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Summary
For most companies, desktop spreadsheets have been a “can’t live with them, can’t live without them” tool. Spreadsheets are great for individual productivity but pose serious problems when used in enterprise settings. Adopting best practices often means abandoning spreadsheets for more appropriate technology, but most companies stick with them because the cost of buying and difficulty of implementing the alternatives have appeared too great to make the switch worthwhile. Now, however, the cost/benefit calculations have started to change as a new class of software we call “spreadsheet management” makes it possible to achieve greater accuracy and control while still using the same desktop spreadsheet application. Moreover, these capabilities are available at attractive prices. Ventana Research advises senior finance executives to evaluate these new offerings because they can increase productivity and reduce business risks (including operating losses and restatement of results) without forcing users to make significant changes in the way they work.

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The desktop spreadsheet has been a boon for corporations, and for finance organizations in particular. Desktop spreadsheets are inexpensive and versatile, and millions of people work with them every day. They’re a handy way to do ad-hoc analysis and reports, prototyping and other common tasks. Their versatility has allowed people to use them to manage and support a variety of activities in all facets of business. They are a fixture of sales and operational planning, clinical trials and compensation management, in addition to enterprise analytics, production reporting and budgeting.

Unfortunately, best practices for spreadsheets have been, in practice, virtually nonexistent. Spreadsheets pose three sets of problems when used in collaborative, repetitive, enterprise-wide processes. First, controlling errors in data entry and formulas is nearly impossible; you need only search on “spreadsheet” and “error” to find the reams of research that demonstrate the magnitude of this problem. Second, the difficulty of consolidating input from multiple participants by using e-mail attachments and the “save as” option for version control escalates almost geometrically when more than a few people are involved. Wrangling spreadsheets into a consolidated view is time-consuming and error-prone, particularly when people are working iteratively with, say, different versions of a budget. Third, their audit and control features are woefully inadequate. For many sensitive tasks (particularly where the consequences of fraud or error is great), desktop spreadsheets do not control access with sufficient rigor or flexibility. It is difficult to uncover suspicious activity that is hard to spot visually (such as changed formulas or hidden cells). Together, these defects create the risk of financial misstatements, mistaken decisions and errors and omissions that have implications for legal and regulatory compliance.

Many finance managers and professionals recognize the difficulties spreadsheets impose, yet they almost always accept the trade-off of using a spreadsheet instead of a more formal application. Indeed, in the past this decision has been easy to make because the complexity and cost of many enterprise applications have been trumped by the “ease of use” and “free” access of spreadsheets. Adding to this perception is the difficulty of assessing the true cost of using stand-alone spreadsheets in an enterprise setting. There are no measures for time wasted, nor for lost opportunity when spreadsheets prevent companies from improving important processes such as planning, reporting and closing the books.

However, the cost/benefit calculations are starting to change. Over the past several years  spreadsheet management applications have come into the market. This software reduces the cost and hassle of achieving greater control and accuracy. Relatively simple-to-use applications are available that help companies audit changes and manage versions more easily and effectively. Then there are more comprehensive ones for discovery, management and control (DMC), which aim to address systematically issues of errors, auditability and control that crop up when corporations use stand-alone spreadsheets in collaborative, repetitive, enterprise-wide tasks. They can inventory all spreadsheets on a corporate network to help companies identify which of the thousands (or tens of thousands) of the files require control. They also spot links between spreadsheets so that is possible to see and control all of the connections between a critical spreadsheet and every supporting file that provides data and calculations for it. They enable managers to control who has access and who can make changes (to either the whole spreadsheet or specific cells). They detect likely errors, monitor and track use and generate alerts when usage patterns raise red flags. In other words, using them, companies can have the benefits of spreadsheets while enjoying a high degree of auditability and control.

Assessment
A decade of limited innovation is ending. Spreadsheet management software offers companies a way to keep familiar, easy-to-use spreadsheets while addressing their inherent error and control issues – issues that drive costs higher and increase business risks. In the past there was little finance and other executives could do to address these problems without having to incur the significantly greater trouble and expense of using formal enterprise systems. While we continue to advise companies to replace spreadsheets with these systems in their most sensitive processes (such as closing or post-closing activities), we assert that a best practice is to use spreadsheet management software to manage and control the hundreds and thousands of other spreadsheets that are part of or support core business and finance processes. Finance executives in particular should familiarize themselves with the alternatives that are available and implement these solutions as soon as possible.