Reinhart Rogoff, London Whale, spreadsheet errors
Modelling Design Partners and SolveXia recently conducted a survey, in collaboration with the Actuarial Post, to better understand the challenges faced by actuarial departments. The results will be published later this week in the April issue of the Actuarial Post.
The results revealed that the most pertinent challenge that is associated with actuarial processes is vulnerability to input error. Spreadsheets are pervasive in many industries, due to their flexibility and perceived reliability. However, despite their ease of use, spreadsheets are notoriously difficult to audit and control. Frequent manual manipulation of data and equations is often required, which leaves spreadsheets vulnerable to human error.
The London Whale incident and the Reinhart–Rogoff fiasco are both extreme examples of such errors – one in investment banking, and the other in international economics. In both cases, highly qualified mathematicians, and world-renowned economists accidentally copied incorrect equations in spreadsheets, which led to disastrous errors. The lack of transparency and control of their spreadsheets, added to the difficulty to audit the calculations were the main reasons why the errors went unnoticed until it was too late. Both cases illustrate how the need for automation and control software like SolveXia has become more urgent in recent months.
The report of the survey results will be published in the April issue of the Actuarial Post on Thursday this week. Further details to follow.
