Spreadsheets under the spotlight again

25th February 2013

A new emphasis on governance, risk and control (GRC) suggests that when spreadsheets become the de facto information system across the organisation then the production of key decision making and control information becomes fragmented and potentially unreliable as Ian Herbert FSN writer and Senior Lecturer in Management Accounting at the School of Business and Economics, Loughborough University finds out. 




Organisations are also asking questions about the wisdom of highly paid managers and accountants performing what, nowadays, is more routine IT work. Perhaps, it is the case that many end-user applications are now better performed centrally, in a more transparent and controlled manner and with significantly lower labour costs?

A further challenge arises if a cloud computing environment is adopted. Whether a private or a public cloud approach is implemented, without the need for as much physical and systems IT infrastructure the headcount, in the central IT system department is reduced. It is then tempting for management to now see IT as a waning resource issue and thus cut back on IT managers just at a time when, arguably, the need for high-level IT management to plan and control the firm’s IT strategy, systems and protocols has never been greater.

Recent developments in the internet, Enterprise Resource Planning Systems (ERP), shared service centres (SSCs) and business process outsource providers (BPOs) are causing organisations large and small to reappraise their management information systems. This is especially pertinent to the SSC and BPO models both of which aim to drive down costs through standardisation around ‘one source of the truth’ and eliminate shadow end-user information systems. According to one senior finance manager it’s also a behavioural issue. ‘It’s not only a spreadsheet problem. Personally, I’d turn off all the accountants’ computers for at least two days a week. That would force them to get out into the business and talk to real people!’

This reliance on spreadsheets poses significant risks to an organisation.  Without the traditional design and documentation procedures based upon the rigorous operating controls and protocols that grew up around the need to maintain the strategically critical mainframe computers, the proliferation of myriad individual spreadsheets can present a risk to the coherence of the corporate control project. There are also continuity issues, with staff attrition being a major factor. For instance, what happens when the ‘owner’ of a spreadsheet leaves? Or even worse, he or she leaves on bad terms?

Moreover, as shared service centres initially founded on transactional activities aspire to move up the value chain and offer transformational services, the key question becomes, ‘is there a better way of producing management information and business analytics that leverages the power of the ERP rather than treating it as peripheral system that merely exists to process the transactions?’.  

Findings from a Loughborough University research project suggest that organisations overrun by spreadsheets can reduce their exposure to risk through adopting three main approaches to monitoring and control. First, to conduct a thorough review of spreadsheet use and evaluate the business risk inherent in each application. Second, to centralise and standardise the design and operation of the spreadsheet wherever practically possible. Third, to change the way people think about spreadsheets. If you find yourself clicking ‘new spreadsheet’ next time you have business problem, then think again, it probably means your ERP system has failed!

Whilst, the popular mantra ‘think global, act local’ might suggest that the spreadsheet still has a secure future, the production of business information seems to be converging again around specialist teams operating at arm’s length to business divisions.  The new territory is about business insight, which means that management accountants need to understand and explain information rather than be spending a significant proportion of their time producing it.