Introduction

If you rely on spreadsheets or other user-developed software, you want to be sure that they are working correctly. Research shows that at least 80% of spreadsheets contain significant errors. That means that of every five spreadsheets, at most one will give the correct results. These errors can make a difference of millions; $24m (Canadian) because of a pasting error, $70m (US) due to a modelling error and $1.2bn down to “an honest mistake”.

Is your software use Competent, Complacent or Compromised? Take my 30 second quiz now, and find out!

No room for complacency

These spreadsheet errors are only the tip of the iceberg: the ones that for some reason have hit the press. What about all the ones that are kept under wraps, and the ones that haven't been discovered yet?

The FSA are placing increasing emphasis on systems and controls for actuarial models and spreadsheets. Auditors are asking more questions about how models are developed. The good news is that effective systems and controls will not only satisfy regulators and auditors, they will also increase productivity.

Cutting the risk

Producing the correct results is good, but it's not enough. It is increasingly unacceptable to rely on "black box" models; instead, you are asked to demonstrate why others should have confidence in them. You need good systems and controls for the development and maintenance of your models and spreadsheets, providing a full audit trail from data and parameters, via specification, implementation and testing right through to the final results, with good documentation, change processes and version control.

For some years I practised as an independent software risk consultant, specialising in complex financial models and spreadsheets. I no longer do so, but the issues facing the users of proprietary models and spreadsheets, and the results that they produce, remain the same.

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Introduction If you rely on spreadsheets or other user-developed software, you want to be sure that they are working correctly. Research shows that at least 80% of spreadsheets contain significant errors. That means that of every five spreadsheets, at most one will give the correct results. These errors can make a difference of millions; $24m (Canadian) because of a pasting error, $70m (US) due to a modelling error and $1.2bn down to “an honest mistake”. Is your software use Competent, Complacent or Compromised? Take my 30 second quiz now, and find out! No room for complacency These spreadsheet errors are only the tip of the iceberg: the ones that for some reason have hit the press. What about all the ones that are kept under wraps, and the ones that haven't been discovered yet? The FSA are placing increasing emphasis on systems and controls for actuarial models and spreadsheets. Auditors are asking more questions about how models are developed. The good news is that effective systems and controls will not only satisfy regulators and auditors, they will also increase productivity. Cutting the risk Producing the correct results is good, but it's not enough. It is increasingly unacceptable to rely on "black box" models; instead, you are asked to demonstrate why others should have confidence in them. You need good systems and controls for the development and maintenance of your models and spreadsheets, providing a full audit trail from data and parameters, via specification, implementation and testing right through to the final results, with good documentation, change processes and version control. For some years I practised as an independent software risk consultant, specialising in complex financial models and spreadsheets. I no longer do so, but the issues facing the users of proprietary models and spreadsheets, and the results that they produce, remain the same.
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