Any financial model is going to be a representation of some sort of business case. As the financial modeller your first skill is to understand that business case, and to understand what you’ve been asked to do.
You usually start with your base case. This is usually a basic set of assumptions about a project or investment opportunity identified by your management, and it is likely there are alternatives and options requiring some form of sensitivity and/or scenario analysis.
This is what we would describe as your deliverable – a dashboard or set of results to inform and support management decision-making. From the very outset of our training courses we emphasise the fundamental importance of designing the output first, clearly identifying the key results and analysis you have been asked to produce. You then map these back to the assumptions, and this gives you your work plan.
This must be part of your thought process from the outset. It’s not an exercise in its own right to produce spreadsheets. They have an end use. They have an audience. And you need to be very clear about how your audience is going to engage with your work, and how you can help them with the decision-making task.
I firmly believe that you’ve got to be numerate, logical and analytical, and that these are the primary skills of the good modeller. You need to be confident with numbers and not be intimidated by them. A typical model is a web of accounting and financial relationships and your job is to go behind the numbers and understand that those numbers represent real business and communicate that.
I disagree with the view that accounting skills are a key attribute of a good modeller. I see so many analysts who aren’t from an accounting background but are highly competent model developers.
I also challenge the view that good Excel skills are needed to be a good modeller. From long experience I know you can be a very competent modeller with very limited spreadsheet skills, because most of your model is made up of robust and reliable calculations. My benchmark is very simple: can you use Excel without a mouse? And that’s it. It doesn’t take long to learn keyboard shortcuts. If you can you will find that you are developing a more efficient and effective use of Excel, rather than building up an encyclopedic knowledge of functions and tools that you’ll rarely, if ever, use.
Humility is key too, in the sense that spreadsheets can be wrong. Good modellers are constantly seeking assurance that the model is both quantitatively and qualitatively correct. You should strive to make your models simple by avoiding unnecessary complexity. What checks can you build in to your model to highlight errors, should they occur? And are you willing to have somebody sit down with you, to review your work? And can you then react constructively to the comments and criticism that they may raise?
Operis financial modelling courses are a highly practical way to develop the core competences outlined above. You will learn the necessary financial, accounting and Excel skills to build a reasonably complex financial model and kick start your modelling career.
