If you’ve seen our recent blog post “10 Rules of Financial Modelling,” you may have noticed that there is one theme that is absolutely vital to the success of this career. This skill and approach will make all the difference in communicating your work and advancing your modelling career. That theme is simply applying simplicity.
Of course, most people involved in work of a financial nature are very well educated in the analysis and application of numbers. Having had years of experience using tools such as Microsoft Excel, they know how to create an all-dancing showpiece of a spreadsheet. However, that’s not really the right approach when undertaking a financial modelling project.
The best financial models are simple
Models that communicate clearly and effortlessly are the most effective. Over the years, we’ve found that the most successful approach is to start with the problem and analyse it. Then it’s all about breaking the journey to the outcome into easy to comprehend steps. These steps are then demonstrated clearly on the spreadsheet of your financial model.
As with any explanation, when somebody looks at your financial model, it needs to be easy to understand quickly. It cannot be a long, drawn-out adventure through hundreds of cells and pages. People have a short attention span, and typically most people who will be looking at your financial model won’t be financial specialists. They just need to understand your formulas and concepts without needing to have got an MA in Mathematics.
Build at a level your audience can comprehend
The people who use your financial model are typically not financial modellers. They are from another ‘audience’ or group of people and need confidence in what you’re telling them about the results. They want to rely on your results and know that they can depend on them, no matter how they are used.
As a financial modelling expert, part of your role is to take a complex issue and break it down into an easy-to-understand outcome. You may need to talk your way through the problem so that your users can understand how you got to this result.
Simplicity is vital in financial models
In summary, you must use simplicity to your benefit by creating a spreadsheet that’s easy to understand and use. Usability and confidence in your work are vital to its success. Simplicity is crucial to clarity and ideally should be applied at all times.
If you are just embarking on your modelling career or are in need of a refresher on best practice our new ‘Financial Modelling Essentials’ course could be the perfect fit.
