The furor around the errors found in economists Carmen Reinhart’s and Ken Rogoff’s spreadsheet refuses to die. The story has been covered by many different media outlets, including The New York Times and The Huffington Post. To recap: these two leading economists made recommendations pushing global government austerity based on faulty data in a spreadsheet.
The world now knows what many CFOs and finance executives know: spreadsheets are error-prone and even simple errors can result in considerable ramifications.
In this case, the errors were, in fact, very simple. The spreadsheet omitted some vital data and had an error in a formula. These mistakes were discovered as other economists attempted to recreate the findings. Correcting the errors changed the findings significantly.
What can you learn from this well-publicized and embarrassing mistake? Here are three things to ask yourself:
1. Are you confident in your data?
When you are basing decisions on data in a spreadsheet, you need to take two things into consideration: Is the data in the spreadsheet correct and do you have all the data you need?
2. Could your spreadsheet be replicated?
You and your management team base corporate decisions on the data contained in your spreadsheets. If you needed to defend your decision, could you replicate the results? Could someone else recreate the spreadsheet and come up with the same numbers?
3. How much risk do you face?
Your spreadsheet error is not likely to make the pages of The New York Times or The Huffington Post. But even one simple error could reflect badly on you and your team. Are you willing to risk your reputation on your spreadsheet?
It’s an “open secret” that large percentages of spreadsheets have numerous errors, yet spreadsheets are still the number one tool used for corporate budgeting. Is the risk – and ramifications – of using spreadsheets worth it?