Starting with the end in mind is one of the simplest ideas that is frequently ignored. I have seen so many analysts begin designing a financial model without having a clear understanding of the purpose of the model. In this article, you will find three types of models and some tips on how to design a good one.
A core aspect of financial planning & analysis (FP&A) is forecasting and budgeting. In this article, exposed are some of the more common myths so frequently accepted as truth within FP&A groups around the globe.
Scenario analysis, sensitivity analysis and what-if analysis are very similar concepts and are really only slight variations of the same thing. All are very important components of financial modelling – in fact, being able to run sensitivities, scenarios and what-if analysis is often the whole reason the model was built in the first place.
In the age of metrics and measurement, what are we doing to measure the satisfaction or happiness of those involved in FP&A? When organizations have low employee engagement, they incur additional costs related to the overall drain on productivity, turn-over, etc.., but more importantly companies are missing out on the upside potential to grow and compete based on the creativity, innovation and hard-work invested by an engaged workforce.
Today’s FP&A practitioners are highly trained professionals with a greater ability to see the big picture, analyse and interpret data, and build predictive models. They are also experts in harnessing the power of information technology. They are able to create detailed cost and revenue databases that unlock patterns and trends in business behaviour and to build sophisticated and responsive forecasting models. We do rolling forecasts because we know they are better and because we can.
Sometimes, what you forecast needs to change dramatically, due to e.g. market disruption or internal changes. You also might not monitor every business the same way, because each might be in different development stage or ´situation´. By looking at the company itself, but also possible (management) crises, you can determine what the focus of the forecast should be.