The world’s most useful and dangerous program – Microsoft Excel – turns 30

October 2, 2015

Operis traces three decades of Excel’s development, use and misuse

Operis, is today releasing an eBook to mark the 30th anniversary of the launch of Microsoft Excel. The paper explores the greatest highs and costliest lows of the program’s use over the years and provides valuable lessons for businesses who will continue to rely on Excel.

On 30 September 1985, Microsoft launched Excel 1.0 for Macintosh computers, two months before the release of its flagship Windows operating system. Its straightforward visual interface, pull-down menus and mouse capabilities set it apart from Lotus 1-2-3, then the predominant programme of choice. Excel has since been continually updated, overtaken all competitors, sold more than a billion copies and stands as arguably the most important business software in the world today.

The eBook explores the huge contributions Excel has made to the world of finance, enabling the rapid rise of sectors like project finance, structured finance and equity analysis. A huge portion of business in both the city and across the world is enabled by the affordable, accessible, standardised spreadsheet program.

Despite Excel’s success, however, many financial modellers, bankers, accountants and lawyers are still failing to build or interpret spreadsheets correctly. The failure of self-taught Excel amateurs to put in appropriate testing has been a factor in a number of high profile financial issues that have significantly impacted many key projects over the last three decades.

 

30 years – Excel’s biggest hits and greatest misses

Hits

Misses

Widespread adoption of a cheap, accessible and standardised global finance programme.

JPMorgan and the London Whale – Copying and pasting between spreadsheets leads to $6.2 billion trading losses.

Revolutionising project finance, allowing massive, complicated and long-term deals to be presented clearly.

West Coast Main Line – Bid scrapped due in large part to ‘technical flaws’ in spreadsheet models. Cost to taxpayers: £55 million.

Clearing up idiosyncratic risk in complicated structured finance products.

Fidelity Magellan’s ‘forgotten’ negative sign – A loss miscalculated as gain causes chaos for shareholders expecting dividends.

Allowing equity analysts to cope with ever expanding numbers of listed firms and valuations, in increasing detail.

Fannie Mae upgrades to new accounting standard – $1.3 billion is mistakenly added as profit, causing large share fall on discovery. 

 

Operis, whose founders include computer science experts who started working in project finance well before digital spreadsheets existed, also uses the eBook to provide guidance against complacency in spreadsheets.  Many self-taught Excel users in the worlds of finance and economics rely on the software to facilitate the allocation of vast sums of money, but lack the skills and knowledge to avoid errors. 

David Colver, Chairman and co-founder of Operis, says: “Despite playing a vital role in all aspects of business, very few people, even in the world of high-risk finance, treat Excel with the respect and diligence it deserves. It can be a dangerous tool in the hands of the unskilled, and worse so when people for whom the spreadsheets are prepared can’t properly evaluate them. As the complexity of spreadsheets and finance continues to rise, small errors can result in much larger disasters.”

Jonathan Swan, Director of Training at Operis, says: “The underlying principles of good practice have remained largely unchanged over the years. The first step on this road is accepting human fallibility, and ensuring human oversight and stress-testing. This requires more than a tick-list of standards, but a proper review of what the spreadsheet is communicating and a format which allows for comprehensive review.”

Operis’s top tips for Excel best practice:

  1. 1.       Maintain a defensive mindset

Accept that human use means human errors will be made. Focus on creating a quality assurance process that allows the spreadsheet to be tested and retested by a team with the relevant skills.

  1. 2.       Communicate clearly

Most spreadsheets are designed to tell a simple story. Complicated spreadsheets are both hard to read and check for errors. A narrow selection of typefaces and restrained use of colour make a spreadsheet much easier to digest and, ideally, all outputs should fit on one A4 piece of paper.

  1. 3.       Team Structure

Collaboration is a powerful tool, but someone must always be appointed to ‘own’ the spreadsheet. Models can need review by lawyers, accountants, bankers, investors and many others. Oversight is needed to make sure errors / inconsistent styles don’t creep in.

  1. 4.       Work with Experts

The formal auditing of financial models has developed into a distinct discipline, employed by a few specialist firms and accounting companies. Working with a trusted partner who knows the industry and your business and doesn’t work to an off the shelf standard ensures you’ll get good bespoke advice. The best partners will also be confident enough in their work offer a high liability for failing to spot errors. 

Access the full report here: http://bit.ly/1KIDjrf

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