Electronic spreadsheets have been around way longer than you think. In fact, the first software, LANPAR, was developed in 1969 for Bell Canada and AT&T. Needless to say, countless estimates have been calculated on spreadsheets ever since. However, while Excel and other spreadsheets have been the best option for decades, they do lack some critical functionalities. This means that if you rely on them for estimates, you could put your profits at risk. To see why, check out these six unavoidable problems.
Research has shown that each cell in a spreadsheet has a 1% to 5% risk of containing an error. When you add up the number of cells in a single spreadsheet, you can see why the error risk is so significant. Then consider that people often work with several sheets, and it should come as no surprise that an estimated 9 out of 10 spreadsheets contain errors. Simply put, mistakes in a spreadsheet are easy to make and hard to find. In fact, in nine separate experiments, only 60% of spreadsheet errors were found.
When errors almost inevitably occur, you are often left wondering why and how they came about. Intentional changes can pose the same risk. Sometimes a number for an estimate needs to be changed, which means the changed value lives everafter in later estimates without explanation. Not knowing the source of the mishaps means that they are more likely to happen again. What’s more, it makes securing a mistake-free and additional-cost-free production chain harder. This is an issue especially when you consider how important error-tracking is for learning and steering clear of avoidable costs in the future.
When you work with spreadsheets, testing different options and making changes can be both time consuming and inflexible. The most viable option may be to work with multiple spreadsheets at once, because it facilitates comparisons. On a project level, though, it makes processes longer, harder and again more prone to mistakes. When you have multiple people working simultaneously, keeping track of changes, changes to changes, and separate sheets, things become ever more difficult –no matter how good collaborative web-based spreadsheets are getting.
A spreadsheet is not dynamic. When creating a complete estimate, you need to consolidate several spreadsheets. And when you have several sheets, it’s even more likely that an extra spacing, or a wrong format, or an erroneous number creeps in there. Sooner than you know, you are receiving ERROR! messages all over your sheets and you don’t know where to scout for the problem. Unfortunately, until you find it, you don’t have an estimate.
Inputting information in a spreadsheet doesn’t work to the advantage of the team, not to mention the organization as a whole. You are essentially pouring one person’s expertise into a document, without the benefit of cooperation and knowledge-sharing. If that person leaves the company, it can be difficult to decipher the thought process behind their numbers and formulas. What’s more, you are also relying heavily on single estimators, when the ideal is that you have a consistent team at your disposal.
All of the above - ineffectiveness, inaccuracy and inflexibility all result in additional costs that could be avoided. It’s not about one factor. With the number of spreadsheets, cells, and calculations within just a single project, there is potential to accumulate more and more costs to pay for fixes, extra steps and more manpower.
Estimates should be done quickly and consistently, with the highest possible degree of accuracy. Unfortunately, relying on spreadsheets makes reaching these goals considerably more challenging. As we’ve seen, there are so many possible missteps that can happen along the way that using spreadsheets for estimates is always going to be risky.
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