How To Manage Spreadsheet Risk

Avoid those dreadful fat finger mistakes! In this article, we will discuss what is spreadsheet risk in the context of FX risk management and how to manage it. According to a recent survey by Citi Bank, 80% of corporate treasurers remain reliant on using Microsoft Excel in the data management and forecasting process.

Why you should worry about spreadsheet risk

Spreadsheet risk comprises a series of errors stemming from the requirement for data to be manually inputted into each cell. Manual execution not only takes up valuable treasury resources — it makes human error inevitable. The most common spreadsheet errors and risks comprise:

• Data input error, including ‘fat finger mistakes’
• Copy & paste error
• Formatting errors
• Formula errors
• Multiple versions across the enterprise
• Lack of backups
• Users’ lack of skills
• Insufficient guidelines

Despite all the efforts in spreadsheet risk management, the problem is not going away. In fact, as economies grow and businesses become more complex, more and bigger risks are being created . The world’s most famous business spreadsheet saw the light of day before the World Wide Web and the internet browser — that is, before the explosion of interconnectedness. And interconnectedness lies at the heart of modern FX hedging programs.

Spreadsheets and FX management

Imagine a perfectly designed currency hedging program for a company that seeks to protect the annual FX budget rate. Given the specific features of that company —especially its pricing characteristics— such a program would allow the finance team to systematically outperform the budget rate, avoiding under- and over-hedging all the while.

Now imagine that this apparently very effective FX hedging program was implemented on perfectly designed Excel spreadsheets. A treasurer’s dream come true? Not so fast. Spreadsheet risk would sneak in throughout the three phases of the FX workflow —the pre-trade phase, the trade phase and the post-trade phase— with potentially serious consequences becoming a silent killer of FX performance.

How can spreadsheet risk affect currency management

Let's do a risk assessment to understand how spreadsheets present a potential risk in the context of currency management. The most basic element in currency management is the process of sourcing currency rates for pricing purposes. Apart from the fact that many firms undertake it with irrelevant time-based criteria, the reality is that once currency rates are sourced —for example, from the European Central Bank’s website— the commercial team receives the information on a large spreadsheet.

Next, the FX exposure needs to be collected and processed. Budgeting, as we know, is a process that involves the controlling, commercial and production teams, purchasing managers, economists and members of the finance team. In other words: the cornerstone of the hedging program is the result of dozens, or more likely, hundreds of spreadsheets travelling back and forth across the enterprise. At this point, spreadsheet risk is only in its infancy.

Let us skip the trade phase and focus on the post-trade phase. What about accounting, financial and performance analytics? And all the required FX swapping? You guessed it: critically important information is subject, once more, to data entry errors, copy & paste errors, formula errors and formatting errors.

FX automation: how to manage spreadsheet risk

It’s high time for treasurers to start managing spreadsheet risk to avoid spreadsheet risk impacting the decision making process. Here, FX management automation is any CFO’s best antidote. These software solutions use Application Programming Interfaces to ensure that data can flow seamlessly between different systems (ERP, TMS, others) without any need for spreadsheets. And clear financial reporting that enables valuable insights and strategic thinking.

And remember: avoid the potential risk of fat finger mistakes!

Want to prevent spreadsheet risk from sneaking into your currency management? We’ll show you how you can effectively manage FX without any need for spreadsheets in this whitepaper.