From the code of Hammurabi through the Magna Carta and centuries of Juris Prudence, the legal profession has always been a highly conservative one. This is only natural considering that its foundations are built upon following established precedents and fact-based arguments.
But when it comes to business management technologies, law firms have discovered in recent years that a conservative approach is all too often a dangerous one.
Take for example Excel spreadsheets, now more than 30 years on the market, which have become as common in virtually all law firms as conference phones. From its early beginnings, when it struggled to compete with the likes of Lotus 123 to what is now without a doubt the gold standard in spreadsheets, Excel has become an almost constant fixture in all law firms.
It’s hard to imagine any business, legal or otherwise, operating without spreadsheets but when the leading financial management consultancy Operis recently referred to Excel as “the world’s most useful and dangerous program” it made an entirely valid point. Time and time again we have seen spectacular business failures resulting from the improper use of spreadsheets and it will be only a matter of time before a large law firm falls victim to the same.
A recent report from UK financial model training firm F1F9 and the results of a YouGov poll of large businesses made for some particularly worrying, and frankly quite startling reading. According to the research, 17% of large businesses admit that they have suffered financial loss due to poor spreadsheets, a third say that they have made poor decisions due to spreadsheet problems, and 60% state that significant amounts of time are wasted thanks to the fallibility of spreadsheets.
Excel is designed for data manipulation not for reporting, forecasting and planning in law firms, yet the majority of organizations are using it for exactly those purposes, knitting together a myriad of different systems through spreadsheets and essentially keeping their fingers crossed. Spreadsheets play appropriate roles in any business but they simply should not underpin areas such as accounts preparation, pricing, investment decisions or planning and budgeting, where far more fit-to-purpose software systems perform these functions more accurately and securely.
The unfortunate reality is, however, that Excel does underpin these important functions in the vast majority of businesses.
We need to heed the lessons learned from the failures of West Coast franchise, London Whale Trades and Enron that were in part attributed to inaccurate and poorly applied spreadsheets.
Recorded in J.P. Morgan’s own report to their shareholders, the now infamous London Whale Trades “operated through a series of Excel spreadsheets, which had to be completed manually by a process of copying and pasting data,”. resulting in a loss of more than £50m to UK taxpayers.
As for US-based Enron, whilst its collapse was largely of its own making, the post-mortem did reveal that 24 percent of the reviewed spreadsheets had errors, with each error responsible for an average of 9.6 other formulas. Spreadsheets of which were integral to the management reporting and planning process at the company. Recent corporate history is also littered with large businesses suddenly revealing accounting “corrections” and “irregularities” many of which are at least, in part, the result of flawed spreadsheets.
Clearly most large law firms would agree that using spreadsheets to underpin business critical decisions is far from ideal but with so many systems already in play, particularly at firms that have grown through acquisition; the general view is that there isn’t any other option. Yet that is far from the case today.
While spreadsheets are a necessary evil where systems can’t otherwise communicate with one another and data exists in silos, many progressive law firms around the world have adopted decision management software platforms that sit above existing spreadsheets and legacy data management systems with no need for firms to rip them all out. Rather, these smart decision management systems pull together the disparate data outputs into a single place and provide complete visibility across what traditionally had been separate systems. Firms can then easily identify problems in source data and can start comparing and reporting as if it were from a single unified source.
Spreadsheets do have their place in businesses, which is why the best of these decision management platforms have full Microsoft Office Integration with Excel, Powerpoint and Word. That integration allows users who wish to use Excel to do so much more efficiently and confidently knowing that the integrity of their data is ultimately secure.
When considering the clear and present danger inherent in cobbling together multiple spreadsheets from many corners of a law firm, particularly international ones, conservative practices should rethink the relative value of tradition vs. innovation. It is high time to recognise the dangers and limitations of reporting, forecasting and planning in law firms with spreadsheets and put them firmly in their proper place.