By Christopher Burke, CEO, Brickendon
What do accountants, risk professionals and finance modellers have in common? Their perpetual love for spreadsheets. If you ever speak with them about using spreadsheets, it may closely resemble talking with children about their favourite superhero or barbie doll. They will happily talk to you about the incredible speed at which they can manipulate data, prepare financial models and reports. They will also talk about the flexibility spreadsheets provide and how they themselves have customised their own spreadsheets to make their lives easier and their companies more efficient.
There is no doubt that spreadsheets form a core part of any business and whether it’s for tracking expenses or managing complex and highly sensitive financial data sets, they are a universally essential business tool.
So, given their obvious benefits, why would an organisation as respected as Forbes magazine describe Excel as ‘the most dangerous software on the planet’?[i] Is it the addictive feeling of running the perfect formula? Or that some users just may not be able to handle the pure numerical truth of your bar graph?
No, it is simply because just one badly managed spreadsheet can open a business to risks that have the potential to singlehandedly cause colossal financial and reputational loss.
Risks Unseen and Unheard
Having spent decades as an Excel and financial risk specialist, I’ve learned that there are many ways in which spreadsheets and databases can go wrong. From small firms with just a few employees and spreadsheets to global firms with hundreds of thousands of spreadsheets, the risk remains the same. One spreadsheet can cause catastrophic harm. Regardless of who or what is to blame, the most alarming thing is that most business leaders are unaware of the potential damage spreadsheets and other end-user tools can cause. Businesses need to take note now and not only recognise the risks but also learn how to mitigate them.
We recently polled a room of risk management professionals at an industry conference and alarmingly, only 33% of people we asked said they had any kind of policy for managing everyday tools like spreadsheets[ii].
Nearly half of the people we polled (47%) claimed their organisations use more than 1,000 spreadsheets for day-to-day work, and what’s more, according to research from the University of Hawaii [iii], 20% to 40% of spreadsheets are thought to contain errors.
The Cost of Complacency
For an idea of the financial cost of spreadsheet errors, let’s cast our minds back to 2008 when Lehman Brothers went bankrupt and Barclays bought some of the company’s assets. It was reported that this included the unintentional purchase of 179 contracts which had been hidden rather than deleted in a spreadsheet containing nearly 1,000 rows and 24,000 cells.
However, when the spreadsheet was converted into a PDF to be posted to the bankruptcy court’s website, the hidden cells reappeared. Although Barclays Capital filed a legal relief motion, in the end it was reported that they had to swallow the losses for an undisclosed sum.
In another more recent instance in March 2019, less than a week after posting its latest quarterly earnings, Canopy Growth Corporation, the largest cannabis company by market value, had to issue a correction. The Canadian firm said it was restating one metric in its fiscal third-quarter and nine-month earnings release after a formula error in a spreadsheet. The Smiths Falls, Ontario-based company said the nine-month adjusted EBITDA figure should have been a loss of C$155.2 million ($117.8 million) but was incorrectly stated as a loss of C$69.0 million ($52.4 million). Apparently as a result, the organisation’s shares fell by 3.7% pre-market. These cases don’t even go into the world of legal compliance and data regulation, so we’ll save that for another time.
To Err-or is Human
There are numerous possible points of failure, especially when you consider the quality of spreadsheet output has (up until now) usually been dictated and controlled by just one human working on computers using software with, at best, some manual checks.
Firstly, the challenge of multiple users copying someone’s “good” spreadsheet and making their own amendments without knowing the breadth of formulae and underlying structure should be of concern. With different people doing different things, often using different methods to manage the same or similar set of data, it is easy to see how quickly errors can escalate.
Such situations are very relatable and can happen to any business large or small, with the implications for version control alone leaving any business exposed to risk, especially if there aren’t mandated ways of working, or special document control protocols.
So, one perfectly natural reaction is to restrict people’s access to data, documents or processes, relying on a single expert with ultimate oversight. A typical scenario in smaller companies, where fewer contributors should, theoretically lead to fewer mistakes and more controlled ways of working.
This is great until that one controller then becomes a single point of failure without the back-up of proofing or cross-checking from other teams, let alone potentially overloading work on a single person.
Finally, the hardest to spot errors come in the shape of formulae or code errors themselves and whilst these can be completely beyond anyone’s control, there are some user habits that don’t necessarily help.
For example, if you repeatedly copy formulas from book to book, or use a single sheet for too long, formulas can fail but go unnoticed due to the trust built up by the users in their long-suffering spreadsheet.
To Mitigate is Divine
So, how do companies protect themselves against these risks and mistakes regardless of where they come from? For me, the solution is two-fold. Firstly, every business should have an executable compliance policy for managing how all data is handled and allow software to instantly, and cost effectively verify compliance to the policy.
These policies should give guidance to staff on how to manage data, how to use and save spreadsheets in uniform ways and help reduce user errors and boost accuracy.
To back this up, companies should look to the latest technological tools including advances in AI and cloud computing as a means of double-checking, securing and locking down the most important data. This is why my team at Brickendon has built a customisable solution capable of scanning the most complex networks of spreadsheets to automatically detect inconsistencies, mis-performing formulas and/or erroneous trends in version control.
Fast and easy-to-use, EUCplus lets businesses take control of their data and protect their business. It takes away the risk, but still lets organisations carry on with business as usual. It is a simple process to ratify changes to models and calculations, whilst allowing day-to-day data changes to happen as usual.
We named the system EUCplus – or ‘End-User Computing plus’, because we saw the need for a tool that would go well beyond the limits of human error-checking or proofing and perform at great pace. By registering, scanning and securing the data, EUCplus gives businesses the peace of mind they need to get on with their day jobs.
By keeping the flexibility and simultaneously removing the risk from spreadsheets, EUCplus will enable organisations to safely allow spreadsheets to be used by any employee needing to manipulate financial data, rather than limiting access to only ‘love-struck’ accountants and risk analysts. After all, the immense flexibility and multiple functional abilities of spreadsheets do suggest they deserve more credit than they usually get.
[i] *Source: Forbes Magazine “Microsoft’s Excel Might Be The Most Dangerous Software On The Planet”
[ii] *The poll was commissioned by EUCplus and conducted at the Cefpro new generation risk conference in London on 13th March. The 52 respondents were all senior operational risk professionals at director level or above.
[iii] *Source: “What we know about spreadsheet errors” Raymond R. Panko, University of Hawaii, College of Business Administration Published in the Journal of End User Computing’s Special issue on Scaling Up End User Development Volume 10, No 2. Spring 1998, pp. 15-21 Revised May 2008
An unprecedented Black Friday: How can retailers prepare?
Retailers must invest heavily in their online presence and fight hard to remain competitive as a second lockdown stirs greater uncertainty
With an unprecedented Black Friday and Cyber Monday weekend on the horizon (27th – 30th November), eCommerce hosting and consultancy expert, Sonassi, advises retailers to strengthen their online presence and make the necessary preparations for a fatigue in consumer spending.
James Allen-Lewis, Development Director at Sonassi, explains: “This year’s golden quarter has squeezed together three of the biggest sales periods like never before, meaning retailers will have to fight harder than usual to remain competitive this Black Friday. With greater discounts over a longer period of time, alongside the fact that a second lockdown has moved everyone and everything online, retailers will be battling it out for a share of decreasing consumer spending.
“However, this sense of uncertainty should not deter merchants from implementing their sales strategies this Black Friday and Cyber Monday weekend. Instead, they must go further than simply providing online discounts and tackle challenges head on by re-focusing their efforts on creating a highly competitive user experience. Successful merchants will make the necessary preparations for a change in consumer demand and invest more heavily in their eCommerce infrastructure.
“One way in which retailers can do this is by using last year’s Black Friday as a case study to inspire their future response. For example, retailers should take note of the key consumer behaviours that transpired throughout last year’s mega peak in discounting and plan accordingly for the upcoming Black Friday and Cyber-Monday weekend.
“Tactics such as providing the ultimate online delivery service and secure payment methods will also be pivotal for retailers looking to survive a fatigue in online spending. Consumers will look to retailers who do not overpromise on items like next-day delivery and ensure their checkout process is safe and frictionless for all. It is the retailers who embrace this fact and meet the needs of the conscious consumer that will win their share of consumers wallets.
Allen-Lewis concludes: “With Black Friday and the build-up to Christmas just around the corner, retailers must adapt to changing consumer demand, invest more heavily in their eCommerce infrastructure and focus their efforts on creating the ultimate online experience. The only way to plan ahead amid challenging times is to listen to the needs of the customer.”
Optimistic outlook for 2021 public M&A
Optimism is returning and the outlook is positive for the Australian M&A market in 2021 after a COVID-induced crash in deal activity in 2020, according to Corrs Chambers Westgarth’s tenth M&A 2021 Outlook report.
The special report reveals that an environment of historically low interest rates positions M&A as a significant means of achieving growth and generating returns, including for private equity firms looking to deploy capital and strategic buyers focused on complementary acquisitions.
With the unprecedented challenge of the COVID-19 pandemic, global political instability and arguably the greatest economic challenge since the Great Depression, M&A 2021 Outlook details somewhat surprising trends emerging for the next 12 months and analyses a number of common COVID-19 myths and their influence on future M&A deal making.
Corrs’ detailed examination of the Australian M&A market draws on data taken from the firm’s proprietary database of transactions combined with in-depth research for the 12-month period ending 30 September 2020.
Key trends identified in the report include a rapid escalation in M&A levels and an increase in creativity in pricing and speed in closing deals, while also highlighting the critical need for support from target shareholders. Conditions also appear to be set for a continued rise in equity prices as a result of the ongoing influx of capital into Australian equity markets, making it imperative that bidders employ strategies to move quickly on M&A transactions.
Discussing the M&A 2021 Outlook, Corrs Head of Corporate, Sandy Mak, said “Despite a challenging year, our research indicates that 2021 could well see the volume and value of deals continue to grow. We are already witnessing this uptick in activity and while some industries and sectors are seeing a faster rebound than others, early indications are that the wider public M&A market will continue to strengthen over the coming months.”
Based on its detailed research, the M&A 2021 Outlook report discusses further key findings including:
- Deal volume and value is the lowest since 2016, however volumes have shown significant recovery since June 2020.
- More than 50% of deals in 2020 were ‘hostile’ and not recommended at the outset.
- 71% of deals over A$500 million were structured by way of a takeover – a significant increase from prior years – largely as a result of increased competition for assets through rival bids.
- Despite border closures and the tightening of foreign investment regimes, the percentage of deals with foreign bidders has increased materially since April 2020.
5 steps for SMEs to budget properly for the coming year
By Fabio Comminot, Head of Dealing, Switzerland at Ebury, one of Europe’s largest Fintechs, has provided a five-step guide to make sure budgeting is done on time.
During the challenging times of COVID-19, it is difficult to forecast orders and costs. This is especially true for SMEs that operate internationally and therefore are exposed to currency fluctuations and market movements. So budgeting is immensely important.
Autumn is budget season for most companies. Upcoming project costs, sales and fixed costs must be defined or forecasted. Budget planning should be as accurate as possible right from the start of the process to avoid unexpected consequences at the end of the year..
With the effects of the COVID pandemic it has become difficult for all companies, no matter their size or history, to plan and make sales forecasts. Early planning and hedging are especially important for companies that work internationally and are therefore particularly exposed to currency risk.
These five steps will help SMEs take the right measures for the coming financial year, in time for budget season:
Step 1: Estimate your costs or sales in foreign currencies
As difficult as it may seem, every company must estimate its expected fixed and variable costs for the coming year. Most companies can forecast their revenues based on experience or existing orders.
However, start-ups or young companies should also be able to at least estimate their costs including rents, insurance, wages and production costs. Special attention should be paid to costs or revenues that are spent or received in a foreign currency.
Step 2: Profit or cost assurance – define the strategy
As soon as an approximate plan for the coming year is in place, the company should consider the importance of currency management. Regular earnings or expenditures in foreign currencies are exposed to movements in exchange rates. If costs in a foreign currency are to be forecasted until the end of the year, the company needs to minimise volatility. This means that the exchange rate should be fixed so that there are no unexpected negative consequences at the end of the year.
Another option would be to protect the operating profit. Fluctuating exchange rates can rapidly ruin intended profit margins. In this case the company could aim to define the forecasted sales in the foreign currency and fix the margin based on this.
Step 3: Fix your budget rates
The budget is set, the currency management goals are defined, the major part is done. Now it is a matter of defining the budgeted rates for the various currencies based on the current exchange rate. A buffer of about 5% can be useful when doing this – for example. instead of fixing the exchange rate from US dollar to Swiss franc at the current 91 cent, a rate of 95 cent could be budgeted. In this way, the minimum budget rate is defined and any negative exchange rate movement can be at least partially compensated for.
Step 4: Define the hedging strategy
With the targets and the budget course set, the next questions are: What currency developments can be expected? What is the industry outlook? Is the order situation relatively secure? Or is there practically no empirical data?
This step is where Ebury can support the company. Our experts in FX markets help answer these questions and begin to define the individual hedging strategy.
Step 5: Ensure a flexible fit
It’s done: the measures have been defined, now it’s time for implementation.
Ebury will implement the previous steps and , so that the company focuses on its core business. In contrast to traditional financial services providers such as banks, Ebury constantly monitors international trade and political events in order to assist clients with strategy adjustments. The Ebury team is supported by state-of-the-art technology and international currency analysts. It makes no difference whether the changes are driven by the currency market or whether the company’s order situation itself is changing. This allows the SME to focus on its operational business, which is worth a lot in uncertain times like these.
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