Top 3 mistakes in financial modelling

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Recently, I had a chance to ask our financial modelling expert, Jeff Robson, what are the top three most common mistakes people make in financial modelling:

  1. Failing to plan. People often don’t think through and plan how a model needs to work: who will use it, what will it be used for, what’s included or excluded from the model’s scope, what level of detail is required, what reports are required etc.If you don’t understand the answers to these questions, you may end up heading off on a variety of tangents and over-complicating the model with things that aren’t required while on the other hand, missing out critical components.
  2. Making life hard for the user. Models should be designed to make the user’s life easy: easily identifiable inputs, input data once in one location, easy-to-use reports that automatically allow the user to get the level of information they want, documentation so they user understands how the model works, and easily viewable error-checks so the user knows if there are any issues in the model.If models don’t do these things, it takes longer for someone to understand them, users will waste time using them, and it’s much more likely that errors will occur.
  3. Doing things the hard way. Often, people don’t make use of Excel’s functionality in their models, simply because they don’t know it exists. As a result however, their models are more complicated, harder to use and more likely to contain errors.

As a an added bonus, I asked Jeff what kind of results could you see in terms of improved efficiency and the amount of time you can save if you became more adept at using Excel in your modelling:

For someone building models regularly, spending some time learning how to build efficient financial models could easily double their productivity by saving time in the initial model build, simpler ongoing maintenance, and reduced time required for error-checking.

If you want to learn more about doubling your productivity and avoiding the above common mistakes in financial modelling, Jeff is conducting some Financial Modelling in Excel sessions to help you do that and more.

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