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Summary Ventana Research believes that while today’s stand-alone spreadsheets are fine for individual tasks or one-off analyses, they are not appropriate for collaborative, repetitive and enterprise-wide processes. Nonetheless, most corporations use them for recurring financial analyses, periodic reports, the accounting close, budgeting, sales commission calculations and other important tasks. Microsoft’s near-monopoly of the spreadsheet market has produced network-effect benefits, but the company’s monopolist treatment of the product as a revenue source has meant a standstill in addressing its shortcomings. However, after a decade of stagnation, changes are coming to the world of spreadsheets that will begin to address their core failings as an enterprise tool. View Stand-alone spreadsheets have spurred considerable productivity, particularly in finance organizations. With so many people trained in using the leading spreadsheet, Microsoft Excel, the application appears to be a quick and inexpensive way of handling a wide range of recurring processes. Yet when pushed beyond their original role as personal productivity software, spreadsheets have become time wasters. In recurring enterprise processes, the benefit of their versatility is offset by errors in manual data entries and formulas and their lack of referential and data integrity. These inherent defects lead to an increased risk of financial misstatements compared to more automated methods, as people waste time struggling to find data entry errors, inaccurate formulas and mistakenly hard-coded values, among other problems. “Dueling spreadsheets” is another common phenomenon: competing analyses ostensibly using the same numbers diverge because they rely on different data sources, have data synchronization disparities or use different formulas. Stand-alone spreadsheets also have proven difficult to control (in the sense of restricting access to authorized people, tracking who changed what and when as well as having sufficient certainty there are no errors) and therefore have been a vehicle for financial fraud. As Microsoft Excel, succeeding VisiCalc and Lotus 1-2-3, has dominated the spreadsheet market for the past decade, little innovation has occurred. Users have benefited by having a de facto standard with file formats that are almost universally accessible, but the downside has been no attempt to address Excel’s enterprise shortcomings (not to mention its persistently mediocre charting capabilities – but that’s another issue). Now Microsoft itself is driving some improvement in the next version of Excel, particularly in making it easier to use. It also will enable companies to have a server-based version of Excel, which should address many of the problems inherent in the stand-alone variety (such as controlling access, enhancing referential integrity and improving auditability). However, the real breakthrough is coming from third-party vendors whose packages will improve spreadsheet accuracy and increase control and auditability, as well as, for U.S. public companies, reduce Sarbanes-Oxley compliance costs. A new class of applications from vendors such as ClusterSeven, Compassoft and Prodiance will enable corporations to manage and control stand-alone spreadsheets more effectively and completely. Methods for auditing, tracking and controlling spreadsheets exist within Excel, but we find them profoundly inadequate for all but the simplest requirements. In the wake of the U.S. Sarbanes-Oxley Act, third-party vendors have offered all sorts of point solution add-ons that can help prevent some problems, but these new applications enable corporations to detect every spreadsheet on every desktop or laptop on the network, provide a comprehensive range of controls for error detection and access, track changes and use and monitor all spreadsheets in use and relationships between them. All companies will find error detection and formula validation a boon, and those that must comply with Sarbanes-Oxley should be able to reduce their internal and external audit costs and substantially reduce their risk of material misstatements in their financial statements. Assessment Ventana Research advises all companies that use standalone spreadsheets to any significant degree – especially those that must publish their financial statements – to assess these new software packages to determine how they can help them track, control and manage the stand-alone spreadsheets in their organization. While we continue to advise companies to eliminate stand-alone spreadsheets from use in repetitive, collaborative enterprise tasks as much as possible, they must be able to manage the ones they have more effectively to reduce errors, enhance control and auditability and mitigate the risk of fraud. About Ventana Research
Ventana Research is the leading Performance Management research and advisory services firm. By providing expert insight and detailed guidance, Ventana Research helps clients operate their companies more efficiently and effectively. These business improvements are delivered through a top-down approach that connects people, process, information and technology. What makes Ventana Research different from other analyst firms is a focus on Performance Management for finance, operations and IT. This focus, plus research as a foundation and reach into a community of over two million corporate executives through extensive media partnerships, allows Ventana Research to deliver a high-value, low-risk method for achieving optimal business performance. To learn how Ventana Research Performance Management workshops, assessments and advisory services can impact your bottom line, visit www.ventanaresearch.com.
2006 Ventana Research