10 Common Spreadsheet Risks and Solutions for Businesses

Love them or hate them, spreadsheets will endure. But while spreadsheets will remain indispensable, they’re too often tapped by business users to do analytics jobs too complex for a spreadsheet’s capability to pull off. Many teams default to spreadsheets as their go-to tool for organizing work, managing projects, and reporting data. When it comes to doing analytics, business groups often resort to spreadsheets as the catch-all basket in which they gather up the data from the myriad sources that they need. Using spreadsheets for such a task leads to lots of manual work and the risk of human error—which can translate into missed opportunities that teams could’ve seized upon if they had the right tool for the job.

What Are Spreadsheet Risks?

Spreadsheets are a competent tool for many business endeavors; however, risks arise from using spreadsheets incorrectly for tasks they’re not designed to perform. When used for tasks beyond their capabilities, spreadsheets can create risks, including data entry errors, calculation errors, security vulnerabilities, scalability problems, and compliance shortcomings. When multiple spreadsheets are used, data is often spread across many files, making it difficult to create a single, consistent, and trusted business view that decision-makers can rely on. And because there’s typically no governance process in place with spreadsheets, decision-makers might be served incorrect data due to unseen errors. Spreadsheets also are limited in their ability to do analysis and provide recommendations. All of these issues combined can lead to the phenomenon known as “spreadsheet hell”—an environment where spreadsheets proliferate, information gets outdated, and human-error risk rises, rendering analysis unreliable.

Key Takeaways

• Spreadsheets become increasingly challenging to manage as data volumes increase and as organizations must address concerns around governance, security, data integrity, and compliance.
• Spreadsheets are limited in their ability to perform detailed data analysis or find hidden patterns within data, especially when users fail to keep data in the spreadsheet updated.
• Spreadsheets are ungoverned, which can be easily shared and distributed, increasing the risk of erroneous or conflicting data, unauthorized access, and data breaches. They’re also easily duplicated, leading to multiple versions with different data and conflicting conclusions.
• For analytics, spreadsheets are limited in handling unstructured data, such as video or text from customer complaints.

Spreadsheet Risks Explained

Spreadsheets are used in many industries and work for the right, targeted job. However, numerous risks are associated with the widespread use of spreadsheets, including a tendency for manual data entry and insecure data errors due to a lack of access controls and widespread sharing. Because of their performance limitations, spreadsheets can also become unscalable over time as a business grows, quickly running out of fuel when faced with the intricacies of cross-functional teams; multifaceted operations; and the need for high-level interaction, collaboration, and coordination.

Spreadsheets are often the default option teams use to pull together the data they need during analytics tracking. The problem: Spreadsheets are easy to launch but hard to maintain with current data. They often proliferate, so there are soon multiple versions of that initial data set, leading decision-makers to lose trust in the data and conclusions. While spreadsheets handle numerical data well, they aren’t well suited for unstructured data. When depending on spreadsheets, many companies struggle to make sense of their data and can miss opportunities to glean useful insights through in-depth data analysis.

Why Spreadsheets Are Popular

Spreadsheets are a popular tool for businesses because they are flexible, easy to launch and use, and generally cheap (essentially free to the business end-user) compared to some alternatives. Spreadsheets also can be created quickly and easily without the need for IT support or specialized software, making them an accessible tool for many functions. Users often need to pull data from multiple sources and systems, and they opt for spreadsheets to collect it for all the reasons just explained.

Spreadsheets also provide a way to sort data and make calculations that business teams need to make informed decisions without launching a major IT initiative. In finance and finance functions across industries, spreadsheets remain essential to core tasks such as financial modeling and reporting. Data preparation is another big reason people use spreadsheets for analytical work. Data is often stored in a format that isn’t optimal for analytics, so people export it to a spreadsheet to manipulate it into a form that businesspeople can use. Most analytics tools don’t provide built-in data preparation and enrichment.

10 Common Spreadsheet Risks for Businesses

Spreadsheets are used for business purposes, including accounting, data management, and financial analysis. While useful for such jobs, they create risks when pushed to higher scales and capabilities. Spreadsheets can become increasingly difficult to manage across medium or larger organizations. Issues related to data governance, security and access controls, data integrity, and regulatory compliance get increasingly complicated to address with larger volumes and more users. Here are some of the most common risks businesses face when using spreadsheets:

How to Address Spreadsheet Risk Management and Mitigation

It's important for businesses to carefully consider the potential risks associated with spreadsheets and establish controls and processes to manage them. This generally entails addressing current spreadsheet usage, taking appropriate corrective action, and implementing best practices and new corporate policies to reduce risk potential continually. That might involve implementing new applications to meet a need spreadsheets can’t. The following are steps you can take to mitigate spreadsheet risks:

Real-World Spreadsheet Consequences

Spreadsheets are a useful tool in business, but there also can be steep and costly consequences when they’re misused. Spreadsheet mistakes are not only costly in terms of time and money but also can lead to damaged reputations and lost jobs. Here are three real-world examples.

• Errors and inaccuracies: Spreadsheets are prone to errors, especially when complex formulas and functions are used. Even a small mistake in a formula can result in significant inaccuracies and potentially costly financial mistakes. An electricity transmission company once lost $24 million by bidding on transmission routes it didn’t need due to misaligned rows in a spreadsheet; it was “literally a cut-and-paste error in an Excel spreadsheet,” the company’s president said. Another costly mistake happened in 2005 when a major United States manufacturer suffered an $11 million severance error due to a typo in a spreadsheet.
• Security risks: Spreadsheets can be vulnerable to security risks, including data breaches and unauthorized access. If sensitive business information is stored in a spreadsheet, it can be easily shared or accessed by unauthorized individuals. This can lead to financial and reputational damage for the business. In 2021, a US government agency posted on an internal Microsoft SharePoint website for senior leaders a spreadsheet with employee information that included vaccination status; the agency’s union filed a grievance, leading to the spreadsheet’s removal.
• Compliance challenges: Spreadsheets can create compliance challenges for businesses, especially in highly regulated industries, such as healthcare and finance. These industries are subject to strict regulations around data management, and spreadsheets may not be able to provide the necessary controls and tracking. A healthcare organization that uses a spreadsheet to manage patient information may struggle to comply with United States HIPAA regulations.

Alternatives to Spreadsheets

Spreadsheets will always have their place. But if you’re trying to uncover valuable information in your data using techniques such as combining multiple data sources or doing iterative discovery using machine learning capabilities to find hidden patterns within data, a spreadsheet won’t do the job. Likewise, if you’re using a spreadsheet to track project status, there’s likely a purpose-built project management tool that’s a better option. Of course, all these options require money, while firing up a spreadsheet won’t bring incremental costs—a big part of their appeal. But if a budget item is possible, here are several alternatives to using spreadsheets:

• Project management software: Used across various industries, project management software allows businesses to plan and manage projects, assign tasks, and track progress more dynamically and visually than tracking via spreadsheets. The software can provide real-time updates on project status and resource allocation.
• Enterprise resource planning (ERP) systems: Medium to large businesses use ERP software to integrate multiple business functions, such as finance, budgeting, sales, and inventory management, into a single platform. ERP systems offer advanced reporting and analytics capabilities and can make business processes more transparent and efficient than tracking financials on spreadsheets.
• Database systems: Databases and database management systems allow businesses to store, manage, and retrieve large amounts of data. A database can handle complex data structures and offer advanced data querying capabilities beyond what a spreadsheet can provide. But depending on the architecture and system, retrieving all required data from a database for analysis can be a slow process that requires specialized DBA expertise.
• Analytics platform: An analytics platform includes the hardware, software, tools, and utilities that enable businesses to gather and analyze large amounts of data from various sources. These tools offer advanced analytics capabilities, including data visualization and predictive analytics.
• Dedicated analytics software: Stand-alone software designed specifically for data analytics lets you quickly extract and prepare data for visualizations and insights, and business users can gain a consistent, trusted view of data to support decision-making.

Move Beyond Spreadsheets and Reduce Risks with Oracle

While spreadsheets can be a powerful tool for many use cases, it's important for businesses to recognize their limitations and potential risks when used for analytics. To mitigate these risks, businesses should embrace an analytics-driven culture built around trusted data and consider implementing alternative tools with more functionality, security, and governance.

A secure analytics platform can provide greater functionality than a spreadsheet and reduce the need for data exports by centralizing the logic dispersed across physical files, bringing that into an accessible, well-governed location for all to use. Oracle Analytics provides all the data manipulation capabilities people need to combine in-house and third-party data sets and leverage them in a trackable, shareable, and repeatable business process. Offering the latest data analytics technologies, including AI, machine learning, and natural language processing, Oracle Analytics is a complete analytics solution that can help your company make better decisions based on more timely and precise data—data that your business leaders understand and trust.

Spreadsheet Risks FAQs

What are the disadvantages of using a spreadsheet?

The main disadvantages of spreadsheets are data insecurity, limited scalability, and vulnerability to costly human errors.

What are the shortcomings of using spreadsheets for analytics?

Spreadsheets are difficult to govern and lack data management functionality, which makes them a poor fit for complex analytics using multiple data sources.

What are some examples of common spreadsheet problems?

Common spreadsheet errors include copy-and-paste errors and stale data due to manual updates.