By Steve Peterson (VP of Marketing & Channel, CellarStone)
The first Windows version of Excel was released almost thirty years ago in November 1987. So, like all great things, let’s celebrate its history and impact on business. For many of us who started with Lotus 123, Excel is a tool that has been used regularly throughout most of my career. For my senior colleagues, I still recall my first assignment using a calculator with the green ledger sheets. If you recall using the abacus, then you are really dating yourself.
The use of Excel pivot tables is where I drew the line and opted to use a database instead. Pivot tables are a very powerful and quick way to analyze data and get Excel reports. But surprisingly, not many people use them. Managing complex spreadsheets created that aha moment when I knew that a database could better manage my application requirements.
So why do we still use Excel?
- Spreadsheets are considered free – If you buy the Microsoft Windows package, it comes packaged with the software bundle, including Excel and Word. Google also has a free spreadsheet application.
- Familiarity – The path of least resistance is to use what you know.
- Easily shared – Common practice to move spreadsheets between parties.
- Flexible – Spreadsheets can be easily adopted to manage all types of data.
So what remains as the pitfalls of Excel?
Despite years of evidence showing the challenges of relying on Excel, organizations continue to use it despite the challenges that follow:
- Lacks version control – All the sharing of an Excel file dramatically impacts the error rate. The minute you add a second person to your Excel file, the chance for errors increases.
- Spreadsheet complexity emerges over time – The spreadsheet is usually created to solve one particular issue. Then, it evolves to track items that the original formulas or layout did not factor.
- Spreadsheets usually live locally – Whether on the accountant’s computer or on a server, the data is not available to all those that need it and when they need it at risk of being on a server or PC that is not backed up properly or becomes corrupted.
- Primarily manually maintained – Data needs to be uploaded or entered manually by an individual who has all the distractions of a busy office. There is a greater chance for mistakes.
So the True Cost of Excel is…
Here are the common elements that have to be included in the Excel cost calculator.
Unfortunately, some businesses view labor as something they are already paying for, so why not have the staff manage these types of tasks? This is not a value-added task but rather grunt work. So instead of reviewing reports and making changes, many controllers are in the weeds keying in sales commission data.
The time a person spends updating the transaction data, reviewing the calculations, adding new reps and comp plans to the Excel document, and then producing and distributing reports for the reps all need to be factored. For a sample 10 sales rep firm, the expected labor time will be between 10-15 hours a month to process in Excel with compensation plans that are mild in complexity.
Poor data entry, skipped transactions, Excel formulas that get accidently stepped on, or circular references can combine to cost a company anywhere from a few hundred dollars per month to thousands. In 2013, Jeremy Olshan reported in MarketWatch, “Close to 90% of spreadsheet documents contain errors.” He further quoted Ray Panko, a professor of IT management at the University of Hawaii and an authority on bad spreadsheet practices: “In large spreadsheets with thousands of formulas, there will be dozens of undetected errors.”
Olshan further noted, “Patrick O’Beirne told MarketWatch, ‘Chainsaws are also a very good tool, but who would use one without a chain guard?’” he says. “People don’t take safeguards to ensure their work is correct — in fact, in many cases, all it would take to catch these errors is a second set of eyes.”
Lost confidence in the process and the reliability of the data results in sales staff keeping their own set of books or leaving the firm. Typical reasons for a sales rep to leave include:
- Higher base salary
- Better commissions
- More prestigious employer
Companies with error-prone commission processes will experience higher sales rep turnover. The true cost of employee turnover can be evaluated as follows:
- Recruitment costs
- Training costs
- Lost productivity costs
- Lost sales costs
Divide the budgeted revenue per sales territory into weekly amounts and multiply that amount for each week the territory is vacant, including training time.
In a blog by Naiyrr Jawaid titled “Excel Errors Costing Business Billions,” he noted that among other examples, “JPMorgan Chase’s trading loss of $6.2 billion was caused by an Excel error in copying and pasting data.”
What is the impact on your business reputation if reps, clients, and vendors cannot rely on the information that is coming out of your company? Firing the controller just masks the greater issue that systems, processes, and quality control reviews are not being done to ensure the highest quality.
Running the Numbers
Here is an estimate of the potential cost savings that can be realized on a monthly basis by automating the sales commission management process.
 Spreadsheet quotes from Spreadsheet Taglines. http://www.j-walk.com/ss/jokes/taglines.htm
Currently, Steve is Vice President of Marketing and Channel Development for sales provider CellarStone, Inc. Steve also runs a LinkedIn group called "QuickBooks and Business COaches".
Latest posts by Steve Peterson (see all)
- U.S. Supreme Court Ruling on Loan Officers Exemption Status - July 10, 2015
- Moving Beyond Spreadsheets - July 7, 2015
- Our New e-Book: “The Great Accounting Cloud Land Rush” - December 17, 2014