Learning how to be a successful financial modeller is a process that takes a lot of time and hard work. However, to set yourself up for success, you can do a few key things every day to make your life easier in the long run. Michael Jarman, Head of Modelling at Operis and runner up of the 2021 World Champion of The Financial Modelling World Cup shares the top tips he’s learned over the years that will ensure your model is a success.

12 Tips for Financial Modelling

1. Define the objective at the start – Models can often become unwieldy when the objective of the model repeatedly changes in its development. Define the model’s primary objective at the beginning and minimise changes to this as you go.

2. Make outputs accessible – 90% of the work of a model goes into the calculations, but many model users will only care what the answer is, not how it has been arrived at.  Make sure the key outputs of the model are easy-to-find and well presented; this can make the most mediocre models look impressive.

3. Add audit checks – An audit test means you only have to think about a potential pitfall once; thereafter, the model will alert you if something goes awry.  Even the simplest tests (like a balance sheet balancing) can help reduce the risk you send out a model with a critical error in.

4. Keep things simple – It is easy to think that doing something complicated in one massive formula makes you a better modeller.  It does not; it is difficult to maintain, and you won’t remember what the formula does when you review it two months later.  Keep everything simple – you’ll thank yourself later.

5. Log inputs – “Where is this input from?” is a nightmare question for any modeller, as it suggests that someone is not happy with it.  Carefully noting the location of any input can improve accountability and also make any ‘placeholder’ inputs more evident that they will need attention.

6. Use consistent timelines – Any given period should have the same column in every worksheet, lest you have to retime it (and risk retiming it incorrectly).  It may seem obvious, but a surprising number of models do not obey this.

7. Have good flow – It isn’t easy to understand what a model is doing if you are constantly jumping around different worksheets to follow what is going on.  Where possible, your model should have a clear flow of logic from top to bottom.

8. Avoid ‘hacking’ – We’ve all been there; it’s 10 pm, and something substantial needs adding to the model – let’s just hack it in for now.  Whilst tempting, this allows errors to creep in and costs you time in the long run.  Always model properly; or if you must hack something, go back and fix it ASAP.

9. Be left-to-right consistent – Related to the above, each row should have only one formula on it, as opposed to formulas changing halfway through a row.  Inconsistent formulas are the easiest way for errors to creep into your model.

10. Keep things tidy – Models can bloat when they contain lots of mechanisms of now inactive workings of ideas gone by.  If something isn’t needed in the model, remove it!  It’ll make the model faster and reduce the possibility of errors further down the line.

11. Don’t mix modelling styles – Everyone models slightly differently, and it is tempting when inheriting a model from a colleague to put your own ‘stamp’ on it.  This should be avoided; now you have a model with two competing modelling styles, and errors will creep in when the two don’t align well.

12. Learn from the best – Unfortunately, reading 12 Christmas modelling tips from me will not fix all of your modelling problems. But an Operis training session will teach you all the good habits you need to conquer your modelling. Check out the courses which teach you best practice financial modelling here.

If you’ve enjoyed these tips you might also find it useful to read our article on the ’10 Rules of Financial Modelling’.

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