Why It’s Time to Ditch Excel for Risk Management

Spreadsheet software like Excel is helpful for a multitude of use cases, especially in the world of finance. In fact, a recent study by Wolters Kluwer revealed that 85% of bank respondents report using spreadsheets and other manual processes to manage risk.

But if bank leaders want to fully understand the most important risks their institution is dealing with, it’s time to ditch the spreadsheets.

Many bankers use spreadsheets for everything from credit memos to risk management, but given the advancements in technology, there are now better ways to manage these processes. The nature of risk has also evolved significantly and relying on spreadsheets can often lead to blind spots and shortfalls when trying to monitor and manage portfolio risks. 

The Shortfalls of Spreadsheets

Overwhelming & Cumbersome

Spreadsheets often have hundreds of rows of data across one or more sheets that need to be entered, interpreted and analyzed. This process is time-consuming and prone to mistakes. Imagine staring at rows upon rows of spreadsheets to understand where there are potential risks. With all that information, it’s incredibly difficult for team members within a bank to determine which pieces of data are crucial and which data points are not. 

It’s also very easy to make a mistake in Excel. With the huge number of cells, it is easy to make a small typo or error without realizing it. Even minor inconsistencies can pose problems. When data is entered or manipulated manually in Excel, there is a higher risk of human error. This can lead to inaccurate or inconsistent data that can have serious consequences for decision making and reporting. For instance, discrepancies in how loan data is entered will make it harder to segment the portfolio and cross-analyze data sets. Ensuring consistency in the data will eliminate any unnecessary headaches down the road. 

Lack of Scalability 

While Excel and other spreadsheets can have several hundred rows and columns, as the data grows, it may become difficult to manage and analyze, which can result in slower decision making and reduced productivity. Also, if an institution’s portfolio managers are tasked with managing hundreds or thousands of business or consumer notes, using spreadsheets to monitor risk is not sustainable. 

Blind Spots Galore 

Blind spots can arise because spreadsheets often don’t show control measures in the context of specific risk scenarios. In other words, you cannot always distinguish where a control is placed within the risk scenario, and subsequently, where risk controls are lacking.  This is a critical issue when evaluating a financial institution’s credit risk. Issues like missing amortization schedules, data stored on paper or in Excel spreadsheets, or incorrect collateral codes can seriously hinder an institution’s ability to monitor and predict the performance of a loan portfolio.

Collaboration Challenges 

A risk manager often needs input from several key individuals or stakeholders across the business. Spreadsheets are not equipped to support productive collaboration, as risk managers cannot access and work in the same file. There’s also the issue of version control. Excel files are often shared and edited by multiple people. This can result in multiple versions of the same file. Without proper version control, it can be difficult to determine which version is the most up to date and accurate, leading to confusion and errors. Multi-user spreadsheets are also more liable to get corrupted, potentially losing valuable data.

Security & Compliance

Spreadsheet files often contain sensitive information. Without proper access controls, this information can be accessed by unauthorized individuals. This increases the risk of data breaches or loss. Spreadsheet software also does not come with built-in features for ensuring compliance with regulatory requirements, such as data retention and audit trails.

While spreadsheets may be a familiar tool and there is comfort in that, there are better alternatives for managing portfolio risk. Now is the time to consider maturing your institution’s approach to risk management with modern technologies that provide a more comprehensive view of the portfolio and any hidden risks. If your team still relies on spreadsheets and multiple disjointed systems for monitoring the portfolio, it may be time to explore other, more efficient options, such as Baker Hill NextGen®.

Author Bio

Baker Hill empowers progressive financial institutions to increase revenue, reduce risk, and drive more profitable relationships.

Streamline business, consumer direct and indirect lending with our common origination platform. Understand profitability and risk at every level with our sophisticated business intelligence and analytics. Monitor and maintain a healthy financial portfolio with our statement analysis, exception, and risk management solutions.

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