Fimodo speaks to four financial modelling experts to get a brief history of their professional development, and how that has changed over time.
Nick Crawley
Managing Director, Navigator Project Finance
www.navigatorpf.com
“Approach” incorporated, speed, accuracy, specific industry knowledge, technical Excel and VBA skills, presentation, complexity, flexibility. As my career has evolved the areas within which I focus have changed primarily due to the evolution of my responsibilities from building financial models to the management of a modelling company.
The formative years
In the early part of my career I was rapidly increasing my knowledge of the project finance industry, from a zero-base and how modelling fits in. At this time presentation was important but I didn’t have the time or incentive to focus too much on it, although I always felt that it was important. I strove to build models that could do everything but were still underpinned by relatively simple formula, albeit with too much optionality and VBA. Honestly, attendance at a Navigator course such as Project Finance Modelling (A) would have delivered huge benefits to me at this stage.
My approach gets tested
In the middle part of my career to date, I was in investment banking and am comfortable that I had sufficient industry knowledge, technical skills and speed to be able to say, at the time, I was the best financial modeller that I knew. Models needed to be built quickly, look reasonable and be capable of handling comprehensive Monte Carlo analysis. The approach worked well enough to be trialed commercially so I did…
My approach goes commercial
15 years later I run Navigator, arguably the world’s largest dedicated project finance transaction modelling team, we produce several transaction models a week, my challenges these days are clearly different. Our models must be built by teams and with the core attributes that include:
- accuracy,
- presentation
- flexibility
- presentation
- speed to build
- and presentation…(see the picture starting to emerge?!)
Underpinning all of the above objectives are the principles of consistency and simplicity. If model construction is performed in the same way both mechanically and visually and if the calculations themselves are performed in a simple manner then it allows us fulfill the above objectives and spend more time:
- listening to our clients
- checking the models
- fully understanding the transaction
…rather than time spent ‘spreadsheeting’. Combine this approach with efficiency and a dedication to excellent customer service and it’s a good start to a profitable and scalable enterprise.
What’s next?
Upon reflection I would say that my approach has shifted from modelling in the relative shelter of a large accounting firm, has been tested and has evolved throughout my time in banking and I have now arrived at an approach which I can say is ultra-professional and definitely commercial. I am now working with a team, internal and external, on the next stage of our methodology development, which will make it even simpler but also even faster to build, manage and audit.
Conclusion – go “back to basics”
Along this journey I have filtered out the temptation to use a lot of the features in Excel and build in lots of un-required flexibility, I have questioned every formula used in a project finance model and embraced a ‘back to basics’ methodology forged with an almost obsessive focus on presentation in a way that actually saves time…too good to be true!
John Stroud
Partner, Digital Advisory
www.digitadvisory.com
I think my approach has been reasonably consistent over my career, however I do spend more time on planning (define, specify & design) than I used to. I’m a great subscriber to the 5 P’s. I also think experience allows me to anticipate what stakeholders really need and to be better able to identify the potential pitfalls.
I think modellers tend to go through a metamorphosis after 5 plus years. Rather than just developing and running the models experience allows them to really drive the analysis and provide advice on structuring, financial risk as well as being able to confidently liaise with equity, debt and senior management.
Simon Selkrig
Financial Modelling Professional
Theoretical “in the box” approach conveyed in university course materials and lecturers, through to a more practical “outside the box” and value-adding client focused approach
I am a lot harder on myself, legacy models and hard to follow models. No longer do I just accept financial models as the way they are, but instead, I attempt to understand them fully, rework or completely rebuild the model.
I take a more conceptual, structured, disciplined approach to my financial modelling; I am continuously brainstorming, reading new financial modelling books, websites and blogs (like Fimodo!). I am trying to improve the way I build, manage and revise my financial models.
I try to be smarter with my financial modelling, via more flexible (maintain plenty of spare defined business unit names or subsidiaries), more refined use of tick-boxes and drop-down boxes, and less hard coding of financial numbers.
I attempt less replication and more creation with my financial models; within reason of course!
I tailor source financial data through financial year or business unit specific import worksheets, rather than merely copying financial data across the financial model in an ad hoc way.
I am focused on keeping my financial model error-free, via the use of error checks which are summarised on an Error Check worksheet.
I build scenario/sensitivity aspects to my financial model, as I don’t believe in merely reporting historical, actual and budget numbers; but rather generate value-adding and thought provoking financial modelling, forecasting and charting.
Danielle Stein Fairhurst
Principal Consultant, Plum Solutions
www.plumsolutions.com.au
I first discovered financial modelling when I started out working as an Analyst in Investment Banking in London. Of course, the term was not used very widely back then, and my approach to financial modelling has certainly become much more structured throughout my career. Back then, it was something I did instinctively, and now that I’ve become a specialist in the field, I put a lot more thought into the design and structure of the models. In fact, I probably didn’t even have “Financial Modelling” listed on my CV – I would have written “Advanced Excel” instead.
Financial modelling has achieved a much higher profile nowadays and has become a discipline in its own right. However, I think that many people still struggle to distinguish the difference between a spreadsheet and a financial model and think that in order to be a better financial modeller they just need to brush up on their Excel skills. Of course, we know that there is a heck of a lot more to it than that! Looking at developing the skill-set of a financial modeller (including, but certainly not limited to Excel skills!) is something that is an important part of the Plum Solutions Financial Modelling in Excel workshops.
Another phenomenon that has evolved in recent years is the use of the web for collating and publishing information, and educating people about niche subjects like Financial Modelling. I always encourage anyone interested in improving their skills to check out the resources readily available online.
When I first set up Plum Solutions in 2004, it was very much a bricks and mortar consultancy with a token online presence. In recent years, though the advent of Web 2.0 technologies have helped it to become a global company which provides consulting and training services all over the world.
I travel regularly throughout Australia and overseas delivering both public and in-house training sessions, and the online training courses mean that those unable to attend a session can do so virtually, and at their own pace.
I agree with this post. I have found that in my experience with Excel, as I journeyed from novice to power user, I have reached a point where I favor simplicity and even “elegance” over anything else. Like any other application, I feel that spreadsheet applications should have a clean feel and an obvious purpose. The end user does not always benefit from a spreadsheet programmer “flexing” his muscles in the form of needless macros, array formulas, and other powerful, but often unneeded, features.