Technical debt in financial models
Excel has very little inherent structure. Any structure your model has is going to have to come from you.
Topic
Financial Modelling Handbook
How to build a three statement financial model from scratch.
What Irish monks from the 7th century can teach us about Financial Modelling
Financial Modelling wisdom comes from the strangest places.
Cleverness is not wisdom
There is an incentive for consultant financial modellers to build complex, hard to understand models.
As simple as possible
"Everything should be as simple as possible, but not simpler."
Model complexity compounds business complexity
"The map is not the territory" - Alfred Korzybski.
People often confuse models of reality with reality itself. Models represent things, but they are not identical to those things.
This is true of financial models.
A financial model is an abstract representation of a business. The job of
What makes financial models hard to read
=IF( AND( Assumptions!K4 = Workings!H10, Assumptions!F39 = Assumptions!L17), IF(OR( Workings!K2 = Output!J30, Workings!H9 = Data!G10), OFFSET(Workings!F8, Data!F2, Data!F3), IF( ROUNDUP( INDEX( Data!E17:E32,MATCH(Metrics!F10, Data!F9:F15, 0)), Assumptions!F35), Ops!F29, Metrics!F15)))
How often have you
Design thinking
To build good models, we have to think like product designers.
The four stages of learning
There are four stages to learning any new skill. Knowing which stage you are at can help to calibrate your expectations and reduce your frustration.
Your path to confidence
You can't learn to swim by reading a book.
At some point, you have to jump into the water and start moving your arms and legs.
It's the same with financial modelling.
It's an active skill.
You have to do it to learn it.
All models are wrong. Some are useful.
In 1976, British statistician George Box wrote the famous line, "All models are wrong, some are useful."
This is a critical truism to keep in our minds as we build and share financial models.
There is only one thing you can say with any certainty about your model&