A model simplifies reality.
Its value lies in making assumptions explicit and their consequences understandable.
A financial model is useful only when people can understand it, trust it, and change it safely.
Structure is a control.
Keep the layers distinct. Make every output traceable.
- 01InputsDocument the assumptions.
- 02CalculationsKeep the logic consistent.
- 03OutputsShow what matters.
- 04ChecksTest the connections.
Balance sheets should reconcile. Cash flow should connect to cash. Checks should be visible.
Five principles.
One standard.
Simplicity, flexibility, consistency, efficiency and confidence.
Only as complex as the decision requires.
Change assumptions without rebuilding.
Apply the same logic in the same way.
Reduce fragile, repetitive manual work.
Reconcile, check and explain the result.
A forecast is not a fact.
Reality will differ from the forecast. Good modelling makes assumptions explicit, tests alternatives and helps you understand the risks before committing capital.
Adapted from Optima's Financial Modelling Fundamentals presentation.