Designing a Financial Model – Making it Idiot Proof

Designing a Financial Model - Making it Idiot Proof

Always design a financial model for people who did not build it and for people with limited understanding of financial modeling and analysis techniques.

This will help you ensure the usefulness and relevance of the financial model, and preserve its longevity long after you have completed the financial modeling exercise.

In each financial model workbook, you will typically need some or all of the following worksheets:

  1. Administration and documentation
  2. Assumptions
  3. Major blocks such as marketing or capital expenditure (CAPEX)
  4. Calculation of revenues, costs, balance sheets, ratios, cashflows
  5. Scenario managers and displays

To enable modular team working, clarity in use and easy auditing, use a standard financial model design template and color codes developed specifically for your company, and ensure that everyone gets familiar with the standardized format.

In that way, the entire company will have a single approach to formatting financial models. All users, be they senior executives or junior financial analysts, will then be able to differentiate between cells in the financial model that are hard coded, calculations or outputs, and intepret different financial models from different teams without ambiguity.

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