When I was a kid, I used to pick up stuff with my feet a lot because I was simply too lazy to bend over. Yes, It might sound lazy but at the same time it is creative and energy saving. I am not talking about “Do it Later” Lazy kind here. I am talking about the “Do it better so that you don’t suffer later” lazy type.
I believe that my laziness has helped me become a better financial modeler and here is why:
1. I make my financial models as transparents as possible
Why?
From the user standpoint, they want to have a well-structured financial model and they also want to make sure that the inputs that go into the model are relevant and up to date. Actually, that’s the main purpose of applying standards in financial models, and that is to make sure the model is well structured so that users can focus more on Inputs and assumptions that go into the financial model. Typically, most of the discussions need to be around justifying your assumptions rather than correcting your model mechanics. There will be different rounds of questions and answers on the inputs, making sure that the base case model assumptions are in line with the contracts, studies, and the present realities on the ground. To reduce the interactions with different parties involved to justify the inputs, a lazy financial modeler would apply technique to make it easy for users to understand the inputs and sources and inputs that go into the model. Also, financial modelers typically have introverted personalities and they want to avoid interactions as much as they can.
How?
My Lazy Method for introducing transparency in my financial model is to first of all not hard-coding any inputs within formulas and calculation sheets (that’s a basic) and document the reference for each input that goes into my models within the model itself so that if the user want to understand where I got a certain assumption, he or she can simply go to a sheet that I call “References” and figure it out. For more on this topic, check out the below blog post and download my free template:
Download the Financial Model Assumption Book
As a side note, I also recommend that when you are submitting the first draft of your financial model to your clients or colleagues, record a model walk through video. This way if they ask you for a call to show them how to work with the model, you can simply tell them to go and watch the video and if they still didn’t get it or have questions, they can come back to you :)
2. I built in flexibility in my models
Why?
You want to keep your financial models simple however, you also need to include flexibility because as you progress with the appraisal of a project, there are many things that will change, and your model should be able to adjust to expected changes. It might require some effort in the building stage of the model but then down the road when you are busy negotiating all your contracts it feels good to have a tool that can test different options by simply turning a switch on and off.
How?
- The basic rule that will make your models flexible is to separate inputs from calculations and results. You have dedicated sheets or if you are building a one pager then a dedicated section of the sheet to the inputs and color coded. This way when things changes you simply go to the inputs and define your new base case
- Make sure you make your timeline flexible : You can download my flexible timeline template from Here.
- Present your inputs in the form of scenarios: Read my blog post on the one model approach and you will learn how to present your inputs in form of scenarios. Here
- Anticipate future changes: As a financial modeler, you need to be involved in different discussion and negotiations so that you can anticipate the possible changes and options that you need to introduce in the financial model.
3. I make my financial models as simple as possible
Why?
A financial model is a tool that is meant to be used by multiple users and a lazy financial modeler would think about how to make it easy for anyone to use this tool and make changes. Some say that financial modelers who are paid by hour or are on short term contracts make the design and structure complex and deliver a black box to create dependency. This way, their colleagues and clients come back to them even for simple modifications. A lazy financial modeler is smart and knows that if he or she makes the model user friendly and therefore simple, then people will not get frustrated when using it and will come back for more contracts. Also making it simple will avoid unnecessary interaction with clients and will also cost more for audit.
How?
- Avoid long and complex formulas
- Avoid macros where there are alternative solutions (like algebra or excel functions)
- Avoid unnecessary options: We talked about flexibility and there’s a trade-off between flexibility and simplicity. More flexibility will bring more complexity in the model. Let’s say at one stage in the appraisal you wanted to test the impact of including revenues generated during construction in the funding plan. This is bringing additional complexity because it might cause additional circular references with taxes and financing. If the option is no longer on the table, you might want to delete that mechanic from the model to simplify things. Make sure that the option is certainly not available anymore before you remove it.
4. I automate repetitive tasks
Why?
When you must perform a task once or twice, it’s ok but if you have to do it over and over again then that’s just boring. And there are many repetitive tasks in financial models. This does not mean that you can use a template for a project, and you are good to go. All projects are unique and have their own story. You can definitely start with a template, but you need to make it your own.
How?
- For some modules of the model like timeline or sensitivity, you can start with a template and adopt it to your needs
- Use macros: for example, for sensitivity and scenario analysis, you can create a simple copy and paste macro with a loop that automatically changes certain inputs and reports specific results. This way you can generate a sensitivity report with a click. Download my suggested sensitivity and scenario sheet Here.
5. I avoid working with heavy and slow spreadsheets
Why?
Last week I was working with someone who was using a spreadsheet that was taking almost 5 minutes to run. There were Data Tables, circular references, dozens of worksheets, all the nightmares that you can imagine were present in that spreadsheet. He was using this tool for months. I admired his patience, but I just simply went mad and showed him a simple structured model and how he could do the same thing he was struggling to do with a snap of a finger. You might say lazy people are relaxed and patient so I would say I am a lazy impatient financial modeler.
How?
- Avoid circular reference
- Avoid using Data Tables for Large Data Sets. For sensitivities you can use a simple copy and paste macro.
- Avoid Unnecessary Conditional Formatting in workbook.
- Remove columns at the end of sheets
If you want to learn more about how to create a well-structured, simple design, and user friendly financial model, make sure you check my online course on Spreadsheet design:
In this course, I want to share with you
– Why it is important to have a well designed and structured financial model and
– How easy it is to apply consistent formatting to your models.
Check it out here:
