TransAlta Lose $24m

Financial modelling error costs firm $24m.

Error Type: Input error, Copy & Paste.

Reported on: June 2003

What happened?

The financial modellers in TransAlta's bids team made an error in the bids model which led them to win a number of contracts in the New York power market that it did not actually need to win and at prices it had not intended.

The bids won in error will cost TransAlta $24m and knocked 10% off the company's annual profit.

What caused the error?

The error in the tender was caused by a simple, but costly, transposing error.

The modeller sorted the data and did not notice that when they pasted the data from their financial model into the submission bid template the contracts were misaligned.

In a number of cases high bids were aligned to contracts that TransAlta was planning to put low bids on, and visa-versa. This meant that TransAlta overpaid for transmission contracts, as well as buying more capacity than it needed.

"It was literally a cut-and-paste error in an Excel spreadsheet that we did not detect when we did our final sorting and ranking of bids prior to submission".

How could the error have been avoided?

This was a simple user error and a lack of controls around the final submission. 

I have been caught out by a similar sorting issue in the past where another member of the team added a blank column in the middle of the dataset and then hid that column. When I sorted the data only the left hand side of my data moved. Fortunately, I spotted my error before sharing the outputs anywhere.

A peer review control between the financial model and final bid submission would have highlighted the mistake.

Full Stack's Financial Modelling Errors Series

See our complete financial modelling error series here.

 

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