Technology

The (over) use of Excel

Microsoft’s venerable spreadsheet software changed the way we watch our numbers. But is financial services’ over-reliance on it leading to problems?

Jamie Nascimento

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April 16, 2021

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min read

Are you old enough to remember Lotus 1-2-3? It was the first example of spreadsheet software. Launched back in the early 1980s, it went on to dominate the market. Then, in 1985, Excel came along. (There’s a good lesson here about how the first mover doesn’t always win, but let’s keep that for another day!)

Excel, released initially for the Apple Macintosh (ironically), cornered the market with its striking visuals. As we pointed out in the second article in our series on data, making data visible to the right people is a strong differentiator.

Over the last three decades, Excel has become the default product for performing mathematical functions on data. It’s used for everything from keeping track of your household finances, to complex scientific modelling and financial service accounting. Excel, as a tool, has transformed the day-to-day operations of dealing with accounting tasks across the globe. It is impossible to quantify the positive impact this one product has had on operational efficiencies.

But, Excel isn’t perfect – and the way the industry relies on Excel, imperfections and all, can cause significant problems. In this article, in partnership with Reframe Capital, we’ll examine Excel’s drawbacks and how it affects the financial services sector. We’ll also look at how you can solve some of those problems.

From positive impact to overuse

In Private Markets, you will often find managers and (whether they’ll admit it or not) their pricing partners using Excel for complex calculations which their core accounting system simply cannot deal with, such as waterfalls, or those which might be deemed non-standard or exceptions to the norm. Whilst many in the industry would acknowledge its shortcomings, reliance on this piece of unstructured, non-audited and error-prone software brings with it significant data and operational risks.

But, for so long, Excel has been that old, reliable, familiar friend we find it hard to move on from. Yes, that friend has their faults, and you know they’re not good for you, but if you need to get something done and can’t see another option, what do you do? Well, it’s perhaps time to take a closer look.

Drawbacks to Excel

Let’s examine some of Excel’s weaknesses individually.

Data integrity

Excel is excellent at manipulating data and arriving at those all-important calculations. But, it’s simply not designed for the task of maintaining the integrity of the data itself. Excel struggles to keep your data:

Accurate
Consistent
Timed

Collaboration and version control

How many times have you gone back into an Excel sheet and changed something, but then wanted to see a previous version, or see what’s changed, but it’s disappeared? Or, when you have a shared version of a sheet that is open to everyone, but you can never work out which version is correct?

While there are other online tools and services available that are better at collaboration, they rarely come with the features and tools that Excel offers. They’re also still prone to the wider data integrity issues.

And what about the dreaded situation that many of us have faced when a colleague has a workaround for a particular model issue? You’ve been meaning to ask them to show you how it’s done or write out the method and they suddenly leave the firm…taking that valuable knowledge with them.

Insufficient auditing and control

We operate in a highly regulated environment for good reason. However, Excel does not have the capabilities needed to comply:

No capability to understand or track changes
No controls to ensure the correct sign-off is provided for changes to be made
Underlying ‘processes’ and calculations are open to changes
Even password-protected sheets are easy to bypass

Security

Once the data leaves your closed systems, it is open to manipulation or misuse, either accidentally or deliberately. This can bring significant data risks to your company and your clients. It can also affect your reputation and economic consequences, particularly if you have to compensate for an error or worse, incur regulatory fines.

Interconnectivity of data sources

The number of data sources we use in the financial services industry is growing all the time. Internally, companies employ multiple systems to deliver their solution, while externally, companies bring in new datasets to drive more in-depth insights.

Excel struggles to cope with this level of complexity. How you bring multiple data sources into Excel takes specialist knowledge and often manual, and not always consistent, interventions.

Fat fingers!

I’m sure we’ve all hit the wrong key in an Excel spreadsheet before. Hopefully, it was easy to correct before it caused too many issues. However, if an error goes unnoticed, it can have a significant detrimental impact. We’ve all seen those financial headlines, which has led many investment banks to re-think their dependency on Excel, but the asset management world does not appear to be ready to embrace such a transformation in their model platforms and turn their back on the old, reliable friend. Not yet, anyway…

Solving Excel’s problems

Let us help you.

Here are four simple steps you can implement to help overcome some of the issues we’ve highlighted around working with Excel.

Manual four-eye authentication – Even on simple changes, having an interval process where a second person vets any calculations in Excel will help capture key misses or fat finger changes
Naming conventions – This is simple, but effective. Having a standardised naming convention that is used for all Excel sheets will create good habits. It will ensure you know exactly when a change was made and by whom, your team will get into the habit of saving versions before making changes
Owner control/auditing/communication – For Excel spreadsheets that are critical to your business, decide which team or individual ‘owns’ the sheet. This ensures all changes and versions are sent through a single process, enabling a version of auditing, while clearly communicating when a version change is happening
Automation – Script more complex processes in Excel to make the manual process as automated as possible

A better alternative

Excel is a powerful tool, but when you reach a point where you are critically dependent on it, you balance risk versus operational performance (and, let’s face it, convenience) every time you open the application.

At LemonEdge, we help clients move their critical accounting processes out of Excel and on to a platform, ensuring the same functionality but seamless interaction through their accounting process with a single, real-time connectivity.

It doesn’t mean you have say farewell to the old friend entirely, but it does mean you’re not bound to rely on them and can look to build new, better, stronger relationships that might just be easier, more transparent and more reliable in serving to meet your complex accounting needs.