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From time to time over the last year I have written and spoken about the dangers of using spreadsheets, particularly from the perspective of compliance but also with respect to how much they are error prone and subject to fraud.

However, the truth is that spreadsheets are beloved by managers the world over and nothing I or anyone else says or does will make any difference to that fact. So, if we have to live with spreadsheets then at least we should start by managing them. Since there seems to be very little written on the subject I have written my own white paper, which is available for free download.

Researching this white paper has taken more time that I had expected, most notably because there are all sorts of facilities in Excel (yes, this isn't the only spreadsheet but it is by far the most popular) that most of us don't know about. For example, there is password control in Excel. There is also some limited auditing capability. I wonder how many people actually know that? I wonder how many actually use these features?

The key point about spreadsheets is that you need to know which ones are critical to your business, which ones are merely important and which ones you do not have to bother too much about. Once you know that, you can start to apply appropriate policies depending on the criticality of the spreadsheet involved.

At the highest level (at least), spreadsheets should be treated as a corporate resource. For example, if you use spreadsheets for planning then you need to do everything you can to eliminate the possibility of error. And what do you do with corporate resources? You give them to the IT department which can implement proper testing and control procedures.

The real problem, of course, is that business managers don't know that there is a problem (actually, lots of problems) with spreadsheets, while IT regards spreadsheets as falling outside its jurisdiction. So spreadsheet management falls down a hole in the middle.

That has got to stop. According to both PricewaterhouseCoopers and KPMG, more than 90 per cent of corporate spreadsheets have material errors in them. Worse, estimates suggest that such errors costs between $10,000 and $100,000 per error per month. Let's take the Fortune 500 and let's suppose that each of these companies has just 10 (a pitifully small number) spreadsheets of corporate significance. Then nine have errors. Let's be circumspect and suppose that each has only one error and that it is spotted within three months (wildly optimistic); then each error costs $165,000 on average.

So how much money is the Fortune 500 wasting annually? It is a simple sum: $165,000 times 9 times 500. That amounts to just shy of three quarters of a billion dollars. And is that anywhere near realistic? No. It is probably safe to say that corporate America, for example, loses in excess of $10bn annually through the misuse and abuse of spreadsheets. That's a big number: it suggests a problem worth managing.

Copyright © 2005, IT-Director.com

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