We often hear it said that Excel is the “second-best solution” to a problem. There is usually a better, more efficient piece of software that will also provide a solution but we usually default to the “Swiss army knife” of software, Excel, to get the job done.
Why do many Financial Modelling analysts use Excel almost exclusively, when they know that better solutions exist? At Plum Solutions, our philosophy is also one of only using plain, “vanilla” Excel, without relying on any other third-party software for several reasons:
- No extra licenses, costly implementation, or software download is required.
- The software can be installed on almost any computer.
- Little training is needed, as most users have some familiarity with the product— which means other people will be able to drive and understand your model.
- It is a very flexible tool. If you can imagine it, you can probably do it in Excel (within reason, of course).
- Excel can report, model, and contrast virtually any data, from any source, all in one report.
- But most importantly, Excel is commonly used across all industries, countries, and organisations, meaning that the Excel skills you have are highly transferrable.
What this last point means to you is that if you have good financial modelling skills in Excel, these skills are going to make you more in demand—especially if you are considering changing industries or roles or getting a job in another country. In fact, one of the best things you can do for your career is to improve your Excel skills! Becoming an expert developer in a proprietary piece of software is useful, but becoming a highly skilled Excel expert will stand you in good stead right throughout your career.
Excel has its limitations, of course, and its main downfall is the ease with which users can make errors in their models. Therefore, a large part of financial modelling best practice relates to reducing the possibility for errors. The other issue with using Excel is capacity; we simply run out of rows, especially in this “Age of Big Data”. Microsoft is trying to keep Excel relevant by introducing Power Pivot which is a free add-in that is part of your Excel license if you are using Excel 2010 or above. Power Pivot can handle much bigger data than plain Excel, which gets around Excel’s capacity limitations.
Before jumping straight in and creating your solution in Excel, it is worth considering that some solutions may be better built in other software, so take a moment to contemplate your choice of software before designing a solution. There are many other forms of modelling software on the market, and it might be worth considering other options besides Excel.
However, as long as it can provide an adequate solution, we recommend using plain Excel, as it is easy to use and no extra licenses, training, or software downloads are required. If additional functionality is needed, Excel add-ins may be considered.