Spreadsheet Woes – Limited Features For Easy Adoption of a Control Framework

Like it or not, regulations are here to stay and for a company to comply with them, its IT and financial systems will have to be equipped with a suitable control framework. One common stumbling block to such an implementation is a company?s over-reliance on spreadsheets.

Why is it so difficult to adopt controls for a system that’s reliant on spreadsheets? To understand this, let’s pinpoint some of the strongest, most powerful attributes of these User Developed Applications (UDA).

By nature, spreadsheets are the epitome of simplicity: easy to develop, easily accessible and easily altered. All computers in your workplace will most likely have them and everyone in your organization may be sharing them, making their own versions, and storing them in personal folders.

Sad to say though, these strengths are also control weaknesses and constitute the very reasons why spreadsheets require effective risk management.

Easy to develop. Being easy to develop, most spreadsheet systems are created by non-IT users who have limited knowledge on best control practices. Being constantly under time pressure, these ?developers? may also relegate documentation, security, and data verification to the back burner in favour of coming up with a timely report.

Easy to access. Information in a spreadsheet can be opened by practically anyone within the organization?s network. Who accessed what? And when? If anything goes wrong, it would be difficult to identify the culprit, and the failure to pinpoint responsibility for erroneous data could lead to bigger, more costly mistakes.

Easy to alter. Lastly, if the information is easy to access, then it can also be easily altered, consequently making reports more prone to both accidental errors and fraudulent modifications.

The rise of multimillion dollar scandals due to accidental and intentional spreadsheet errors have prompted regulatory bodies to publish guidelines for mitigating spreadsheet-associated risks. These controls include:

Change control
Version control
Access control
Input
Security and data integrity
Documentation
Development life cycle
Backup and archiving
Logic inspection/Testing
Segregation of duties/roles, and procedures
Analytics

In theory, these controls should be able to bring down risks considerably. However, because of the inherent nature of spreadsheets, such controls are rarely implemented effectively in the real world.

Take for example Security and Data Integrity. One of the most common causes of spreadsheet error is due to ?hardwiring?. This happens when values are inadvertently entered into a formula cell, naturally changing the logic of the spreadsheet.

As a way of control, cell locking can be applied on the formula cells to prevent users without the proper authority from making any changes. However, when reporting deadlines approach drawing spreadsheets to the forefront of data processing, more people are given access rights to the locked cells. Ironically, it is during these crunch times, when errors are most likely to happen.

Because the built-in features of a spreadsheet support none of the controls mentioned above, some companies are tempted to purchase control-enabling programs for spreadsheets just to continue using them for financial reporting. But although these programs can integrate the required controls, you?d still be interacting with the same complex and outdated interface: the spreadsheets.

Thus, these band-aid solutions may not suffice because the root cause of these problems are the spreadsheets themselves.

Learn more about our server application solutions and discover a better way to implement controls.

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What Energy Management Software did for CDC

Chrome Deposit Corporation ? that’s CDC for short ? reconditions giant rollers used to finish steel and aluminium sheets in Portage, Indiana by applying grinding, texturing and plating methods. While management was initially surprised when the University of Delaware singled their plant out for energy assessment, this took them on a journey to bring energy consumption down despite being in an expansion phase.

Metal finishing and refinishing is an energy-intensive business where machines mainly do the work while workforces as small as 50 individuals tend them. Environmental impacts also need countering within a challenging environment of burgeoning natural gas and electricity prices.

The Consultant’s Recommendations

The University of Delaware was fortunate that Chrome Deposit Corporation had consistently measured its energy consumption since inception in 1986. This enabled it to pinpoint six strategies as having potential for technological and process improvements.

Insulate condensate tanks and pipes
Analyse flue gas air-fuel ratios
Lower compressed air pressures
Install stack dampers on boilers
Replace belts with pulleys and cogs
Fit covers on plant exhaust fans

CDC implemented only four of the six recommendations. This was because the boiler manufacturer did not recommend stack dampers, and the company was unable to afford certain process automation and controls.

Natural Gas Savings

The project team began by analysing stack gases from boilers used to heat chrome tanks and evaporate wastewater. They found the boilers were burning rich and that several joints in gas lines were leaking. Correcting these issues achieved an instant gas saving of 12% despite increased production.

Reduced Water Consumption

The team established that city water was used to cool the rectifiers. It reduced this by an astonishing 85% by implementing a closed-loop system and adding two chillers. This also helped the water company spend less on chemicals, and energy to drive pumps, purifiers and fans.

Summary of Benefits

Electricity consumption reduced by 18% in real terms, and natural gas by 35%. When these two savings are merged they represent an overall 25% energy saving. These benefits were implemented across the company?s six other plants, resulting in benefits CDC management never dreamed of when the University of Delaware approached them.

ecoVaro offers a similar data analytics service that is available online worldwide. We have helped other companies slash their energy bills with similarly exciting results. We?ll be delighted to share ideas that only data analytics can reveal.

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What Is Technical Debt? A Complete Guide

You buy the latest iPhone on credit. Turn to fast car loan services to get yourself those wheels you’ve been eyeing for a while. Take out a mortgage to realise your dream of being a homeowner. Regardless of the motive, the common denominator is going into financial debt to achieve something today, and pay it off in future, with interest. The final cost will be higher than the loan value that you took out in the first place. However, debt is not limited to the financial world.

Technical Debt Definition

Technical debt – which is also referred to as code debt, design debt or tech debt – is the result of the development team taking shortcuts in the code to release a product today, which will need to be fixed later on. The quality of the code takes a backseat to issues like market forces, such as when there’s pressure to get a product out there to beat a deadline, front-run the competition, or even calm jittery consumers. Creating perfect code would take time, so the team opts for a compromised version, which they will come back later to resolve. It’s basically using a speedy temporary fix instead of waiting for a more comprehensive solution whose development would be slower.

How rampant is it? 25% of the development time in large software organisations is actually spent dealing with tech debt, according to a multiple case study of 15 organizations. “Large” here means organizations with over 250 employees. It is estimated that global technical debt will cost companies $4 trillion by 2024.

Is there interest on technical debt?

When you take out a mortgage or service a car loan, the longer that it takes to clear it the higher the interest will be. A similar case applies to technical debt. In the rush to release the software, it comes with problems like bugs in the code, incompatibility with some applications that would need it, absent documentation, and other issues that pop up over time. This will affect the usability of the product, slow down operations – and even grind systems to a halt, costing your business. Here’s the catch: just like the financial loan, the longer that one takes before resolving the issues with rushed software, the greater the problems will pile up, and more it will take to rectify and implement changes. This additional rework that will be required in future is the interest on the technical debt.

Reasons For Getting Into Technical Debt

In the financial world, there are good and bad reasons for getting into debt. Taking a loan to boost your business cashflow or buy that piece of land where you will build your home – these are understandable. Buying an expensive umbrella on credit because ‘it will go with your outfit‘ won’t win you an award for prudent financial management. This also applies to technical debt.

There are situations where product delivery takes precedence over having completely clean code, such as for start-ups that need their operations to keep running for the brand to remain relevant, a fintech app that consumers rely on daily, or situations where user feedback is needed for modifications to be made to the software early. On the other hand, incurring technical debt because the design team chooses to focus on other products that are more interesting, thus neglecting the software and only releasing a “just-usable” version will be a bad reason.

Some of the common reasons for technical debt include:

Inadequate project definition at the start – Where failing to accurately define product requirements up-front leads to software development that will need to be reworked later
Business pressure – Here the business is under pressure to release a product, such as an app or upgrade quickly before the required changes to the code are completed.
Lacking a test suite – Without the environment to exhaustively check for bugs and apply fixes before the public release of a product, more resources will be required later to resolve them as they arise.
Poor collaboration – From inadequate communication amongst the different product development teams and across the business hierarchy, to junior developers not being mentored properly, these will contribute to technical debt with the products that are released.
Lack of documentation – Have you launched code without its supporting documentation? This is a debt that will need to be fulfilled.
Parallel development – This is seen when working on different sections of a product in isolation which will, later on, need to be merged into a single source. The greater the extent of modification on an individual branch – especially when it affects its compatibility with the rest of the code, the higher the technical debt.
Skipping industrial standards – If you fail to adhere to industry-standard features and technologies when developing the product, there will be technical debt because you will eventually need to rework the product to align with them for it to continue being relevant.
Last-minute product changes – Incorporating changes that hadn’t been planned for just before its release will affect the future development of the product due to the checks, documentation and modifications that will be required later on

Types of Technical Debt

There are various types of technical debt, and this will largely depend on how you look at it.

Intentional technical debt – which is the debt that is consciously taken on as a strategy in the business operations.
Unintentional technical debt – where the debt is non-strategic, usually the consequences of a poor job being done.

This is further expounded in the Technical Debt Quadrant” put forth by Martin Fowler, which attempts to categorise it based on the context and intent:

Source: MartinFowler.com

Final thoughts

Technical debt is common, and not inherently bad. Just like financial debt, it will depend on the purpose that it has been taken up, and plans to clear it. Start-ups battling with pressure to launch their products and get ahead, software companies that have cut-throat competition to deliver fast – development teams usually find themselves having to take on technical debt instead of waiting to launch the products later. In fact, nearly all of the software products in use today have some sort of technical debt.

But no one likes being in debt. Actually, technical staff often find themselves clashing with business executives as they try to emphasise the implications involved when pushing for product launch before the code is completely ready. From a business perspective, it’s all about weighing the trade-offs, when factoring in aspects such as the aspects market situation, competition and consumer needs. So, is technical debt good or bad? It will depend on the context. Look at it this way: just like financial debt, it is not a problem as long as it is manageable. When you exceed your limits and allow the debt to spiral out of control, it can grind your operations to a halt, with the ripple effects cascading through your business.

Why Spreadsheets can send the Pillars of Solvency II Crashing Down

Solvency II is now fast approaching and while it may provide added protection to policy holders, its impact on the insurance industry is not all a bed of roses. Expect insurance companies to restructure, increase manpower, and raise spending on actuarial operations and risk management initiatives. Those that cannot, will have to go. But what have spreadsheets got to do with all these?

Well, spreadsheets aren’t really the main casts in this blockbuster of a regulatory exercise but they certainly have a significant supporting role to play. Pillar I of Solvency II, which calls for improved supervision on internal control, risk management, and corporate governance, and Pillar II, which tackles supervisory reporting and public disclosure of financial and other relevant information, both affect systems that have high-reliance on spreadsheets.

A little background about spreadsheets might help.

Who needs an IT solution when you can have spreadsheets?

Everyone in any organisation just love spreadsheets; from the office clerk to the CEO. Because they’re so easy to use (not to mention they’re a staple in office computers), people employ them for processing numbers and as an all-around tool for planning, forecasting, reporting, complex modelling, market data analysis, and so on. They make such tasks faster and easier. Really?

You probably haven’t heard of spreadsheet hell

Unfortunately, spreadsheets do have certain shortcomings. Due to their inherent structure and lack of controls, it is so easy to commit simple errors like an accidental copy paste, an omission of a negative sign, an incorrect data input, or an unintentional deletion. Such shortcomings may seem harmless until your shareholders discover a multi-million discrepancy in your financial report.

And because spreadsheet errors can go undetected for a long time, they are constant targets of fraudsters. In other words, spreadsheets are high risk applications.

Solvency II Impact on Spreadsheet-based Financial and IT Systems

Regulations like Solvency II, are aimed at reducing risks to manageable levels. Basically, Solvency II is a risk-based system wherein a company?s capital requirements will depend on its measured riskiness. If companies want to avoid facing onerous capital requirements, they have to comply.

The three pillars of Solvency II have to be in place. Now, since spreadsheets (also known as User Developed Applications or UDAs) are high-risk applications with weak control features and prone to produce inaccurate reports, companies will have a lot of work to do to establish Pillars II and III.

There are at least 8 articles that impact spreadsheets in the directive. Article 82, for example, which requires firms to ensure a high level of data quality and accuracy, strikes at the very core of spreadsheets? weakness.

A whitepaper by Raymond Panko entitled ?Spreadsheets and Sarbanes-Oxley: Regulations, Risks, and Control Frameworks? mentioned that 94% of audited real world operational spreadsheets that were included in his study were found to have errors and that an average of 5.2% of all cells in the audited spreadsheets had errors.

Furthermore, many articles in the directive call for the enforcement of better documentation. This is one thing that’s very tedious and almost unrealistic to do with spreadsheets because just about anyone uses them. Besides, with different ‘versions? of the same data existing in different workstations throughout the organisation, it would be extremely difficult to keep track of them all.

Because of spreadsheets you now need an IT solution

It is clear that, with the growing number of regulations and the mounting complexity of tasks needed for compliance, spreadsheets no longer belong in this era. What you need is a server-based solution that allows for seamless collaboration, data reliability, data consistency, increased security, automatic consolidation, and all the other features that make regulation compliance more doable.

One important ingredient for achieving Solvency II compliance is sound data risk management. Sad to say, the ubiquitous spreadsheet will only expose your data to more risks.

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Spreadsheet Woes – Limited Features For Easy Adoption of a Control Framework

More Spreadsheet Blogs

Check our similar posts

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Technical Debt Definition

Is there interest on technical debt?

Reasons For Getting Into Technical Debt

Types of Technical Debt

Final thoughts

More Spreadsheet Blogs

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