What it really takes to build a top financial model
Twenty years ago, when big infrastructure deals were being arranged, developers would concentrate all of their resources on hiring the best brains to get the contracts right. The financial model – a detailed spreadsheet presenting all the financials of a deal, with cells and rows occasionally numbering in the tens of thousands - was also glanced at, but if anybody spotted a discrepancy between ‘the numbers’ and ‘the words’ during this process, it was the numbers that would be changed.
This isn’t the case anymore. As deals have grown in size, they’ve become more sophisticated (read: complicated). Now, the numbers reign.
As a result, models have assumed newfound significance in deal making, and by extension more attention is now being placed on the modellers themselves.
If finance and working with large deals is something you’re considering, below are the key traits we’ve identified over 20 years of model review that make a great modeller.
A problem solving brain
When building a financial modelling team, the first quality we look for is puzzle solving ability. It may seem counter-intuitive, but when building a complicated model the financial knowledge possessed by most accountants or bankers takes second place to individuals with a high capacity for logical and focused thinking.
Being able to see the big picture is always valuable, but we also want people who get a thrill from finding needles in haystacks. These are the best minds for taking complicated problems and breaking them into simpler and smaller pieces – or in spreadsheets, down to the individual formulas and inputs.
Raw talent won’t get you far if it’s not refined. The saying goes: “there’s no teacher like experience,” though in modelling we might add “or other people’s mistakes.”
When we hire modelers, they spend two years examining other people’s models before they even think about building one of their own. That's a business in itself, not just a training exercise. Model reviewing experience often means exposure to just about every kind of problem that can arise – whether born of sloppiness, ill-conceived ‘short-cuts’ or a simple lack of understanding of the capabilities (and limitations) of spreadsheets.
Patience: a virtue in the modeling world
The final quality you absolutely must have in your modelling team is patience. Modeling is a science as much as an art, and in our world ego has no sway. The best way to realize your career ambition in modeling is to approach it in a patient way – building upon successes and avoiding setbacks that are the inevitable result of rushing.
If you’re treating modeling as a stepping stone to greater things then you will be treated with suspicion. People who are always looking ahead sometimes miss what’s directly under their noses.
Good modelers have these qualities in spades and the models they produce are all the better for it
Operis is a project finance specialist that offers financial modelling courses.