2012 New Orleans Health 13

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2012 Health Meeting

June 13- 15, 2012

Session #13 PD: Best Practices for

Excel Design and Controls

Johann K. Leida, Ph.D., FSA, MAAA

Alisa Johnson Widmer, FSA, MAAASteven F. Wright, FSA

Primary Competency

Technical Skills & Analytical Problem Solving


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1 May 30, 2012 [Enter presentation title in footer] Copyright 2007

13L Best Practices for Excel

Design and ControlsPeer Review and Quality Control

Presented by

Hans Leida, PhD, FSA, MAAA

Actuary

J une 13, 2012

So youve built a model(well-documented and organized, of course)

Is it error-free?

Checking: does it do what you intended it to do

Is it correct?

Peer review: does it do what itshould do

Are you aiming at the right target?

Will it remain error-free and correct over time?

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Agenda

Checking and Peer review

Version control and Archiving

Excel 2010 Some relevant highlights

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Checking and Peer Review

Checking: detailed, technical review of a spreadsheet (or other

analysis)

Peer review: higher level review of an analysis and its results

Both should be performed by analysts or actuaries other than

the author(s) of the model

Allow enough time for the process and get the right reviewers

Best practice agree to standards regarding:

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Documentation of reviews including sign-off; and

Periodic audits to make sure reviews are happening.


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Poll:

What percentage of finished spreadsheets

contain errors causing wrong results?

A. 25%

B. 50%

C. 75%

D. 85%

E. 95%

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Poll:What percentage of finished spreadsheets

contain errors causing wrong results?

A. 25%

B. 50%

C. 75%

D. 85%

E. 95%

we found that 7 of the 50spreadsheet workbooks we

audited were error free, for a

spreadsheet error rate of 86%.Powell et. al. (2009)

http://mba.tuck.dartmouth.edu/spreadsheet/product_pubs_files/Errors.pdf

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Poll:

Does your employer have an explici t policy

regarding spreadsheet checking and review?

A. What happens in Vegas stays in Vegas.

B. We do reviews, but the process is informal.

C. Yes, but its understood that getting things done on time

is more important.

D. Yes, and we audit compliance on a regular basis.

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E. I am reviewing a spreadsheet right now.

Poll:Does your employer have an explici t policy

regarding spreadsheet checking and review?

A. What happens in Vegas stays in Vegas.

B. We do reviews, but the process is informal.

C. Yes, but its understood that getting things done on time is

more important.

D. Yes, and we audit compliance on a regular basis.

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E. I am reviewing a spreadsheet right now.


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Checking Approaches

Review every cell and every line of VBA

Review a sample of cells and VBA code, random or nonrandom

Recreate results using a different method

Go beyond mechanical reviews

Are the inputs up to date and from the correct source?

Does the output make sense?

Can you estimate ballpark ranges that are reasonable?

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,

lost along the way?

Balance rigor of review process with materiality of analysis

Design Spreadsheets to be Easy to Check

Documentation and organization

Use formatting to your advantage

Break complex formulas down into simple pieces

Use macros or data tables instead of manual copy/paste

Avoid links

Data validation on inputs

Cell protection to prevent accidental overwriting of formulas

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Data Validation and Integrity

Include checks and cross validations as part of spreadsheet;

gather them into a master validation sheet

Need to distinguish floating point rounding differences from true

discrepancies

Check input data for invalid, extreme, or null values

Control totals at each step of the way

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Checking Tips and Tricks

Use array formulas to compare ranges all at once:

{=AND(Analysis!A1:C1000 =Data!B1:D1000)}

Use formula tracing in Excel (third party tools also available)

Purchase or create tools to validate copies of a model versus a

master copy

For complex formulas/concepts, do a hand calculation

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Peer Review

Often efficient to separate higher level review from technical

checking

Reviewer focuses on big picture and spot checks assumptions,

values, and calculations

Also considers risks and whether results are communicated

appropriately (ASOP compliance, appropriate caveats)

Sanity checks

Talk throu h ro oseda roachand assum tions with eer

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reviewer prior to implementation

Changes that are made as a result of checking or peerreview must also be checked and peer reviewed before

sign-off.

Agenda


Version cont rol and Archiving


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Version Control and Archiving

Use a change log within the

spreadsheet to log all changes

Keep read-only archives of all

versions that have been relied upon

for actuarial communications

Talk to your legal counsel about

document retention policies

Learn about how often backups are

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made, and how long they are retained

You are saving your work on a server,

not your C: drive, right?

Agenda


Version control and Backups


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Excel 2010 Highlights(and some from 2007)

More robust change tracking and review

Who, When, Where filtering

List of changes can be exported to a new sheet

PowerPivotcan replace lookups with table joins

DAX (data analysis expressions)

Tables (new in Excel 2007, enhanced in 2010)

Group and filter related data and formulas

Automatically expand formulas down when data expands

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Use structured references instead of cell references

Enhanced conditional formatting Gradient fills, in-cell bar charts, sparklines

Thanks!

Hans Leida, PhD, FSA, MAAA

Actuary

[email protected]

952.820.2410


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Actuarial

Excel design and

controls

Society of actuaries Health meeting

J une 13 15, 2012

Agenda

Why are Excel controls needed?

Standard starting place

Documentation

Conclusion

2012 KPMG LLP, a Delaware limited liabilitypartnership and the U.S. member firmof the KP MG network of independentmember firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.29145DEN

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Why are Excel controls

needed?

Why?

Professional Standards

Avoiding errors

Risk Management

Effectiveness and efficiency of operations

Compliance with Regulatory Requirements

Sarbanes-Oxley (SOX)

Demonstrate internal controls by:

Maintaining calculations

Supporting/Documenting all adjustments


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Recording management approvals and sign off


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Why? (continued)

Model Audit Rule (MAR)

Show external auditors (at the Statutory level):

How controls work, are monitored and are documented

Produce an analysis of the level of risk associated with each control

Solvency II Use Test

Show internal models are integrated into the risk management process whendetermining required capital

Demonstrate management both understands and uses the models

Own Risk and Solvency Assessment (ORSA)


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Group wide assessment showing current capital needs are appropriate and futureneeds will be met

Forward looking analysis using risk based projection models where all the assumptions,interdependencies, and risk levels are documented and confirmed by management

Polling question 1

What percentage of your workday is spent in Excel?

A. 0% 25%

B. 25% 50%

C. 50% 75%

D. 75% 100%


5


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Standard starting

Standard starting place

Create a Standard Set of workbooks for valuation and modeling

Clean starting point for each month, quarter and year end.

Agreed upon by the whole team

Consistent appearance/structure within the workbooks

Document any improvements to the standard set

No hard coded cells moving from month to month

No holdover formula adjustments


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Documentation

Polling question 2

I feel comfortable our current level of documentation is sufficient to meet current and soon tobe enacted regulatory requirements.

A. Strongly Agree

.

C. Neutral

D. Disagree

E. Strongly Disagree


9


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Documentation

Create Documentation Tab

Contained within the workbook defining:

Contact person for questions about the workbook

What workbook does,

Instructions for use,

Define all macros,

Where input data comes from,

Where output data goes,

Methodology used,


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Date of analysis,

Intended use for results

Documentation (continued)

Structure of Inputs

Label the inputs and which values within the workbook must be updated

Create a Checklist of the inputs containing

Input Data description

The input source (a file, or location of support if the input is a value)

The date the input was updated

Avoid quick side calculations and hard coded numbers without source support


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Descriptive names

Label tabs by the function within the tab Input data, Trend Analysis, Summary

Column Headings should be clear and useful

Include Dates in the naming and labeling

Use Named ranges for sets of cells and groups of data

Label tables and charts with clear titles and descriptions of what is representedin the analysis


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Formatting

Use text colors and cell colors

User inputs are blue, one time adjustments are red, changes in the formulas or method

Set up a uniform definition for the colors or if a new color is used remember to labelwhat that color change means

Color Code tabs

Match the tab colors according to function (data, analysis and summaries) orpresentation sets (management, SOX required tabs, internal and external audit)

Format numbers


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Use commas and dollar signs so it is easy to understand


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Assumption Decisions

Sufficient documentation to support the assumptions chosen

Links to Experience Studies

Description cells that point to the memos describing the decision

Check for consistent coding of assumptions within the models

Define relationships and interdependencies of the assumptions include ariskassessment

Create a formal review and approval process

Using links to signed memos and electronic signatures


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Segregation of Duties

Establish approval process over

Testing any new assumptions or methods from reviewing

Reviewing data inputs

Updating the workbook/model, reviewing any changes

Reviewing workbook/model outputs

Separate the responsibilities of the execution of the change from the reviewingof the change

Record the separation using dates, signatures, links to approval emails or memos


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Create a Log tab

Encourages more secure version control

Makes review process standard part of work process

Log should contain the date, user name, task performed, indicator for management review

Fill out every time the workbook is opened, updated, reviewed

Document changes with details of support for the change

Document those changes and decisions were reviewed

Document sign offs within the workbook itself and always include the date!


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Thank you.


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Contact details

Ali sa Widmer

Senior Associate

Health Insurance Segment

Actuarial Services

[email protected]

www.kpmg.com


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The information contained herein is of a general nature and is not intended to address thecircumstances of any particular individual or entity. Although we endeavor to provide accurateand timely information, there can be no guarantee that such information is accurate as of the

date it is received or that it will continue to be accurate in the future. No one should act onsuc n orma on w ou appropra e pro ess ona a vce a er a oroug examna on o eparticular situation.

2012 KP MG LLP, a Delaware limited liability partnership and the U.S. member firm of theKPMG network of independent member firms affiliated with KPMG International Cooperative(KPMG International), a Swiss entity. All rights reserved. 29145DEN

The KPMG name, logo and cutting through complexity are registered trademarks ortrademarks of KPMG International.


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13L Best Practices for ExcelDesign and Controls

Presenter: Steven F. Wright, FSA

Ruark Consulting LLC

[email protected]


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VBA Demonstration

VBA Demonstration


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VBA Demonstration

Best Practices for using VBAin Excel

What the focus will be on:

rganza on

Functionality

Good habits

What the focus will not be on:

Performance

Kevin Ropers SOA article: Excel VBA Speed andEfficiency


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Poll: Experience with VBA

What is your experience with Excel VBA?

A: Whats VBA?

B: None I have others do my dirty work.

C: Use VBA a little, but mostly just fromrecorded macros

D: I create my own VBA methods

E: I probably know more than you, Steve

Definitions

VBA Visual Basic for Applications

Method a subroutine or a function

Module a group of methods


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First Thing First:

PlanPlan

Output

Future needs

Players

Input

Agree on Scope

oBe specific; in writing

Outline the Process

Recycle

Think to reuse code

o I will show an example later

Store in Utility modules

oGeneral: Utilities_5_21_12

o pec c: es_ eservng


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Poll: Proper variable name

Which is the best name for a variable tos ore e pan co e ex

A: plan

B: strPlanCode

C: planCode

D: PlanCode

E: plan_Code_And_Year

Decide on a Naming ConventionVariables


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Decide on a Naming ConventionVariables

Two main schools of thought:

1.Type as prefix: strPlanCode

2. Camel style: planCode

Dont abbreviate

Key is: Be consistent

Poll: Proper variable name

Which is the best name for a variable tos ore e pan co e ex

A: plan

B: strPlanCode

C: planCode

X notdescriptiveenough

D: PlanCode E: plan_Code_And_YearX lookslikeamethodname

toolong


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Decide on a Naming ConventionMethods

Capitalize first word and every word

Dont abbreviate

Start with verb

Good examples:

oGetPlanCode

o r e a ues

o

Set_Credited_Rateo InitializeVariables



Dont abbreviate

Start with verb

Good examples:

oGetPlanCode

o r e a uesoSet_Credited_Rate

o InitializeVariables


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Dont abbreviate

Start with verb

Good examples:

oGetPlanCode Function

o r e a ues

o

Set_Credited_Rateo InitializeVariables

Subroutines

Be Flexible

Everything is a variable [ no hardcoding ]

Examples:

mode = 4

planName = Ultimate12

numScenarios = 2000

Ask: Can this ever change? How?


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Readable Code

Readable Code

Controlling method

Group methods in modules

Dim global variables in onespot (Initialize module)

Limit each line

omment Indent & Spaces


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Readable Code Example

Public Function GetRangeNames(ByVal strFind As String) As String()

Const delimiter As String =","

Dim iNameAs Integer

Dim rangeNameAs String, rangeNames As String

On Error GoTo ErrorHandler

Public Function GetRangeNames(ByVal strFind As String) As String()

' This function returns an array of all range names found that include strFind

Const delimiter As String =","

Dim iNameAs Integer

For iName=1 To ActiveWorkbook.Names.count

rangeName=Names.Item(iName).Name

If InStr(rangeName, strFind) Then

rangeNames= rangeNames& rangeName& delimiter

End If

Next iName

If rangeNames"" Then _

rangeNames= Left(rangeNames, Len(rangeNames) - Len(delimiter))

GetRangeNames =MakeStringArray(rangeNames, delimiter) ' in Utilities module

CleanUpAndExit:

Exit Function

ErrorHandler:

MsgBox "Error in GetRangeNames:" & vbCrLf & _

Err.Number& " " & Err.Description

Resume CleanUpAndExit

End Function

Dim rangeName As String, rangeNames As String

On Error GoTo ErrorHandler

' Loop on range names in workbook to see if it includes strFind

For iName=1 To ActiveWorkbook.Names.count

rangeName= Names.Item(iName).Name

If InStr(rangeName, strFind) Then

' this range is a match, so add to string of range names

rangeNames=rangeNames & rangeName& delimiter

End If

Next iName

' take off las t delimiter

If rangeNames "" Then _

rangeNames=Left(rangeNames, Len(rangeNames) -Len(delimiter))

GetRangeNames =MakeStringArray(rangeNames, delimiter) ' in Utilities module

CleanUpAndExit:

Exit Function

ErrorHandler:

MsgBox "Error in GetRangeNames:" & vbCrLf & _

Err.Number& " " & Err.Description


End Function

Catch Errors


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Catch Errors

Error Handling section

oAnticipate common errors

oGeneric capture of others

oSend meaningful messages

Error Handling example

Public Function GetPlanIndex (byval fileName as String) as Integer

CleanUpAndExit:

Exit Function

ErrorHandler:

GetPlanIndex=-1

Select Case Err.Number

Case 53

msgboxThe file & fileName& does not exist

Signaltouser:BAD

Expectedpossibleerror

Case ElsemsgboxError in GetPlanIndex: & vbcrlf& _

Err.Number & & Err.Description

End Select


End Function

CatchAll


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Cleanup after yourself

Dispose of Objects

oObject: use Set

oClose it: [var].Close

oDelete it: Set [var] = Nothing

Prune the dead greenery

Exit a method in only one spot

Test Test Test

You try to break it

Have users try to break it

You try to break it again


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And now the dreaded part:Documentation

Documentation

Written documentation

Review comments in methods

Psst: Want to make your life easier?


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Final Thoughts

Store all workbook variables on one sheetore ara es .

Option Explicit first line of code

oAvoids incorrect typing

Meaningful looping variables

oEx: iSheet instead of just i to loop on sheets

Summary

1. Plan 5. Flexible

2. Readable

3. Recycle

4. Consistentnaming

6. Catcherrors7. Cleanup

8. Test

9. Document


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13L Best Practices for ExcelDesign and Controls

Presenter: Steven F. Wright, FSA

Ruark Consulting LLC

[email protected]

2012 New Orleans Health 13

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