Whether it's the day-to-day monitoring and planning of your business or consideration of strategic options like a potential acquisition or divestiture, your underlying financial models can make or break your decisions.
Better information = better decisions
Financial modelling lies at the heart of any critical business decision. That's why it's so important to avoid making high stakes business decisions using underlying financial models that may be untested and that can lack sufficient insights to enable informed decision making.
We're seeing that companies routinely use desktop analysis (i.e. financial models) developed through software packages such as Microsoft Excel, for business monitoring and planning (e.g. management reports, forecasts) or to evaluate critical business decisions such as mergers and acquisitions. While this is a practical, cost effective solution, you'll want to steer clear of common pitfalls. In particular, you'll want to make sure that your models:
- contain a comprehensive and insightful analysis of key performance indicators to support your decisions;
- are not 'finance focused', and that they are aligned with your company's strategy and operational forecasts;
- factor in risk analysis, such as robust sensitivity and scenario modules; and
- have not been developed by a junior resource, with limited formal model testing other than a high level 'sense check'.