What Makes a Good Financial Model?

15 August, 2008

A well-built model will have the following attributes:

User Friendly Features

1. Well documented assumptions. A model is only as good as its assumptions!
2. Flows logically (left to right and top to bottom).
3. Explains the functionality. Many models have too many numbers with no explanation.
4. Contains clear inputs and outputs; workings and results are clear and easy to find.
5. Contains in-built error checks and input validation such that the user is aware as soon as there is an invalid entry, or calculations are not correct.
6. Easy to navigate and find desired information .
7. Should contain instructions on how to use it if it is not self-explanatory or obvious.
8. Printable – outputs are summarised and fit onto printable pages which are easy to read. Reports are legible and colours are not too dark (so wasting toner!).
9. Formatting is “easy on the eye” and is consistent. The whole model should have the same “look and feel” even if different modellers have built different part of it.
10. The user should be able to access summarised information as well as the detail. Each page should form the back-up data and source information and can be printed or distributed if further information is required.

Structural Features

1. The only hard-coding should be the inputs and source data. The sources or assumptions for these must be documented. All other information is linked.
2. Duplication is minimised.
3. Names, formulas and formats should follow a consistent convention.
4. Is modular – can be taken out and used independently .
5. Build is logical such that each topic is handled on a different section, and similar inputs or calculations are grouped together.
6. The most efficient formula is used.
7. Is scalable so that greater detail or a large number of units, for example, can be added with minimal rework.

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