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Why 94% of Financial Spreadsheets Contain Errors (And What It Costs You)
If you’re using spreadsheets, it’s almost impossible for all of them to stay error-free. Over the past several years, we’ve seen many studies pointing out the high number of errors in business spreadsheets. Recently, a literature review published in Frontiers of Computer Science collected and examined 35 years’ worth of studies on spreadsheet errors. This study found “that about 94% of the spreadsheets in use contained faults” (Poon et al., 2024, p. 1).
When you think about the type of information that a typical business stores in spreadsheets, you can see why these errors can be such a problem. Even just an out-of-place decimal point or a few mistyped numbers can lead to huge errors in financial data, and if the spreadsheets are set up incorrectly calculation errors can lead to major mistakes. In financial contexts, such errors can mean incorrect payments, uncertain cash flow, and inaccurate data to use for budgets, forecasts, and reports.
Why So Many Errors?
You didn’t used to hear about spreadsheets being so full of errors, so what happened? The paper reviewing and collecting different studies states, “Spreadsheet development … has shifted from being often done by well-trained IT professionals to something millions of non-technical departmental” users are now responsible for (Poon et al., 2024, p.1). Because most of these people “are not well trained in software development and testing, it is not surprising that many spreadsheets they developed are poorly coded and inadequately tested” (p. 1). A lot of the errors that this study found originate with the creation of a spreadsheet. There’s something wrong with it from the get-go, and those errors cause problems down the road.
Errors may also be introduced during the use of the spreadsheets. If employees enter data manually, simple human error can introduce mistakes. Different people might have different copies of the same spreadsheet, resulting in mismatched data that will need to be manually reconciled. Often, these types of mistakes could be prevented if controls were built into the spreadsheets at creation. Most of the research on spreadsheet errors focuses on testing and debugging spreadsheets once they’re already in use. That can catch some errors, but it often misses root problems.
Why Are Errors Such a Problem?
Widespread spreadsheet errors can be catastrophic for a business, especially one that relies heavily on spreadsheets for important tasks. Financial issues that can arise from “faulty spreadsheets” include “(a) loss in revenue, profit, cash, assets, and tax, (b) mispricing and poor decision-making, and (c) financial failure” (Poon et al., 2024, p. 1). These are serious issues. Thankfully, they are preventable by training employees to use spreadsheets more effectively and by replacing spreadsheets with different software programs.
Spreadsheets, even without errors, have limitations. They are not, for example, ideal for handling the large and complex data sets associated with capital expenditure planning. Like other spreadsheets, CapEx spreadsheets are notoriously error-riddled. Data-entry errors, conflicting spreadsheet versions, and difficulty accessing historical data are just a few of the problems with spreadsheets for CapEx applications. And because capital expenditures typically involve large amounts of money, the financial cost of spreadsheet errors can be quite high.
What Are the Alternatives?
There are some situations where spreadsheets are still a good tool. If you’re going to use spreadsheets, then studies suggest placing a greater focus on the creation stage of spreadsheets. Additional training for employees working with spreadsheets helps to lower the risk of errors when they create new spreadsheets and ensures that the spreadsheets will function as intended.
For many applications, though, you don’t need spreadsheets at all. Switching to a different software program will dramatically reduce errors and simplify financial processing. Business process automation (BPA) software can eliminate the sources of many common spreadsheet errors. With BPA, you’ll get:
- Automated data collection instead of manual data entry.
- Financial calculation tools built into the program rather than added to spreadsheets by users.
- A single, centralized, cloud-based software platform that updates in real-time instead of multiple file versions of the same spreadsheet.
- Built-in validation and error-checking tools rather than relying on manual checks and reviews.
When Should You Switch from Spreadsheets?
Small businesses can often get away with using spreadsheets, especially if they’re careful about setting the spreadsheets up and double-checking them for errors. But the larger a company is, or the bigger a new business grows, the more trouble it’s likely to have with spreadsheets and the more money you’re likely to use when 94% of your financial spreadsheets contain errors.
For companies with complex financial processes or those trying to scale up growing businesses, it’s time to make the switch from spreadsheets. You’ll probably start noticing issues with them soon if you haven’t already. Using CapEx as an example again, a spreadsheet might work when only one or two people are managing a capital project, but once you get more stakeholders involved and start managing more projects and more complex projects, spreadsheets just don’t have the functionality you need.
How To Move Away from Spreadsheets?
Implementing cloud-based BPA software is an easy and effective solution. Software-as-a-Service (SaaS) providers like NextProcess make implementing a new software solution in your company simple. We take the burden off your IT department, and work with your company start-to-finish to implement financial software that’s customized to your company’s exact needs. Our software is highly configurable to ensure that you get the functionality that you need.
NextProcess offers the only end-to-end software solution on the market. With our suite of software modules, you can automate budgeting, project management, purchasing, accounts payable, travel and expense management, and payment disbursements. Far more reliable and user-friendly than spreadsheets, all of our software tools integrate seamlessly with your company’s existing ERP for a streamlined financial experience. Contact us today to set up a free demo and see how our software can help your company reduce errors and save money.
