The hidden costs of Excel to your business….

The hidden costs of Excel to your business….
Burning money

In the years that we have been developing business software, there has been one common theme we’ve discovered: using Excel extensively and incorrectly costs your business money.

Why?

Because Excel often introduces significant and, frequently, hidden costs into an organisation.

Primarily it is time costs, with vast amounts of employee productivity evaporating quite literally without a trace. There’s no record and no sense of quantification of that lost money (which is ironic given that Excel has democratised quantification so much).

Secondly, there is the potential for error. It may not be as a bad as the losses incurred by JP Morgan in the ‘London Whale case’ (see http://baselinescenario.com/2013/02/09/the-importance-of-excel/), but they can be significant.

Without careful management of manual Excel practices in a company, these hidden costs have a real impact on your bottom line by reducing productivity, causing late or bad decisions and/or by reducing the effectiveness of your resources.

What does this happen?

Manual labour

How many times have you been working in an Excel spreadsheet, often for hours and hours, getting the formatting and the macros perfect…only to discover that you have bad data or an error in a formula?  Generating inaccurate conclusions.

This situation is exceptionally common because it is a manual process

Manual reporting involves manually gathering and manually verifying input data, manually constructing formulae, manually building charts and graphs and manually distributing the final spreadsheet to colleagues, customers or partners.  This is the new form of manual labour. It equals wasted hours repeating the same task. Repetition often means boredom and boredom leads to errors.

Lack of standards

Frequently it is driven by a lack of standards for reporting.  Having no shared or universal standard means that well-meaning employees make their standards up. One person’s approach to quantifying when a sale occurs or a project is complete will be different from the next. That is natural.

No other viable alternative

We have seen instances where Excel is used as product marketing database, containing images and marketing data. This is often because the majority of the source data comes from an ERP system in the form the trusty CSV….which then gets swiftly added to with all this supplementary information.

When there is no system in place and there’s no sensible alternative….a little proactive thinking results in a manual spreadsheet being the answer.

What makes it worse?

Who’s using?

You have to look at who is in the Excel sheet….it is bad enough if it is middle management….if it is senior management then the hours they spend fine-tuning formulas or adjusting the colours of a charts… are hours that are not spent running the business and making decisions about how to be more successful.

The over-reliance on one person

Every organisation has them: “super-spreadsheets” that drive decisions and thinking across the company. And, with every “super-spreadsheet” there is usually a “super-spreadsheet expert,” the one person that knows how to make that spreadsheet work.

When this expert is off sick, or worse, leaves….then what? How are new data, new assumptions and new formulas added to these spreadsheets? At a minimum, in today’s business world, the super-spreadsheet threatens a company’s ability to pass an audit test. At worst, it represents the risk of lost business and unplanned costs.

Copy-cats

It is not uncommon for different groups within an organisation to create very similar, even identical, manual Excel reports. This duplication of effort doesn’t happen simultaneously often we seen it occur because one person creates a spreadsheet to solve a specific problem at a specific point in time. Then, months later, someone does the same thing.

Time-lag

If the spreadsheets are manual labour then you can guarantee that the gathering and verifying of all the input data alone is manual too. The longer it takes to gather the data and create the spreadsheet manually, the longer it will be before the decisions can be made.

Source: IMIU

Sometimes there is pressure to make a decision even when the data is not available in time, so under-pressure employees make their best guess. In other words, their source is IMII or ‘I Made It Up…..’

Free hand to make it perfect

Microsoft Excel is a pretty powerful reporting and data visualisation tool. It has virtually limitless potential to present data in different forms including charts, graphs and tables. Put a number of the time cost of making it perfect….

What to do?

This isn’t an Excel basing piece, it is clearly an amazing piece of software. But its power is its weakness.

The first step we recommend is quantifying (in a spreadsheet….) the cost of its weakness: take the problem seriously. Estimate the lost hours.  Approximate the cost of the incorrect decisions. Understand the size of the problem.

Then check the causes. We’ve listed some of the ones that we have experienced. They will be more. There will be different takes. It doesn’t matter.

When you know the ‘Why’ and ‘How Much’, you can look at the best solution.  Something that we will cover in another piece. If in the meantime you’d like some guidance, drop me a line.

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