Ella places two printouts on John’s desk and points at the total columns. “Why don’t these numbers match?” she asks. John looks for a second, hoping Ella has made a simple mistake. But she’s right, they should match. John spends the rest of the day crawling through dozens of spreadsheets, attempting to find the source of the discrepancy. Eventually the problem is found, but only after turning up five or six similar issues. The team collectively pauses for breath when they consider the number of decisions made on faulty data. It is another week before John has fixed the problems and can return to his original task.

This is a particularly familiar story to many growing financial companies, which often prompts the question “how did things get like this?”. To find the answer, we need to investigate a misunderstood dynamic in spreadsheet and tool development. Consider the following diagram:

Figure 1 – The Square Law of Spreadsheets Effects Diagram. Continue reading →