A Timely Reminder

I spend a lot of my time developing knowledge management and analytic capabilities for organisations and I have just read a paper that gave me a timely reminder that a lot of the business world still operates in spreadland.

Spreadland is the country where decision makers rely on Microsoft Excel. The paper I read is 'The Importance and Criticality of Spreadsheets in the City of London' by Grenville J. Croll. You can read the paper here but the title is a good description of the contents. Grenville runs Spreadsheet Engineering Ltd, a 'spreadsheet risk & remediation specialist' consultancy and he should know what he is talking about as a former employee of Lotus in Europe who worked on re-engineering the Lotus 1-2-3 spreadsheet software for the European marketplace in the mid 1980's.

Originally published in 2005, the subsequent global financial crisis may have distracted a lot of us for a time but I believe that we should now return some of our attention to addressing the risks of spreadsheets. The risks the author describes are real and apply just as much today in Sydney and Auckland as they do in London.

As the author notes:

““two interviewees each disclosed without prompting ... a current and recent instance of where material spreadsheet error directly involving or concerning them had led to adverse events involving ““many tens of millions of pounds””.”

The thesis is straightforward with the author arguing that the City of London is presently exposed to "significant reputational risk through the continued uncontrolled use of critical spreadsheets in the financial markets”.

Here are some other notable quotes included in the paper:

““Put simply and succinctly, despite the higher operational risk, Excel is everywhere - it is the primary front-line tool of analysis in the financial business. Most traders price deals in spreadsheets and enter them in large-scale deal capture systems afterwards””

““Excel is utterly pervasive. Nothing large (good or bad) happens without it passing at some time though Excel””

““.. if a customer wants to do a bespoke trade that cannot be handled in our designated booking system then we have to book it in a spreadsheet and add a few bips to cover operational risk capital charge (and additional maintenance). How many bips to add is subjective””

““Spreadsheets are integral to the function and operation of the global financial system””.

Give it a read, at the very least it will give you a framework for thinking about the use of Excel in your organisation.

Comments

[Jack]

Though it's tempting to call sahepdsreet risk an operational risk. If I may ask that in typical forms of operational risks there is a KRI, a workflow, or some action plans that would indicate and mitigate that very risk, but in the case of sahepdsreet risk, can we mitigate it through the conventional operational risk framework? Whereas identifying a sahepdsreet risk is a very tedious task, and on the face of it is not evident to any person who does not have the ability to look beyond numbers to make sense out of them. Plus in sahepdsreet risk there is no single event that has a high frequency but have extremely high severity. There is no single risk event that prevails, so in order to mitigate it we cannot make generic policies like in place for operational risk but have to go to micro level audit in order to mitigate it. So in essence sahepdsreet risk is a different ball game altogether, which cannot be only viewed through the glass framework of Operational Risk.