Spreadsheet risk is the risk associated with deriving a materially incorrect value from a spreadsheet application that will be utilised in making a related (usually numerically based) decision. Examples include the valuation of an asset, the determination of financial accounts, the calculation of medicinal doses or the size of load-bearing beam for structural engineering. The risk may arise from inputting erroneous or fraudulent data values, from mistakes (or incorrect changes) within the logic of the spreadsheet or the omission of relevant updates (e.g. out of date exchange rates). Some single-instance errors have exceeded US$1 billion.[37][38] Because spreadsheet risk is principally linked to the actions (or inaction) of individuals it is defined as a sub-category ofoperational risk.
In the report into the 2012 JPMorgan Chase trading loss, a lack of control over spreadsheets used for critical financial functions was cited as a factor in the trading losses of more than six billion dollars which were reported as a result of derivatives trading gone bad.
Despite this, research[39] carried out by ClusterSeven revealed that around half (48%) of c-level executives and senior managers at firms reporting annual revenues over £50m said there were either no usage controls at all or poorly applied manual processes over the use of spreadsheets at the firms.[39][40]
In 2013 Thomas Herndon, a third year student at the University of Massachusetts at Amherst found major coding flaws in the spreadsheet used by the economists Carmen Reinhart and Kenneth Rogoff in a very influential 2010 journal article. The Reinhart and Rogoff article was widely used as justification to drive 2010 to 2013 European austerity programs.
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