Discussion- Management Science And Journal Entry

Errors in the real world cost billions

58 mins ago

Barclays Capital had some trouble with a reformatting error.  This was involved in their Excel spreadsheet and the error was the cause of 179 additional contracts being included in their purchase agreement with Lehman brothers.   

Barclays Capital sent an Excel spreadsheet containing multiple contracts in a single purchase agreement.  However, instead of deleting rows of purchasing assets, the writer hid them instead.  When the Excel was later converted to PDF format all the hidden rows were fully displayed.  

There definitely seems to be some kind of error in their loss prevention procedure.  If they had only taken the proper preventative measures they would have probably been able to avoid this dilemma at much earlier stages.   Excel has many formatting options which makes it extremely versatile and also vulnerable to different variations of the same material.  Without strict guidelines and regulations enforcing the exact formatting of Excel worksheets, they may be unformatable  later or may cause trouble with certain programs that require different types of input.  The incorporation of a very strict SOP, that requires very precise rules and exacting instructions,  would have eliminated any chance of such errors to have occurred.    

Jp Morgan faced a giant spreadsheet fiasco.  During this moment of tragedy they were relying on manual copying and pasting data across many spreadsheets.  As a result, their information was tainted and was completed almost backwards.   The problem of using manual copy and paste magnified even more, as increasing pressure began to skyrocket from more demanding deadlines.   

The London Whale debacle is based  on how Excel failed as a financial modeling program.  As a result of not being tested correctly, the excel model suffered greatly.   

During the review, additional issues became noticeable.  The main point is that perception errors from Excel began to show inaccurate risk/gain than the actual numbers.   J.P. Morgan’s debacle was caused by Excel user error.  The company was using spreadsheets for models and copied the wrong info.  The result was a model that understated their risk factor.  

Any human worker could have easily produced such an error.  With human error, you will see this type of problem every day.  Information is always being sent into the wrong location.  Automation is the solution for this type of Excel problem.  Most spreadsheets are prone to errors based on simple mistakes.  Investing in a system that’s been pre-coded by professionals is the ultimate prevention.