Hw1 Spreadsheet Errors
- 1. Spreadsheet Errors – the (not-so-)Hidden EpidemicWendy WalkerDesigning Financial Models That Work – Spring 2010April 5, 2010
- 2. Large-scale problemEuropean Spreadsheet Risks Interest Group – A sample of “Original Horror Stories”Dominion Transmission gets sued for clerical error allegedly hiking consumer natural gas prices by $200 million - $1 billion RedEnvelope Inc. CFO resigns after company’s financial forecast was thrown off by a single number mis-recorded in one spreadsheet cellAlbquerque, NM, bond election results misstated by faulty total of precinct resultsSource: http://www.eusprig.org/stories.htm
- 3. Significant negative consequencesMonetary exposureLegal liabilityLoss of credibilityRegulatory actions against poor internal controls
- 4. Types of errors Qualitative errorsStructural – design flawsVisibleHidden Temporal – use of non-current dataQuantitative errorsReasoning – lack of knowledgeDomain knowledge – real world or mathematicalImplementation – syntax or logicAccidentalInsertionUpdate – modification or deletionSource: Powell, Baker & Lawson, “A critical review of the literature on spreadsheet errors.” http://mba.tuck.dartmouth.edu/spreadsheet/product_pubs_files/Literature.pdf
- 5. Contributing systemic factorsLack of corporate policiesSurvey by Galletta & Hufnagel (1992) of MIS executives on end user developmentonly 23% said they had rules 58% said they had guidelinesOverconfidenceStudy by Brown & Gould (1987) of spreadsheet developers
- 6. rate themselves as “very confident” of work
- 7. despite spreadsheet size & complexity
- 8. despite errors in every sample
- 9. Group work may help reduce certain types of errors
- 10. Statistical studies somewhat inconclusive – further research could be fruitfulSolo developmentSource: Panko, “What We Know About Spreadsheet Errors.” http://panko.shidler.hawaii.edu/SSR/Mypapers/whatknow.htm
- 11. ConclusionSpreadsheet errorsRepresent a large-scale problem – we only see the tip of the icebergCan trigger significant negative consequencesStem from both qualitative and quantitative mistakesResult from contributing systemic factorsDon’t turn a blind eye to the risks…