Twenty years ago, when big infrastructure deals were being arranged, developers would concentrate all of their resources and best brains on getting the contracts right. The financial model was also glanced at, but if anybody spotted a discrepancy between ‘the numbers’ and ‘the words’ during this process, it was the numbers that would be changed.
This isn’t the case anymore. As deals have grown in size, they’ve become more sophisticated (that is to say – complicated), and now the numbers reign. Small errors in detail or presentation can have big consequences, as a few other of our recent blogs have touched on.
So how should companies adapt? Simply put, if you want a solid deal, you need solid models, and for solid models you need solid modellers. Below are some of the lessons we’ve learned about what qualities to look for when building a modelling team.
A problem solving brain
When building a financial modelling team, the first quality you should look for is puzzle solving ability. It may seem counter-intuitive, but when building a complicated model the financial knowledge possessed by most accountants or bankers takes second place to individuals with high capacity for logical and focussed thinking. Given how dauntingly large some models can be, a stubborn streak doesn’t hurt either. This is one of the reasons we particularly seek out people with engineering, maths, or scientific backgrounds, who are naturally questioning and want to get to the root of big problems.
The size and scope of deals has grown so vast that anyone working with them is going to have to spend long stretches of time carefully picking through data. Being able to see the big picture is always valuable, but you will also want people who get a thrill from finding needles in haystacks. These are the best minds for taking complicated problems and breaking them into simpler and smaller pieces – or in spreadsheets, down to the individual formulas and inputs.
Operis was founded by software programmers, so we may have a slight bias, but developers and coders are another example of the kind of brains we seek. Being able to recognise how models should be built and how the software will interpret the model can be as important as understanding how they’ll ultimately be read and interpreted by stakeholders. Creating a well-designed model that tells a story through its outputs requires a logical and systematic approach. The end result might look simple, but it’s hard work making it look easy.
Model audit experience
Having the right kind of mind is a huge help, but talent won’t get you far if it’s not refined. The saying goes: “there’s no teacher like experience,” though in modelling we might add “or other people’s mistakes.”
Our newly hired modellers spend two years auditing other people’s models before they even think about building one of their own. One of the reasons this is so helpful is that no model is without errors or ways to be improved. Model auditing experience often means exposure to just about every kind of problem that can arise – whether born of sloppiness, ill-conceived ‘short-cuts’ or a simple lack of understanding of the capabilities (and limitations) of spreadsheets.
Knowing the common traps that others fall into is a great basis for eventually building your own model from scratch. When starting a new model, it’s worth seeking to hire or at least consult with someone who knows first-hand all the ways models can and do go wrong, and hence has a good idea how to put them right.
Patience: a virtue in the modelling world as well
The final quality you absolutely must have in your modelling team is patience. Companies in the financial services sector – especially firms who work with multi-billion pound projects – tend to attract some extreme personality types: thrill seekers, risk takers, people with extremely strong career drive. However, modelling is a science as much as an art, and in our world ego has no sway. As my colleague David Rosel recently observed, the most valuable model builders are those that know the best way to realise their career ambition is to approach it in a methodical, patient way – building upon successes and avoiding setbacks that are the inevitable result of rushing.
When we look for modelling talent, we’re looking for people who need to know that the models they build are error free, and are willing to take the time to make sure of this. This does mean that occasionally we have to tip people out of their chairs to take lunches or holidays, but we know from experience these are exactly the kind of people whose skills you want underpinning your financial analysis. Anyone who views modelling as a stepping stone to greater things should be treated with suspicion, as people who are always looking ahead sometimes miss what’s directly under their noses.
It’s obvious that trained accountants, tax specialists, deal makers and salespeople are all invaluable parts of the deal-making business. However, as the financial model gets more and more attention as the defining factor in successful bids, the importance of having a team of logical, experienced, and patient minded modellers at hand will become ever more important.
If you’re looking to build or improve your modelling function, or would just like to discuss any challenges you’re facing at any stage of the modelling or bidding process, don’t hesitate to get in touch.
Alternatively, if you think you’ve got what it takes to be Operis’s next financial modeller, we’d like to hear from you. See our upcoming vacancies.