We get asked all the time ‘what is an excellent financial model?’ There are lots of opinions floating around and many are on-point; most can be classified in a few key categories. See below for our current take on ‘what is an excellent financial model.’
An excellent financial model:
- Allows the decision maker(s) to accurately quantitatively rank potentially compelling alternative strategies/assets for an investment decision and compares the investment on a consistent basis with other opportunities,
- Exhibits clear reasoning, allowing users to see why the ordering occurs as it does,
- Allows the decision maker(s) to test the impact of changes in uncertain quantities and events, and to view the decision through the lens of other stakeholders,
- Can be used and modified, within limits, by someone other than its author, and
- Demonstrates the highest standards of financial modeling best practices.
We believe these categories of an ‘excellent model’ are representative of the hundreds of attributes we’ve collected over the years. If you’d like to add to the list, we’d like to hear from you. You can email us using the ‘Contact Us’ form and we’ll do our best to respond and/or add your input in a future Insights blog.
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And remember…excellent financial models lead to better financial decisions!