Get Started With Our Free Course: Essential Financial Modelling

The Multi-Billion Dollar Excel Error that didn’t happen today

Header Image - The Multi-Billion Dollar Excel Error that didn’t happen today
November 2020  |  Model Build

Excel is involved in every major transaction, every capital investment, every business sale, large or small and most financial forecasts. Decisions worth billions of dollars every single day are based on Excel models.

Recent weeks have seen multiple headlines about Excel errors.

Excel has been blamed for major losses, and in the case of UK COVID errors, causing the country to enter a second lockdown earlier than it might otherwise have.

Those of us who work with financial models are particularly attuned to these headlines.

There’s one important fact that will never make the headlines:

Most of the time, everything is fine.

 

The business world runs on Excel. Major errors make the headlines because they are, mercifully, quite rare. People still use Excel because, most of the time, it is the right tool for the job.

And when it does make the headlines, misuse of Excel is usually the real story.

Excel is the tool of choice when you need to quickly develop and share some bespoke analysis. In a fast-moving world this is very often the case. For this kind of work there is no realistic widely available alternative.

Using Excel has its risks. They are all too often underestimated. This is primarily because of the army of dedicated financial modellers working their asses off behind the scenes to make sure the numbers are right.

Excel use in business-critical applications places a heavy burden on the modeller. The fact that there aren’t more high profile errors is testament to the efforts of the modelling community striving to do their best work.

In many (unfortunately not all) cases, systematic processes and procedures for review and audit are in place to help minimise the risk of error. In my experience, it is almost always a deficiency in those processes that lead to major errors going undetected.

There is clearly room for improvement.

I am not saying that things can’t be better. We should not accept substandard modelling and processes.
Excel is not perfect. The users of Excel are not perfect. But we should take a moment to imagine how a world without widespread Excel use could possibly function.

Spare a thought for the Excel users who tirelessly persevere to do their best in an imperfect world.

Find out how we manage modelling risk at Gridlines.

Profile Image - Danny Leitch

Author

Danny Leitch

Partner

View Profile

Our Work

We have the privilege of serving clients who are doing big, innovative things and who push us to do our best work. We like that. We support them with financial modelling, valuations and due diligence.

Find out more about what we do.

Envelope Origami Illustration

Sign up to receive “The Project” – a fortnightly quick hit of insight and resources for PF, infra, energy and PPP professionals.