Worst practice financial modelling

How to lose bids and alienate financial model auditors

Since the start of 2011, Corality’s Analyst team has been fortunate to have Arvid Asbrink on board. Arvid is now moving back to Europe, to work as a consultant for Corality in London, but before he leaves he shares his thoughts on best practice modelling.  Or…was it worst practice… he certainly didn’t learn any of this from us, we promise.

It is safe to assume that most financial modellers are intent on developing robust, flexible and reliable financial models that will help clients win new contracts, support business decisions or act as useful operational tools. To achieve this, there are a number of financial modelling recommendations and guidelines a best practice modeller should follow. Another reason to adhere to best practice recommendations is that you do not want your financial model to look like Berlin (before 1989) or, simply, that you want to be a good team-player, making it as easy as possible for colleagues to follow and understand your work while at the same time reducing financial model audit costs.

But maybe, just maybe, you are looking to pull a prank on your co-workers or to sabotage for your boss. Or maybe you just really dislike your client. In these cases, a worst practice financial modelling methodology could come in handy.

How to annoy your colleagues and financial model auditors through worst practice modelling

1. Transparency – the North Korean way

In these modern times of WikiLeaks and social media scrutiny, transparency has become the hottest thing since sliced bread. This notion is quickly dismissed by the worst practice financial modeller who is no stranger to mixing hardcoded inputs and calculations and whose favourite formatting style is white font on white background.

2. I am the master of my checks, I am the captain of my model

Integrity checks must never be used in any model.  This is key to ensure that your boss or client BELIEVE your model is correct rather than highlighting the mistake you have made. If you MUST include integrity checks, make sure not to link them to the master one as this will ensure your model will always appear OK to users and no questions will be asked.

3. Inputs – the more the merrier

All inputs must be duplicated at least once in the model, and where possible, on calculation or output sheets.  This will be confusing to your boss or client and will therefore make it much easier to manipulate results to your benefit.

4. Mixing and matching

Month/Month/Month/Qtrly/Annual/Month/Month/Month/Qtrly/Month/Month… etc. will allow users to view monthly, annual and quarterly statements side by side, with the added benefit of ensuring formula on each line are mixed and matched, and thus easier to hide problems in.

5. Keep it complex for the stupid (or the outright lazy)

This is a big one and can be done in a number of ways. The rule of thumb is: the longer and more complex the formula the better.  For example, try putting as many calculations into VBA code as possible as this will reduce the likelihood of meddling users checking and changing your results.

6. Scorched earth strategy

If you take care deleting crucial resources of your model and make calculations and references inaccessible you are well on your way to achieve your mischievous goals. Not even the Napoleon of financial model audits will be able to counter this tactic.

7. Do not disturb my circles!

It is always a good idea to use elaborate and intricate circular references to rid yourself of any nosy perpetrator/financial model auditor. Most people believe and take comfort in their own self sense of ability and intelligence, which is why they will eventually give up trying to disentangle complex workflows and references.

8. A financial modeller’s gotta eat too

When running scenarios it is best to model these individually and manually. This will create more work which will keep you in your contractor role or hourly rate engagement longer. Another useful tip is to not build in spare lines. If you have spare lines handy when changes has to be made to your model it means these changes can be accommodated swiftly which could mean that your project finishes on time.

9. Withdraw to name-calling

Maximise the use of named ranges as this will make it more cumbersome to interrogate your formula. If people understand what you have done they may not need you anymore.

10. Tomato, tomatoe

Make sure to create a number of colourful and fancy-looking graphs in the summary tab of your financial model. Only you deviously mislabel them, say by plotting the operating cost series of a project but labelling it NPV. This will seriously influence any decision maker – after all, a picture is worth a thousand words.

The list of bad practice modelling appears to be never ending. Please share your thoughts below; I’m sure you have come across plenty of things we can add to the list.

Arvid Asbrink is a Master of Science (Accounting & Financial Management) student at the Stockholm School of Economics and will continue his work for Corality in London on a contractor basis while finalising his studies.

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