In many businesses, Excel is used for critical reporting and decision making. As has been widely trailed, the flexibility and open structure of Excel models can leave them prone to error.
When making decisions based upon an analysis of complex data it’s worth pausing for reflection before pushing the button on that multi-million dollar investment. Take a moment to think the unthinkable, and ask yourself…
“What if the numbers are wrong?”.
It cannot be taken for granted that the numbers presented to support decision making are accurate. If you are working with bad data, you run the risk of making a bad decision.
At best, you will you make yourself look dumb, at worst you could lose millions of dollars and even kill your business (It has happened).
The follow-up question should be:
“Have we done all we can to minimise modelling risk?”.
If the answer is a resounding “yes”. Then relax, take out your cheque book (do they still exist?) and go right ahead.
If the answer is, “I don’t know” or “Dave in accounts is a spreadsheet whizz, I’m sure it will be fine”.
It might be a good idea to put that chequebook away until you can be confident that you are not putting your career and your business at risk.
The risk of spreadsheet error is consistently underestimated by decision-makers and has led to some pretty spectacular financial losses (measured in Billions $).
Excel has many benefits and is often the right tool for the job, but where it is used to support critical decision making, please handle with caution.
In the remainder of this series of blogs, I will share our tried and tested approaches to minimising modelling risk.
Find out more about our approach to financial modelling here.