Advice article: Why Excel is not suitable for cost calculation
Humans are creatures of habit. And so it is hardly surprising that companies often answer the question “How do you calculate your product costs” with the answer “We do this with Excel!”
Yes, spreadsheet programs (by the way not only from Microsoft) have their right to exist. But they are not all-rounders. Advantages are certainly the wide distribution, the low costs and the fast training time, because above all the younger generation works with Excel already in the school. But when it comes to highly sensitive and complex topics, such as product costing, the program quickly reaches its limits. The reason: Excel is a spreadsheet program – not a database. And that’s exactly the weak point.
The reason why so many companies nevertheless use the program for calculation might be that the term “spreadsheet” can easily be misunderstood. Excel is used to display figures and data in the form of a table. This is certainly sufficient for many areas as a basic function. However, if the complete calculation for products or even an entire production shall be carried out, errors are pre-programmed, because the actual calculation must be programmed “manually” by the user with the correct references, data and formulas. Database-driven software, on the other hand, is always up-to-date. You can often use it to view current market prices for hourly wages or electricity prices – even across countries.
That’s why the risk of errors in Excel is so high
In addition to these challenges, there are other potential problems when using the program in your daily work. If you feed your Excel spreadsheet continuously with data over months or even years, the file itself will become larger and larger. The result: the program becomes slower. One of the biggest disadvantages of Excel is the lack of access and administration rights. If the table is on an internal company server, theoretically any employee who has Excel installed can access it. With one click (whether accidentally or intentionally), the entire file – and by the way your months of work – can be deleted. The risk of error is therefore enormously high and should not be underestimated!
And: Where actually is the latest version of the Excel spreadsheet? Was it on the S server or the P server? Who is responsible for updating the data? And where is the knowledge from the database stored when employee X retires or leaves the company? The management of a current version may still work in a smaller company or with tools such as SharePoint. But these tools are associated with additional costs.
A common contra-argument to professional cost calculation software is the lack of training time. However, setting up your own “database” in Excel is tedious. The existing data must be entered and constantly updated. Another risk: Errors happen where people work. A typo has quickly slipped into a cell and the data or formulas are incorrect.
Even if you check all data in general terms, maintain the database continuously and clearly assign responsibilities, Excel lacks clarity at another point. Your diligence will be rewarded with a technically clean table, but it grows and grows and grows. More and more rows, columns and spreadsheets are added. Living UX design looks different. A tool that looks attractive and shows you the optimal price at a glance, without having to click through thousands of rows, not only makes your work easier – it also makes it more attractive.
Spreadsheet programs seem to be quite practical for many things in everyday business life. But a closer look shows that Excel is suitable for many areas of application, but not for a modern product cost calculation. These potential sources of error can be easily eliminated and avoided by professional software.
Do you also want to change your habits, but are not sure which calculation software is right for you? Then test the award-winning software Cost Control for free now.
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