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Why Using Excel for Real Estate Project Cost Control Can Lead to Catastrophe

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But all is not exactly well with Excel. Forbes has referred to it as “the most dangerous software on the planet.” And we too think that, with construction projects, Excel is definitely a risk for three reasons:

It’s highly susceptible to human error. Workflows and communication are done outside of the softwareData chaos is lurking around every corner when you use it

Problem #1: 90% of all spreadsheets contain major errors

It’d be tough to argue against Excel if it truly batted a thousand. But as it turns out, exactly the opposite is true.

Studies have determined that 90% of all spreadsheets with more than 150 lines contain serious mistakes. These are mostly caused by human error when manually entering data or calculations.

This can lead to expensive oversights (putting it mildly), as seen in a case from the investment bank JPMorgan Chase. One way people use Excel is to help determine risks and opportunities. But in one instance – which came to be known as the “London Whale” (the nickname of the trader behind this fiasco) – an user error determined a series of derivative transactions as possessing half the risk they actually had. It ended up costing JPMorgan Chase billions, and was extremely embarrassing to boot.

This is just one glaring example of Excel’s susceptibility to error. The software simply requires a lot of manual data entry. Formulas and financial data are completely user-defined, and Excel does not feature any security or checking features worth mentioning.

Any one single copy-and-paste mistake can have serious effects on a calculation. Before you know it, your entire estimate can slip 15%, letting you incorrectly think you’re actually getting a positive return on investment. Or maybe you wind up with not enough liquidity because your cash flow wasn’t properly kept up to date.

Problem #2: Excel is not a project management system

Projects with Excel only work in combination with email or another external communication tools. To be sure, since rolling out Office 365, Excel does in fact let you work together via the cloud. This however isn’t so widespread, and really doesn’t enable any effective workflows to speak of.

This means that Excel users have no other choice than to continue to manually coordinate their jobs, approvals, audits, etc. Pending tasks will as a result sometimes sit around untouched for days in emails inboxes, delaying entire projects. This creates anything but efficient workflows.

Problem #3: “Hey, where do I find…?”

Don’t you just love file names like “180101_costcalculation_version3.154_final_TS.xlsx” or links that don’t work anymore? Spreadsheet calculations typically involve any number of people. And even though Excel gives you the impression of it being a database, it’s not. It simply doesn’t effectively feature the ability to track changes, something that’s critical to achieving reliable, efficient collaboration and documentation. So with Excel, it’s not uncommon to see unintentional double or incorrect entries, without the other users even knowing that something was done wrong.

Even worse is the obligatory data chaos that results. Under optimal conditions, files are centrally stored on a secure company server or in the cloud. But too often, the reality is that different versions of the same file are often lying around in different folders, on various computers, and passed around via email.

So what can I use?Just to be clear: We really love Excel. There are all kinds of situations where it’s absolutely the best option. But what we’re also saying is that with real estate financing, there are many instances where Excel reaches its limits, and where there are in fact much more reliable, efficient solutions.

Modern software lets you take advantage of spreadsheet calculations for e.g. controlling multiple projects or when processing construction invoices, all while effectively handling the problems and situations described above.

As opposed to Excel, Alasco software allows effective cooperation, and can generate invoice approval workflows. Everyone working on a project has access to the same document, anytime and from anywhere. Responsibilities are clearly defined via automatic tasking, and changes are clearly documented. No more saving and sending the latest file version or updates.

And all files generated in the system within the different workflows are linked in real time. You’re going to like how this keeps your cost control and cash flows up to speed, all the time. It lets project managers and contractors understand their costs clearly, plan better, and effectively respond to any changes as quickly as possible.

And for those of you who still want to use Excel to do reports for banks and other financial institutions: Yup, Alasco features an Excel export.