What Makes a Good Financial Model?
15 August, 2008
A well-built model will have the following attributes:
User Friendly Features
- Well documented assumptions. A model is only as good as its assumptions!
- Flows logically (left to right and top to bottom).
- Explains the functionality. Many models have too many numbers with no explanation.
- Contains clear inputs and outputs; workings and results are clear and easy to find.
- 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
- Easy to navigate and find desired information .
- Should contain instructions on how to use it if it is not self-explanatory or obvious.
- 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!).
- 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.
- 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
- 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.
- Duplication is minimised.
- Names, formulas and formats should follow a consistent convention.
- Is modular – can be taken out and used independently .
- Build is logical such that each topic is handled on a different
section, and similar inputs or calculations are grouped together.
- The most efficient formula is used.
- Is scalable so that greater detail or a large number of units, for example, can be added with minimal rework.