Tips for Financial Modelling, budgeting & forecasting successfully.
Some simple tips for financial modelling, courtesy Harvard Business Review.
The first rule for financial modelling is that the financial model needs to be understood by the people reviewing and using it. Financial analysts need to consider the reader immediately. Less tabular like data, more visualisation, more graphical reports, illustrate the simple things well. Attaching slider bars to demonstrate consequence in front of people live is a great tip.
For example use sliders to demonstrate the effect of “what if”. For example rises “interest rate” and “operating expense” or “margin” reduced or fewer “click throughs” on the web site. That will get the CEO’s attention there and then in the room.
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Financial Models are assumption based - Show them off clearly.
Other things that matter – Show your assumptions off clearly. And document them. Assumptions are the key and have to be demonstrated. “Imputs” and “Outputs” need to be clearly different to each other. Make it clear to reviewers of model what’s an imput (showing source data or manual if possible) and what’s a calculated value or a reported number. Financial models need clarity. Financial Planners and Analysts need to show the logical flow clearly. Business Intelligence like this fails if it is not clear.
Document it.
If it is worth doing do it right. Financial model or business models need explanation's to highlight the logical flow. Financial Analysts sometimes feel everything is self explanatory. Genius needs no explanantion! Wrong, most models we review for customers need reduction, more reporting layers, consolidation,more visualised reports and much less data.Particularly for budgting and forecasting models using our budgeting and forecasting software.
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Remember the Model is never finished or is it?
Financial Planners and Analyst and Business Analysts complain the model isn’t finished and needs more polishing. Modellers or Modelers depending on your preference beware this syndrome. Perhaps less is more here but no one seem satisfied with that approach in the modelling world.
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