What to look for in a Financial Modeller

When you decide your company’s financial models are not as good as they should be, is the first thing you do; send your staff on an Advanced Excel course? Whilst this is helpful, there’s an awful lot more to Financial Modelling though than being good at Excel!

Do you need an Excel Jockey, a Finance Wizard, or a Financial Modeller?

People who need to get a financial model built sometimes think they either need to find someone who is a complete super user in Excel to build a model or an accounting pro who knows every in and out of accounting rules. I’d argue you need a blend of both, along with someone who actually has business common sense.

The Excel Jockey

Excel is a very powerful tool. Almost no single Excel user will have the need or desire to utilise most of the functionality this program offers. Still, there are those select few people who understand every single in and out of Excel, every single function, and can answer those “How do I _________ in Excel?” questions in no time. Seems like these would be the people to have build you a financial model. Unfortunately, having great software skills doesn’t always help when it comes to applying it to a specific area of business. Realise that Excel is used in several capacities, so finding someone smart with Excel doesn’t mean they have any experience building financial related spreadsheets.

Having said that, to be a good Financial Modeller, you do need to know Excel exceptionally well. You don’t have to be a super user – the 99th percentile in Excel knowledge – but you must certainly be above average. A complex financial model might use features in Excel that the everyday user doesn’t know. The best financial models use the solution that is the simplest tool to complete the task (as simple as possible and as complex as necessary, right?) so the more familiar you are with the tools available in Excel, the easier it will be. An array formula might be the only way to achieve what you need to achieve – but it might not; a simpler solution may well be – and often is – a superior solution. So when looking for the right person to build your financial model, extensive Excel knowledge is a good start.

The Finance Wizard

Now, stuff like financial statements, cash flow, NPVs and economic forecasts are an important aspect of many financial models. A professional accountant will know every single accounting rule and law there is, so are they the person you need to build a model for you? The relationships between your financial statements will be 100% correct, and the taxes done immaculately. Again though, you don’t need a wizard’s level of knowledge to build a financial model. A good accountant, or even one qualified with a Masters of Applied Finance, whilst they will undoubtedly be a competent Excel user might not be familiar with all of the modelling technical tools. In fact, financial models are often relatively straightforward from an accounting standpoint.

The Financial Modeller – the best of both worlds!

Enter the solution, a true Financial Modeller. You knew I was going to say that, didn’t you?!

What a Financial Modeller brings to the table is a combination of skills. First they know Excel well enough to be able to choose the simplest yet most functional tool to build a model. They can create a pivot table, array formula or macro (but only where necessary of course!) use a simple or complex nested formula and choose the best technical tool to perform a scenario analysis, for example. As well, they understand all the relevant business and accounting principals. At the end of the day the Balance Sheet has to balance, and the ending cash is on your Cash Flow Statement needs to tie to the Balance Sheet, to name a few.

They bring a unique combination of skills neither the Excel Jockey nor the Finance Wizard possesses. They understand relationships between variables, they understand sensitivity and how fluctuations in inputs will impact the outcomes and how they need to be modelled in Excel. A Financial Modeller as well can take a step back and realise what the ultimate user of the model has a goal. Are they building a model for in-house use, or to present to investors? Do they need a valuation, a variance analysis, a nice summary, or a detailed month by month P&L? The Financial Modeller can take information, build an Excel model that is technically correct from an accounting standpoint, utilise the power of Excel to dynamically set up the model, and ultimately reflect what the business is looking to achieve.

Recent posts by Danielle Stein Fairhurst

Comments for “What to look for in a Financial Modeller”

  1. Liza Boyuges says:

    Too many people think that financial modelling is all about Advanced Excel when really the best financial models are using only the core functionality! I would never hire anyone to my team because of their Excel skills – logical thinking and strong communication skills are much more important!

  2. Liza – I agree with your comment. We can teach analysts the rules of modelling, they have to bring logical thinking and communication skills to the table.

    Another way of looking at the range of skills required to develop a financial model is to differentiate between ‘conceptual modelling’ – forming an understanding of the transaction / business being modelled and relationships between the variables, and ‘spreadsheet engineering’ – the representation of that conceptual model in a spreadsheet – the thing that we typically consider as being ‘the model’.

    These skills are often combined in one person, but don’t have to be.

    This topic was recently discussed in the Financial Modelling Podcast – http://www.financial-modelling-podcast.com/.

  3. Wyn Davies says:

    Danielle; You are right on target with your two attributes of a good financial modeler (Excel and Finance). I would put more emphasis on your third point however, which you label “business common sense.”

    I would suggest that wide ranging business experience is almost essential to probe for the facts and assumptions that represent the prelude of blending Excel and Finance, to result in a process and outcome (deliverable) that satisfies the user’s needs.

    Hence I arrive at three essentials for a financial modeler, with the third (business experience) possibly the first among equals. Just a thought.

  4. Jon von der Heyden says:

    In my experience, most people who say ‘you don’t need exceptional Excel skills to be a financial modeller’ are usually the weaker modellers and are just making excuses for their lack of technical knowledge. But it really does boil down to the complexity of the model required by the client. If you do not have exceptional excel skills then sure there are some assignements you may be able to tackle. But in my opinion there are far too many ‘modellers’ that do not have the requisite excel skills. And yes there are too many ‘Excel guru’s’ who sell themselves as financial modellers with too little financial / commercial experience, but these guys usually lack the excel skills too.

    I also hear alot of adversity to VBA, but only ever from people who know pityfully little on the subject. Those who know VBA will say that it is imperative to ensure sufficient levels of robustness can be applied (to most substantial models that is). Of course we have alot of cowboys too, there are many coders who believe every problem requires a VB solution! But how can anyone without extensive knowledge of VBA actually poo-poo it. That’s what I don”t get! I was once that guy :-)

    The truth is that most REAL excel guru’s are also highly experienced in their sectors (e.g. finance / engineering) This is because, since Excel is nothing more that a tool, there is little demand for excel developers who do not have a specialism. And learning Excel to a satisfactory level takes many many years, during which time the learner is likely to be working a career and gathering valuable experience.

    The best financial models use the solution that is the simplest tool to complete the task…
    I hear that alot… And to a point I agree. For instance a stepped approach is often better than an immense formula. BUT… I prefer to say that the best financial models use the most efficeint methods, and these are not necessarily always the simplest.

  5. Bruce says:

    Liza – I agree with your comment. We can teach analysts the rules of modelling, they have to bring logical thinking and communication skills to the table.

    Another way of looking at the range of skills required to develop a financial model is to differentiate between ‘conceptual modelling’ – forming an understanding of the transaction / business being modelled and relationships between the variables, and ‘spreadsheet engineering’ – the representation of that conceptual model in a spreadsheet – the thing that we typically consider as being ‘the model’.

    These skills are often combined in one person, but don’t have to be.

  6. Nick Crawley says:

    Hi Danielle,

    I have been otherwise engaged the past few weeks, I missed this post.

    As always I fundamentally agree with your position. I thought I would throw into the mix though my preference for what to look for when ‘developing’ a financial modeller. I highly (almost completely) discount Excel skills….yes you heard me guys…I find that this is next to useless. The trick is to find somebody who knows how to ‘solve problems’. The level of Excel needed by a professional financial modeller can be taught in a couple of weeks…. So budding ‘actuaries’, ‘engineers’, ‘physicists’ etc are at the top of my list.

    The icing on the cake is that a good modeller doesn’t think about whats best for them, most efficient for the ‘model’ but what approach suits the user (not the modeller) most for presentation and the ability to ‘check’ and be confident in the result. I find that financial modellers who remain hands-on don’t put as much emphasis on this point.

    Anyway – as always – just my observation having done this for a while from a few different angles.

    Nick

  7. brettdj says:

    The hands-on model is only one portion of the job. There are the relationships and project planning to manage/influence with the assumption providers, senior management, project team, reviewers, customers etc. The communication component is just as important as the model – else its gigo.

    Some other criteria for good modellers:
    a) hate mistakes but realise that everyone (including them) is prone to making them …. especially other model users who won’t be as hands-on as the main modeller,
    b) understand exactly how the model outputs will be used to inform the decision making process so there is no ambiguity in the outputs,
    c) are pedantic about version control,
    d) track a log of model changes and value impacts,
    e) have an intuitive sense of how the model will react to key assumption changes,
    f) understand the model limitations
    g) have a detailed understanding of the asset/business they are modelling and are not afraid to ask for more detail/inputs when components are not clear to them
    h) understand that systems are often complex and a change to variable x may necessitate a feedback loop change to variable y etc
    i) have an appreciation for differentiating between what is critical and needs further work/testing/benchmarking versus being immaterial to a decision
    j) are passionate about running to ground any deviations from the expected
    k) use inbuilt checks/graphs/history/auditing tools/shadow models to validate their work

    As per other comments above my bias is towards engineers who have picked up financial qualifications. In general engineers tend to be very good system thinkers (see point (h) above).

    The issue is that someone who ticks the above boxes (financial skills, good communication skills, ability to resolve ambiguity, planning skills and the ability to break down complex investments into a financial model) is likely to quickly move into management. So next topic suggestion – what is the career path for a bright early to mid 20′s financial modeller? :)

  8. Eris O'Brien says:

    Ten years in this game and I keep rediscovering the old adages on projects.
    - Accountants focus on the financial statements
    - Construction engineers focus on construction issues.
    - Operations people almost never get involved despite always complaining about the project they are delivered.

    To be good at this I think you need to be a boundary spanner – that is, have enough of a technical understanding of the industry you are in as well as construction and project issues. Then you can communicate sensibly with all parties.

    I agree with Brett that it is easier to teach an engineer/scientist financial skills than to take someone with a pure finance/accounting background and teach them about industry. There are always exceptions, but as a generalisation I’d go for an engineer most times.

    Also, good client skills are important too. After a couple of years you will likely have more project experience than many of your clients. (Remember that clients are in your organisation as much as external to it).

  9. Gavin Townshend says:

    The article and comments above contain so many pearls of wisdom, that it would be unfair to pick out one or two as the top.

    My advice to anyone reading this page is to go back and re-read the article AND comments to better appreciate the value of the experience that others have shared here.

Comment on this Article