Breaking free from spreadsheet risks: enhancing operational resilience

Written by AlphaCert | Jun 11, 2024 10:21:00 PM

Independent Consultant Stephen Huppert explores the inherent risks in using spreadsheets to manage investment data, and how to mitigate them.

Spreadsheet risk remains a significant concern in the investment management industry. Numerous articles cite alarming statistics, such as “90% of spreadsheets have errors”. Most refer directly or indirectly to Ray Panko’s seminal work What We Know About Spreadsheet Errors , which revealed that 88% of spreadsheets have 1% or more formula errors.

Regardless of the exact percentage of spreadsheets with formula errors in your investment management business—whether it’s 88%, 50%, or even 5%—the fact remains that the number is not zero. As this article will demonstrate, spreadsheet risk extends far beyond mere formula errors.

Read our white paper 'Spreadsheet risk: The closing bell' to explore the risks associated with managing investment data on spreadsheets and how you mitigate them effectively, enabling better investment decisions and outcomes.

Are most organisations managing their spreadsheet risks effectively?

Here are some newspaper headlines that might make you think twice about thinking that spreadsheet risk is a thing of the past:

Careful what you attach to email: How an excel document resulted in 50,000 superannuation fund member records being compromised (June 2022). An Australian superannuation fund suffered an information security breach resulting from unauthorised access to a mailbox.
Bungled Excel Sheet Hurts Profits From Islandsbanki Sale (November 2022). Islandsbanki sold a portion of shares that it undervalued due to a spreadsheet error.
‘Monumental’ data breach exposes names of entire Northern Ireland police force (August 2023). The Police Service of Northern Ireland mistakenly published a spreadsheet online containing the professional data of its officers and civilian workforce—this data was in a hidden worksheet!
The Norwegian sovereign wealth fund’s $92mn Excel error (February 2024). It was an error in how Norges Bank Investment Management calculated its mandated benchmark.
Formula 1 chief appalled to find team using Excel to manage 20,000 car parts (March 2024). The new Williams team boss was staggered when he discovered the team’s overreliance on Excel.

Evaluate spreadsheet use to manage risk

Analysis of the headlines above reveals that only two relate to the usual understanding of spreadsheet risk—formula error. The other three relate to spreadsheet misuse. While you might have controls to manage formula error risk, do you have controls for other spreadsheet risks?

Investment management organisations are increasingly focusing on information and cyber security. Using spreadsheets may increase those risks (as it did for the superannuation fund mentioned above). In January 2024, US Homeland Security warned US federal agencies of hackers targeting Google Chrome and Excel Spreadsheets .

Advance your data management maturity

AlphaCert has created a Data Management Maturity Model to help investment management organisations prioritise where to invest the time, money, and energy so that data management best supports the organisation’s objectives.

A couple of indicators that an organisation is at Level 1 of the Maturity Model are:

Having a proliferation of spreadsheets along with manual processes and reports.
Data exchange, storage, and archiving take place mainly over email.

An essential first step in improving data management maturity is implementing rules around spreadsheet use and conducting an inventory of how your team utilises spreadsheets. This assessment enables you to quantify spreadsheet risk and identify which spreadsheets should be replaced with a more robust tool. Begin by evaluating spreadsheets used to manage investment data.

When the Williams team boss learned about using Excel to manage its car parts, he apparently said it’s “impossible to navigate and impossible to update.” He could have been talking about how some organisations manage their investment data!

While Excel has a place in your investment management business, it has a tendency to be used for tasks it’s not well-suited for.

Read our white paper Spreadsheet risk: the closing bell? or contact us to learn how AlphaCert can help you improve the operational resilience of your investment management business.

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