If you’re part of Megalodon’s rapidly growing fan base, you’ve noticed how interested we are with the history of insurance and the utility of spreadsheets. As I contemplated this blog post, it made sense to combine these themes to explore the history of spreadsheets and how reliant we have all become on them.
It turns out one could write a PhD dissertation on spreadsheets, both the modern software versions and their paper antecedents,
considering their impact on commerce since at least the mid-15th century.
Here’s a condensed timeline with links for you to explore further:
- Luca Pacioli, to this day known as the Father of Accounting, develops double-entry accounting during the mid-to-late Italian Renaissance;
- Paper ledgers, aka spreadsheets (large sheets of paper with columns and rows that organized information regarding the costs, income, taxes, and other related business data in a single space), were then used for the next 500 years or so;
- Dan Bricklin, at the time a Harvard Business School student, daydreams what it would be like to work with financial data on something larger than a TI Business Analyst calculator. VisiCalc, considered computer software’s first “killer app,” was released in 1978. (See Bricklin’s engaging, 12-minute TED talk here, including the 1:06 mark at which he quotes Steve Jobs crediting VisiCalc for propelling Apple’s success more than any other single event.)
- Then things started popping: Microsoft’s first spreadsheet program, Multiplan, was released in 1982; Lotus 1-2-3 came along a year later; and Microsoft’s first version of Excel was introduced in 1985. Interesting, visual timelines can be found at ExcelTrick and SmartSheet.
Fast forward 30-plus years and spreadsheets, particularly Microsoft’s Excel, are used by professionals in nearly every conceivable industry. According to Microsoft, there are now 1.2 billion users worldwide that use some kind of Office product or service. That’s 16% of the world’s population using Excel on a nearly daily basis!
The Downside of Spreadsheets
In addition to dramatically increased productivity and whiz-bang calculations that can be done almost instantaneously, what have we gotten for our reliance on spreadsheets? Spreadsheet risk, for one.
What’s spreadsheet risk? It’s the risk associated with deriving a materially incorrect value from a spreadsheet application used to make a related decision. Examples include the valuation of an asset, the determination of financial accounts, the calculation of medicinal doses or the size of load-bearing beam for structural engineering. Such risk may arise from inputting erroneous data values, from mistakes within the logic of the spreadsheet or the omission of relevant updates (e.g., out of date exchange rates). Estimates indicate some single-instance errors have exceeded $1 billion.
Other shortcomings that make spreadsheets old news include:
- Huge discrepancies in the way financial institutions and corporate entities understand, manage and police their often-vast estates of spreadsheets and unstructured financial data (including comma-separated values (CSV) files and Microsoft Access databases). One study in early 2011 of nearly 1,500 people in the UK found that 57% of spreadsheet users have never received formal training on the spreadsheet package they use; 72% said that no internal department checks their spreadsheets for accuracy; 13% said that Internal Audit reviews their spreadsheets, and a mere 1% receive checks from their risk department.
- Reliability problems: it’s estimated that roughly 94% of spreadsheets deployed in the field contain errors, and 5.2% of cells in unaudited spreadsheets contain errors.
- Lack of auditing, revision control and security can make it difficult to determine who changed what and when, which can cause problems with regulatory compliance.
- Because they are loosely structured, it is easy for someone to introduce an error, either accidentally or intentionally, by entering information in the wrong place or expressing dependencies among cells (such as in a formula) incorrectly.
- Dependence on one employee who built the spreadsheet and could theoretically end his or her employment at any time, leaving the company without a resource who has expertise in the home-grown system.
- Trying to manage the sheer volume of spreadsheets that may exist in an organization without proper security, audit trails, unintentional introduction of errors, and other items listed above can become overwhelming.
If you’re an insurance or captive management professional reading this, chances are you sympathize with the previous points but it’s likely the last one that hits home. So many of our prospective clients repeatedly aggregate, sort, extract, pool, position and re-validate data relevant to their policies or plan designs. While Megalodon believes spreadsheets are indispensable for extracting valuable insights that inform business decisions, they’re very poor tools for managing increasingly complicated risk transfer structures or large numbers of policyholders and their associated records.
Spreadsheets have a purpose in our lives and businesses, but we’ve come a long way since the 1980’s and as the foundation for a modern insurance administration system they are old news.
Are you ready to be Done with Spreadsheets?
~ Jim Reuter, VP of Business Development, is passionate about improving insurance operations using forward-thinking software and systems. He has kept track of his expenses on spreadsheets since 2009; this year’s version is unsurprisingly titled, “2017 Daily Expenses.” To talk to Jim directly, please call (800) 406-5551 or drop him an email at firstname.lastname@example.org.