Avoid embarrassment and accelerate your career faster by avoiding the seven deadly sins of financial modelling. Shared examples from a spreadsheet packed career as a CEO, project finance banker, fixed income risk manager, derivatives analyst, financial modelling consultant, model auditor and training course facilitator with Corality Financial Group. This seminar was presented at the ModelOff Global Training Camp / ModelOffGTC. The ModelOff GTC, in collaboration with Microsoft, is a two-day world-class technical training development program for young and emerging business leaders. This is the first choice for young business and finance professionals looking to build their technical skills in Advanced Excel, Business and Financial Analysis, Financial Modelling, Infrastructure, Investment Management, Private Equity and Risk Intelligence. The GTC will feature training sessions on Advanced Excel for Business Analysis and Decision Making by the Microsoft Excel Development Team.

1. 1
The 7 deadly sins of
financial modelling
ModelOff Global Training Camp
Presented by
Rickard Wärnelid
Group CEO
London
4 December 2015

2. 2
GLOBAL TRAINING CAMP, MODELOFF 2015
ModelOff Global Training Camp - London 2015

3. 3
THE 7 DEADLY SINS OF FINANCIAL MODELLING
ModelOff Global Training Camp - London 2015
1
2
3
Inconsistency
Proudness of complexity
Non-guidance of model users
4
5
6
Ignorance of potential future events
Acceptance of poor presentation
Ignorance of the end user
7 Negligence in model management

4. 4ModelOff Global Training Camp - London 2015

5. 5ModelOff Global Training Camp - London 2015

6. 6
SMART FINANCIAL MODELLING – 10 GUIDING PRINCIPLES
ModelOff Global Training Camp - London 2015

7. 7
INCONSISTENCY [1/7]
ModelOff Global Training Camp - London 2015
 Workbooks
 Individuals
 Teams
 Organisations
 The World

8. 8
INCONSISTENCY [1/7]
ModelOff Global Training Camp - London 2015

9. 9
PROUDNESS OF COMPLEXITY [2/7]
ModelOff Global Training Camp - London 2015
 Complex solutions to common problems - Nested Ifs / Indirects, Index/Offset
 Innovative functionality
 Excessive / Undocumented VBA

10. 10
COMPLEX STRUCTURES NEED SIMPLE MODELS
ModelOff Global Training Camp - London 2015

11. 11
COMPLEX STRUCTURES NEED SIMPLE MODELS
ModelOff Global Training Camp - London 2015

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NON-GUIDANCE OF MODEL USERS [3/7]
ModelOff Global Training Camp - London 2015
 Documentation: Labels, cover sheet, user guide, version control
 Summary sheet
 Functional design: Styles, structure, conditional formatting

13. 13
MODEL COVER SHEET
ModelOff Global Training Camp - London 2015

14. 14
IGNORANCE OF POTENTIAL
FUTURE EVENTS [4/7]
ModelOff Global Training Camp - London 2015
 Flexible timing structure
 Built in scenarios / sensitivities
 Static: Lack of "spares", hard coding, inconsistent formulae, embedded
assumptions

15. 15
Training Academy, financial modelling, valuations, project finance, LBO modelling, Excel, forecasting and VBA
1-6 months 2-6 weeks3-36 months 5-70 years
New project/venture Decision process Decision Operations
• Board paper submission
• Business cases
• Equity investment
• Valuation process
• Funding analysis
• Project finance structure
• PFI/758/P3 bid process
• Board paper submission
• Bid submission
• Financial close
• IPO
• Press release
• Construction reporting
• System integration
• Performance analysis
• Service contracts
DECISION PROCESS EXAMPLE
ModelOff Global Training Camp - London 2015

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BUILD FOR THE FUTURE – TIMING ARCHITECTURE
ModelOff Global Training Camp - London 2015
A financial model needs to be a dynamic representation of future scenarios. Using fully dynamic
timing calculations provide our clients with flexibility to analyse a broad range of outcomes

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SCENARIO ANALYSIS
ModelOff Global Training Camp - London 2015
Scenario analysis is the core functionality of a financial model. Using a structured approach our
clients gain deep strategic insights which support a stronger decision process.

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ACCEPTANCE OF POOR PRESENTATION [5/7]
ModelOff Global Training Camp - London 2015
 No / bad styling
 Lack of structure
 Different styles across model

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ACCEPTANCE OF POOR PRESENTATION [5/7]
ModelOff Global Training Camp - London 2015
Hidden rows Inconsistent formatting

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FUNCTIONAL STYLES
ModelOff Global Training Camp - London 2015
Our approach to financial modelling includes a continuous focus on functionality for flexible,
structured and powerful analysis.

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IGNORANCE OF THE END USER [6/7]
ModelOff Global Training Camp - London 2015
 Purpose
 Assumptions structure
 Level of detail
 Model architecture
 Tailored outputs for purpose

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STAKEHOLDER MANAGEMENT
ModelOff Global Training Camp - London 2015
BANKS COMPANIES
ADVISORS DEVELOPMENT BANKS
DEVELOPERS INVESTORS
Financial model

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NEGLIGENCE IN MODEL MANAGEMENT [5/7]
ModelOff Global Training Camp - London 2015
 Unqualified "Owner" / User
 Unclear ownership of model/assumptions
 Limited understanding of model interfaces
 Lack of process – versions, calendar, distribution, etc.

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AUTOMATE CHECKS THAT CAN BE AUTOMATED
ModelOff Global Training Camp - London 2015

25. 25
“SURE, I’LL BUILD YOU A
MODEL. I AM AN
ACCOUNTANT AND HAVE
DONE IT ONCE BEFORE”

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FINANCIAL MODELLING ECOSYSTEM
DateModelOff Global Training Camp - London 2015
Fund /
Investor
analysis
Board
strategy
model
12 months
budget
ERP
Corporate
model
Alternative
business
cases

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FINANCIAL MODELLING ECOSYSTEM
DateModelOff Global Training Camp - London 2015
Fund /
Investo
r
analysi
s
Board
strategy
model
12
months
budget
10 year
strateg
y
Operational cost
Corporate Model
Treasury
Bank debt
model
Staff /
HR
Performance
monitoring
Tax
ERP
Stock
exchange
communica
tions
New
ventures

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THE 7 DEADLY SINS OF FINANCIAL MODELLING
ModelOff Global Training Camp - London 2015
1
2
3
Inconsistency
Proudness of complexity
Non-guidance of model users
4
5
6
Ignorance of potential future events
Acceptance of poor presentation
Ignorance of the end user
7 Negligence in model management

29. 29
CONTACT DETAILS
ModelOff Global Training Camp - London 2015