Managing risk is an essential component of every organization accomplishing its key objectives effectively. Risk management not only requires a reliable process to capture risks, but also needs a method to document and administer the organization’s response.
An appropriate risk management tool always helps the risk managers to identify, assess, and prioritize risks. Here, we will discuss the use of spreadsheets – commonly used risk management tools, and their true costs. We will also discuss the best tool to replace spreadsheets for effective risk management.
The Benefits of Spreadsheets
Spreadsheets are commonly used management tools because they are:
Convenient to use: Many people believe that spreadsheets are convenient to collect, code, sort, and analyze data. Most people are also already familiar with how to use spreadsheets, such as in Excel. Yes, they are better than paper-based management systems, but they are still risky.
Flexible: With some basic encoding, spreadsheets offer flexible arrangements of rows and columns to enter data. They allow the user to configure and enter information in a way that suits his unique needs, such as custom charts, colors, or tables. But risk management involves an analysis of various factors and a spreadsheet may not be helpful.
Low or no cost: Spreadsheets are either available as freeware or at low-cost. That is why many organizations use them extensively. However, they fail to understand the fact that the true cost of a tool should be defined by the operational costs that affect the business in the long-run; not by the initial cost of the tool.
When Spreadsheets Fail
Many business owners and risk managers today are using spreadsheets as risk management tools unaware of the risks involved (however some are aware). This is not the time for ego, as we’ve spoken with many individuals who get defensive over a system they’ve developed themselves. The truth is, you should always adopt the most accurate, simplified process you can afford. Here are the risks involved with spreadsheets:
Inability to process huge amounts of data: Although spreadsheets are a good solution for small volumes of data, the processing and calculation of that data will become increasingly complicated with continual growth.
Time-consuming: Risk management requires collecting a great deal of information, which often results in a large number of spreadsheets interlinked to each other. A small change to the data structure becomes an enormous undertaking. This makes risk managers spend countless hours validating data, double-checking formulas, and updating values, which is a time-consuming process.
Difficult navigation: It can be quite difficult to find mistakes in a spreadsheet with a lot of data. It is often a time-consuming process to find where exactly the mistakes have occurred.
Limited risk analysis: With each change made to a spreadsheet, links between the information are lost, making it difficult to analyze relationships over time. Without these links, it becomes tough to link risks and their controls. Also, they offer limited access to past and current data making it difficult to compare data over time.
Intensive labor: The process of risk management involves continuous updating of data and it increases day by day. Updating data and using spreadsheets effectively requires a lot of time and effort. So intensive labor with good knowledge of using the shortcuts and formulas is compulsory.
Lacks security: A user can accidentally or intentionally delete vast amounts of critical information. Spreadsheets are highly vulnerable to virus attacks, hard disk crashes, and other unexpected disasters. Password protected sheets can easily be accessed.
Underlying Costs of Using Spreadsheets
In general, people think that spreadsheets are free, but they never fully calculate the underlying costs that can impact the business. Following are the true costs of using spreadsheets.
Labor costs: As discussed earlier, it takes a lot of effort to create, maintain, organize, and report using spreadsheets. However, the fact that these spreadsheets’ creation and maintenance require labor, which in turn results in huge costs to the company, is often ignored.
Opportunity costs: Spreadsheets consume a lot of your time and effort, which you can productively use for adding value to the organization. Many business owners, in fact, lose many opportunities hanging around with spreadsheets. This time could be better spent analyzing risk data and implementing controls.
Risk and non-compliance cost: Spreadsheets lack companywide visibility, accountability, security, and control, which results in increased costs in terms of failed audits, unforeseen events, increased insurance costs, and so on.
Scalability costs: A small company can manage and use one spreadsheet to track all records. But as the business grows, the effort of maintaining and consolidating these records increases exponentially. At one point this process fails and negatively impacts the business.
Human error costs: Spreadsheets are vulnerable to manipulation, which can dramatically impact the company. Moreover, with the increasing chances of human errors, it is difficult to consider that the data is valid and reliable. These human errors can cost a lot to the company.
Switching to Risk Management Software
After noting many of the risks and costs involved with spreadsheets, one would undoubtedly be looking for a better tool to manage risks, and here is the solution – risk management software. It can effectively replace spreadsheets in the risk management process. Following are the benefits of using risk management software.
Effective control over GRC processes: Risk management software helps with effective control over the GRC (governance, risk management, and compliance) processes with proper documentation and workflow. They also help managers in risk assessment and analysis, visualization, and reporting.
Data security: Users can limit the availability of data by creating passwords and implementing multi-factor authentication. You can also give customized access to all the data within your platform. You will also notice an activity log. This feature eliminates the risk of manipulation of data. All data is protected with strong encryption, both in transit and at rest.
Real-time recording: Recording and updating information regarding risks is easy using software. Instead of manually updating data in spreadsheets, monitor data in real-time from the software dashboard, and easily visualize risk and compliance with drill-down maps and charts to identify high risk or non-compliance.
Reliable audits: Standardize and automate assessment functions like data collection, analysis, reporting, remediation, and action plans to mature your program. Risk assessment platforms also serve as a central repository for documentation (e.g. evidence of compliance, policies, contracts, etc.). Replace subjective analysis with objective criteria in a defined and structured process that promotes tracking improvement over time.
Automated risk reporting: Automated analysis provides users with clear information on their objectives and risks. It also informs about the required actions and scheduled dates to implement them to prevent risks. Automatically build reports covering risk, compliance, security gaps, recommendations, and task status that can easily be shared.
Clear and consistent reports: Software provides clear and customizable reports making it easy for managers to view the risks in real-time. These can be set to generate on a set frequency and to a specific audience.
RiskWatch for Automated RiskWatch
We know that switching from a spreadsheet process to risk management software can take some adjustment, but we know you’ll immediately notice the difference in effort. That’s why we schedule a time with you to give a personalized demonstration of how to use our software and adapt your current process. Plus, only an admin needs to learn how to use the software as the assessment portion is intuitive and guided.
You’ll benefit from automated communication, real-time analysis of gathered data, a centralized location for data, instant reports, and so much more than a spreadsheet-based process can’t offer.
Start a free trial to begin a free assessment and start saving up to 80% of your time spent on assessment-related functions.