In this practical webinar, financial modelling expert, Danielle Stein Fairhurst recording in Dubai for Informa, discusses and demonstrates hands-on strategies for reducing the risk of error when creating financial models.
One of the biggest issues facing financial modellers using Excel for their models is the possibility that there could be a mistake in their work! It’s probably one of the most career damaging things that can happen to a financial modeller, and certainly a high risk of any business using Excel for the purpose of financial modelling.
Most financial modelling errors can be categorised into three types of error;
- Formula errors are the easiest errors to make, the easiest to fix (and probably the most embarrassing if they slip through!)
- Assumption or input error can be identified by making sure the assumptions are clearly documented within the model.
- Logic errors are very difficult to identify, as the formulas and assumptions are correct, whereas the way the model is calculating or interpreting the situation is incorrect.
During this informative, 40-minute webinar, Danielle summarises some strategies financial modellers can use to reduce the risk of error in their financial models into ten key points:
- Get into the habit of using your enter key, don’t click somewhere else.
- Check your work so when you’ve finished editing your formula, check it and then check it again.
- Make sure you sense check.
- Once you’ve checked it three times have somebody else check it.
- Validate those assumptions and make sure it’s very clear what assumptions you have used, so if there are any mistakes in the assumptions, it’s very clear and easy to see.
- You should document your methodology. Make it very clear the methodology that has been used. Don’t make it so the person reviewing your model has to get inside the workings and the calculations that you have done. Make it very clear what the methodology is and the way that you’ve calculated things.
- Stress testing – go in and make sure that model is working properly by putting in some crazy numbers and crazy inputs that can identify if something is wrong.
- Sensitivities and scenario analysis can flush out any problems that are in your model.
- Take note of the errors in your financial model, don’t ignore them.
- Always look for opportunities to build error checks into your model.
The full set of files which accompany the book Using Excel for Business Analysis as mentioned in the webinar can be found here but the three files which are specifically used in this webinar are shown below:
We hope you enjoy this webinar! The sound quality is poor during the introduction, so please fast-forward the first 60 seconds.