Spreadsheet Errors

1. Designing Financial Models That Work-- Spreadsheet Errors -- Jonathan Class 1Homework #1, part 1

2. 1. Structural errors occur largely due to a lack of experience or due to flawed analysis—they take time to fix Structural Errors Not presenting the logical flow of the analysis being performed Not separating inputs and outputs Not putting assumptions in one place Lack of worksheet structure, e.g., separate model by worksheets vs top to bottom sections within one worksheet Linked to external spreadsheets or databases that are not permanently available but updated Example: Modeler has multiple worksheets for no apparent reason

3. 2. Content errors include simple math mistakes, false units and mechanical errors Content errors Presenting false/erroneous content in a spreadsheet This can include simple math errors, mistaken units, mechanical errors Moreover, the modeler may use an erroneous source as input Content errors can be spotted and corrected by an experienced modeler in a relatively short period of time Example: Modeler assumes that acquirer would hand 90% of the company to management.

4. 3. Formatting errors make it difficult to follow the logic of the model Formatting errors Formatting errors display false or inconsistent formatting Hard-coding Multiple operations in one cell Inconsistent colour coding of inputs and computations Lack of titles Et cetera Example: Esoteric and inconsistent colour coding.

5. Modeling errors can be avoided through practice and prudence The three main categories of spreadsheet errors are Structural errors Content errors Formatting errors Structural errors are the most serious and need training to correct Content errors can be spotted by an experience spreadsheet user / a professional Formatting errors can be avoided with prudence and attention to detail