Let’s continue our exploration of the 10 Rules of Financial Modelling. This post examines the importance of adding documentation to accompany your financial model to increase user’s understanding.  

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Years spent in the arena of financial modelling has made it clear that there is a distinct difference between the quality of models in the public and private sector. The spreadsheet model produced by the public sector will typically come with comprehensive documentation, whereas in the private sector models are released with little if any guidance or explanation.  

This is the type of information produced to accompany the public sector’s financial model:  

  • Contact numbers (developer, owner, senior responsible officer) 
  • Version control details 
  • Maps of the material including hyperlinks to aid navigation 
  • Glossary of terms 
  • Links to departmental modelling standards 
  • Methodology documentation 
  • Model objectives 
  • Model and forecast assumptions
  • Identified limitations 

There’s much to be said for documentation. It can transform the user’s experience when using your model and positively influence your project’s outcome.  

The benefit of documentation is that it supports the user in knowing what you’ve produced and any background information. You know your model well, as you made it. But the user could well struggle with the finer details of why you chose this data and this way to present it. The user may also be missing out on ways to use the model to provide more meaningful information for making informed decisions.

You know all the details, but they don’t 

Your material may be very familiar to you, but that’s not often the case with the user. They won’t know all the ins and outs that make up specific data in your material and its effect on the outcome.  

The users are also unlikely to know the minor tweaks that make the balance sheet balance as it should. They also may not know about running the sensitivities and which inputs to change under certain conditions. Adding this in documentation will make the experience so much better for your user.  

Documentation recommendations for your financial model 

Ideally, the documentation you add to support your financial model will include specifics such as:  

  • An explanation of colour schemes 
  • An explanation of abbreviations 
  • Describe where things can be found, such as background details, research materials 
  • Things you can do to make your model more user friendly
  • Your contact details 

You may have placed buttons, drop-down lists and spin controls in your model, but the user may not know where they are and what they do. Will they know what to click on and why? Do they know what a sensitivity is and how to run it? In some cases, you may not require or want your user clicking on boxes or controls – you may just want them to be able to change one field and see the outcome.  

Good practices means better results 

Good practices mean that there is transparency in your financial model. The users may not need to look at the calculations, but they can inspect them if they were asked to or are required to check something.  

Documentation is imperative, and it’s essential to include version control – is this the current version of the model, or an older one, perhaps from an email attachment?  

In summary, it’s vital that you as the author, detail more about the model structure, what it is for, what it does, and any other relevant information. All documentation should be placed at the start of the modelling layout so users understand read it before using the model. It will help them to get the most out of it.  

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Erwan Fournis
Global Head of Financial Advisory

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Carmen Wade
Financial Advisory, Head of North America

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Mark Southall
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Erwan Fournis
Global Head of Financial Advisory

+44 207 562 0444

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Chris Aldred
Director

+44 207 562 0433

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