I saw this post over at the Sourcing Innovation blog. It links to an excellent article with the catchy title of “Don’t let this happen to you!” on Supply and Demand Chain Executive. It brings to the forefront thoughts I’ve been having over the past little while. It amazes me that every once in a while we’re approached by a company that has built staggeringly complex spreadsheets to do basic planning. I’m glad that they’ve come to realize that a spreadsheet is no way to run a multi-million dollar company, but at the same time…wow. The more surprising thing is how many mid-size to large companies are out there that still do large portions of their planning on spreadsheets and haven’t realized the peril they are in.
So…what’s wrong with using a spreadsheet? I’ve approached this issue in an earlier blog post where I linked to a study that shows that 80-90 percent of spreadsheets contain serious errors. The article on SDC Exec gives some real life examples;
- A high-volume software company unwittingly threw $20 million annually into the scrap bin. The culprit was a hidden, and devastating, spreadsheet logical error that systematically triggered over-ordering seasonal printed materials.
- A financial services firm underestimated support center demand by over 250 agents, roughly 25 percent of total demand. Only very fast action was able to turn around customer comments like, “I can’t get tech support and I hate your company!” Formula errors and inappropriate assumptions had negated demand associated with deploying a new service platform.’
- The national build-out of a digital service network was beset with months of delays and millions of dollars in lost revenue. Spreadsheet-based material planning and execution tools were overwhelmed with the size and complexity of the job.
I’m not anti-spreadsheet. In fact, I consider myself to be an Excel wonk. I’ve built some honkin’ big spreadsheets in my day, including pages of VB script. In retrospect, many of these would have been much better suited for a proper enterprise application.
So how do companies get into a position where decisions worth millions of dollars are based on some guy’s error-prone spreadsheet? It certainly doesn’t start out this way (I can’t imagine an IT organization when asked to source a planning system would propose a spreadsheet written by the guy down the hall…) No, what typically happens is that some creative individual, tasked with a small but challenging problem that their ERP system can’t handle, creates a simple spreadsheet that solves the problem. Then, as the company grows, and challenges change, the simple spreadsheet expands, evolves, becomes more complex until eventually, you have a multi-headed Hydra lurking in your business processes.
The SDC Exec article has some tips to mitigate some of the risk associated with using spreadsheets…but I think the most important advice is to review your processes. For each key process that is spreadsheet based, plot the business process and the complexity of the spreadsheet (Execution Risk) on the matrix shown.
If your process approaches the top-right, then it should not use a spreadsheet. Obviously a simplification but it gets the idea across.
There will always be a need for spreadsheets. They offer a fast way to model simple processes. However, complex, high impact decisions need more robust tools. What do you think? Are spreadsheets a risk? Comment back and let us know.