. "The problem is that people create a spreadsheet and just start using it. No one tests [it], analyzes the logic or models it," he said. "Think of it as an application. Think of it as source code. Get it reviewed by people and start with low-risk data."
And it's not just the way spreadsheets are used that's a problem -- it's also the way they're managed. Or rather, not managed.
Instead of approaching the use of spreadsheets systematically by mandating that they comply with IT policies, company leaders often bury their heads in the sand and ignore the problem, according to Bloor Research's Howard. "IT executives probably universally recognize that the use of Excel is a major headache," he said. "Unfortunately, line-of-business executives don't. There are some companies where the CIO has enough clout that the use of Excel is governed and managed by IT, but in most companies this is not the case."
New spreadsheet management capabilities in Excel 2013
Despite the propensity for errors and lack of control that traditionally characterizes corporate Excel use, finance executives face organizational resistance to replacing spreadsheets with dedicated financial applications. Call it inertia, call it fear of change -- whatever the case, once using Excel for financial accounting is an accepted practice, it often becomes too ingrained to jettison, experts say.
One of the consequences of this is that financial management software vendors often find themselves competing not only with their rivals, but also with spreadsheets. "I've never once come across a CFO or controller who will say the use of spreadsheets is a good thing," said Jim McGeever, chief operating officer at NetSuite, a provider of Software-as-a-Service enterprise apps. Still, "it's going to be many, many years until we see spreadsheets go away," he said.
Microsoft Excel tips from MrExcel
Read a MATCH function trick
Learn how to create a year-over-year report using a pivot table
Follow an exercise on how to use VLOOKUP in a range match
Microsoft, for its part, has done everything it can to keep corporate finance departments using Excel. For instance, the 2007 edition of Excel upped the ante by expanding the number of cells a spreadsheet can accommodate from approximately 17 million to 17 billion.
But in doing so, Microsoft also unintentionally fueled the need for spreadsheet management add-on tools such as Cimcon's. By making it that much harder to eyeball the numbers in a spreadsheet, the likelihood of errors also shot up, necessitating management software.
Sensing that this increased complexity had raised serious issues, Microsoft in 2011 bought Prodiance Corp., a maker of software for managing and controlling spreadsheets. Much of the acquired technology has been incorporated into Excel 2013, the latest version. New features now allow users to check errors, compare spreadsheets to detect changes, automate internal controls and assess risk.
Such capabilities stand to eventually eat into spreadsheet management software vendors' business, when widespread adoption of Excel 2013 takes hold in a few years. But even then, the built-in tools are unlikely to be as powerful as full-blown spreadsheet management software, according to Cimcon's Agrawal.
Regardless, with more spreadsheet management tools at their fingertips -- provided by Excel or a specialty vendor -- organizations that rely heavily on spreadsheets will find even more reasons to continue that practice. Even if they know it's not the wisest path.
"People use spreadsheets for obvious reasons. They're there, they're cheap and they're easy," Agrawal said. "Most people know to look at financial apps that can meet their needs. But they also know that once they do that, they're locked into a vendor."
It all adds up to a daunting landscape for financial applications vendors, who expect to see spreadsheets become an ever-stronger competitor to their products. "We'll keep fighting the fight," NetSuite's McGeever said, "but we're up against a very entrenched technology."
About the author:
Tony Kontzer has been writing about technology and business for nearly 20 years and currently freelances from his home in the San Francisco Bay area community of Albany. A 1988 graduate of the University of Missouri-Columbia School of Journalism, Tony spends his spare time relaxing with his wife, playing with his three sons, and, when time allows, playing saxophone and traveling. His somewhat infrequent Twitter posts can be found at https://twitter.com/tkontzer.
Determine if you know the basics of Excel by taking our quiz