Bound to Round: 8 Tips for Dealing with Hanging Pennies
Rounding is used to simplify the use of numbers that contain more decimal places than required. The perfect example is representing cash, money, dough. In the USA and Canada, the cent represents the smallest fraction of money. The US and Canadian dollar can’t be transacted with more than 2 decimal places. When numbers represent money, we use rounding to replace an un-representable, un-transactable money amount with one that represents a cash tender.
The best way to introduce this blog is by asking you to watch a scene from one of my favorite movies, Office Space:
In this scene, Peter describes to his girlfriend a program that compounds interest using high precision amounts. He explains that they simplify the calculations by rounding the amounts down and by doing that they’re left with hanging pennies that they transfer into their personal accounts.
This is exactly what we want to avoid—we want to avoid having one developer aware of hanging pennies. We also want to avoid having many hanging pennies. And when faced with such a situation, we want to identify such calculations and put a plan in place on who to notify and what to do with them.
Before I explain this further, I want to tell you this story first. My father introduced banking software systems in the Middle East in the late 70’s. Rest assured he was bound to round. He faced the same issue Peter faced. He resolved it by accepting that he can’t resolve it. So, he created an account where the extra pennies accumulated and later were given as bonuses to the IT team at the bank. It was a way of getting back at the rest of the employees at the bank that didn’t want to move to using a software system and preferred pen and paper.
The Rounding Dilemma
Okay, let’s get back to breaking this problem down further with another example.
Let’s assume we can only charge 1 total amount, even if this 1 amount consists of a summation of multiple rates.
Rate 1 is 2.4%
Rate 2 is 2.9%
Amount $10.10
When rounding individual rate amounts:
Rate 1 total = (rate /100) * $10.10 = 0.2424 = rounded = 0.24
Rate 2 total = (rate /100) * $10.10 = 0.2929 = rounded = 0.29
Total = 0.24 + 0.29 = 0.53
When rounding total of the rate amounts:
Rate 1 total = (rate /100) * $10.10 = 0.2424
Rate 2 total = (rate /100) * $10.10 = 0.2929
Total = 0.2424 + 0.2929 = 0.5353 = rounded = 0.54
The example above makes it clear that deciding when to round can either make you more money by collecting the loose penny or lose money by deciding to let go of it.
Rounding at different stages in the example above has more impact if there are currency conversions involved. As a rule of thumb, the more currency conversions (which also involve rounding) and more rounding, the more we lose precision along the way.
Rational numbers are natural products of various banking calculations: distributed payments, shared liabilities, and rates applied. So, you’ll face other rounding encounters in many other places in financial software, most notably while calculating taxes or discounts and, just like in Office Space, while calculating interest.
Did it make cents? I hope you have a grasp on the problem. Now, is this avoidable? No, it’s not. If you’re working on financial software you’ll eventually be bound to round. But, we can control where and how to handle the precision loss. I’m sharing 8 tips to make your precision obsessive compulsiveness a bit less troubling to you as a developer and to the company as a business.
1. Notify Stakeholders
Show and tell where the rounding happens within your calculations to the stakeholders of your project. Explain the impact of the rounding, document it, and keep talking about it until all leaders on your team and within your department are aware. You, as a developer, don’t have to take the full burden of knowing that the company is making less than 1 cent on some transactions because of the calculations you put in place. Is a problem really a problem if it’s everyone’s problem?!
2. Use Banker’s Rounding
There are many types of rounding. There are rounding methods that increase bias and rounding methods that decrease bias. Banker’s rounding is the method proven to decrease rounding bias within calculations. Banking rounding deliberately distorts some of the rounded values to bring rounding totals of rounded numbers as close to the totals of the original numbers. Talking about why regular rounding taught in schools can’t meet our needs and why Banker’s rounding is mostly used for financial calculations would turn this blog into a math lesson, and as much as I would love to do that, I’d probably lose many readers.
3. Use Data Types That Hold the Most Precision
Within your calculations, ensure that all variables used are data types that can hold as much precision as possible (can hold enough decimal points). For example, using a double instead of a float. It’s important to keep the precision wherever there isn’t rounding involved as it reduces the amount of hanging pennies.
4. Be Consistent
I mean, this applies to a lot of things in life. When you and your team decide on which rounding methods to use, ensure that the same rounding method is used throughout your code.
5. Be Explicit About Rounding
When rounding within your calculation make it explicit by either adding comments or prefix rounded variables with “rounded_”. This ensures that anyone reading your code understands where precision loss is happening. Link to documentation about rounding strategies within your code documentation.
6. Refer to Government Rounding Standards
Losing precision is a universal problem and not only suffered by mathematicians. Refer to your government’s ruling around rounding. When it comes to tax calculations, governments might have different rules. Refer to them and educate yourself and your team.
7. Round Only When You Absolutely Have To
Remember, only tender money amounts need to be rounded. Whenever you can avoid rounding, do so!
8. Tell Your Users
Please don’t hide what rounding methods you use to your users. Many users will try to reverse engineer calculations on their own, and as a company you don’t want to end up explaining this several times. Ensure rounding rules are explicitly written in your documentation and easily accessible.
At Shopify, we are, of course, bound to round. If you are a Shopify merchant reading this post I want to assure you that in all our calculations, developers are biased towards benefiting our merchants. Not only are our support teams merchant obsessed, all Shopify developers are too.
Dana is a senior developer on the Money team at Shopify. She’s been in software engineering since 2007. Her primary interests are back-end development, database design, and software quality management. She's contributed to a variety of products, and since joining Shopify she's been on the Shopify Payments and Balance teams. She recently switched to data development to deliver impactful money insights to our merchants.
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