Throughout their careers, most employees will need to use spreadsheets for some tasks, whether its inventory tracking, finances and other important processes. However, if one cell is entered incorrectly, it can throw off reports, forecasts and planning. Management must understand model risk management to reduce potential inconsistencies and ensure that businesses have actionable information.

Spreadsheets can be an invaluable tool for many industries, but if decision makers have the wrong information at their disposal, it could hurt their ability to make positive choices. CNN Money senior editor Stephen Gandel noted several examples where spreadsheets were used incorrectly and lead to substantial negative consequences for the individuals involved. MF Global, for example, was explicitly told by a consultant to improve tools like Excel spreadsheets in order to monitor how much money the organization had in customer accounts as well as to monitor risks. These changes were never made and the business soon went bust.

Similarly, Gandel noted a miscalculation in the Utah's Office of Education that led to a $25 million budget shortfall and errors by Fannie Mae that made the institution look more substantially more profitable than it actually was. These are only a few examples of mistakes organizations have made while using spreadsheets, but there are potentially many others that have gone unnoticed. Managers must pay attention to the data they are inputting and ensure that they double check their reports in order to have accurate insights.

Enabling model risk management

There are bound to be some mistakes in spreadsheet tracking, so decision makers must make room for this margin of error and ensure they have accurately considered the potential risks. WatersTechnology contributor Ralph Baxter noted that because financial models have become so sophisticated, spreadsheets increase the chance for errors in model design, inventory, production and updated documentation. These mistakes can create significant consequences like reputation damage and financial losses as well as erroneous business decisions. However, by using software to oversee data integrity, organizations will be able to guarantee that their information is valid without having to manually go through all of the statistics.

"In this real-world scenario, solutions exist to help institutions track, monitor and analyze spreadsheet usage and related data management systems," Baxter wrote. "These have helped them to eliminate errors, protect them from avoidable risks, and deliver a more efficient management and decommissioning cycle."