The questionable role of spreadsheets for modern treasurers

By RB Erickson August 28, 2015

Approximately half of all U.S. corporates still use spreadsheets as their exclusive treasury management tool. Although they remain a key tool in every treasury’s armory, they are not the ideal long-term solution for a strategic, proactive treasury department. RB Erickson, Kyriba’s global director of sales enablement, shares his views on the role of spreadsheets in the modern treasury department, and how they shape up to a treasury management system.

Why do corporate treasurers continue to use spreadsheets?

Spreadsheets are still used across practically all treasury departments, to a greater or lesser extent. Some of the more common reasons include:

  1. Lack of time and / or resources to focus on implementing a treasury management system (TMS). Treasury departments can become so overwhelmed by their daily manual processes that they feel they are unable to spare the time to look at, let alone implement, other solutions.
  2. The cost to switch from spreadsheets to a treasury management system is perceived as too high. Fortunately, true SaaS solutions have mitigated this concern.
  3. Treasurers may view their operations as too simplistic to require a treasury management system.

What are the pros and cons of spreadsheets vs. TMS?

Spreadsheets certainly have their place in the treasury department. However, there are several factors that should be considered which make them less than ideal as an organization’s primary tool for treasury management. 

Pros of spreadsheets

Familiarity – Treasury professionals have been using spreadsheets since they were in school. It is easy, and often comforting, to stick with what you know.

Flexibility – If you know how, you can build almost anything treasury might require in spreadsheets, including writing VBA macros.

Perceived low cost – The hard-dollar cost of spreadsheets is less than a TMS. However, there tends to be a shift in cost, as can be seen in “cons” list below.

Cons of spreadsheets

Error prone – Through an evaluation of several spreadsheet-error studies, Dr. Panko at the University of Hawaii has shown that over 88% of spreadsheets have errors. This is an interesting statistic given the prevalence of spreadsheets in treasury.  I can’t think of another area where this would be an acceptable risk percentage.

Familiarity – Familiarity can breed trust. Unfortunately, as shown through error-rate studies of spreadsheets, this trust may be misplaced, or at least cause unadvised action, as in the lack of best practices listed below.

Manual – in addition to increasing the likelihood of errors, manual process are generally less efficient than their automated counterparts. As a result, it is not uncommon for treasury professional to spend hours a day gathering and formatting data, prior to being able to use it for financial decision making. Interestingly, this can have the unintended consequence of low job satisfaction for the highly educated treasury professional that has to spend more time in low-value pursuits and less time analyzing the end results.

Lack of best practices – spreadsheets are a software application and, in the case of treasury, it is a software application that holds sensitive financial data. That may sound obvious. However, obvious or not, this fact makes it perplexing why we do not hold spreadsheets up to the same standards as any other financial software our companies use. 

For example:

  • Software development best practices and controls such as change management and release testing are not generally required for spreadsheets use
  • Segregation of duties – Often the same person who is tasked with “coding” the spreadsheet, is the same person that uses it in their daily job
  • No audit trail – changes to data and programing logic cannot be tracked in spreadsheets
  • User authority – spreadsheets do not offer that ability to control user access by role
  • Business Continuity and Disaster Recovery – Rarely do treasury departments have stringent business continuity and disaster recovery processes in place for spreadsheets that are required for all other financial software
  • Personnel backup – It is very common that the only person who knows exactly how the spreadsheet works is the person who built it.  There is traditionally little documentation on how the formulas or VBA are constructed and work.  If the primary person is not available, usage is impaired, there is greater-than-normal risk of errors and maintenance is time consuming and in some case impossible

What are spreadsheets being used for among global corporates?

Treasury professionals use spreadsheets for just about everything that falls within their purview (e.g. cash positioning, forecasting, FX hedging, bank account management, netting, in-house banking and payments).  This underscores the point that spreadsheets are financial software and should be under the same scrutiny and process controls as all other financial software in the company.

Will spreadsheets ever fall out of usage, and if so, what will be the driving factors?

Spreadsheets can be great tools. As such, I don’t believe they will or should completely go away. However, they should be used within the limits of their inherent strengths.  Spreadsheet are not intended or suited to be the principle treasury software. Consequently, I don’t think it is a question of spreadsheets falling out of usage. We should ask, “when will spreadsheets be used within their intended and proper scope?” Unfortunately, I don’t know the answer.

This change will likely be the combined result of several catalysts, including new regulations, IT policies that more properly manage spreadsheets, greater access to low-resource SaaS solutions and even market shake-ups like in 2007.

To use an analogy, spreadsheets could be viewed as the technological equivalent to the rock. At one point in human history we used the rock to sit on, start fires, pound things into the ground, grind our food, construct our buildings, and many other things. Eventually we invented chairs, matches, hammers, food processors, and steel. Rocks are still useful and have their place, but we are no longer required to use them for everything we do. 

 

img
Activate Liquidity.

Transform how you use liquidity as a dynamic vehicle for growth and value creation

Find out how