Determining the Audience for Your Financial Model

By Danielle Stein Fairhurst

Who will be viewing or using your financial model in the future? If it’s for only your own use, you should still follow good model design but there’s no need to spend a lot of time on the formatting to make it look cool. You should still add assumptions and source documentation for your own reference even if you know that no one will ever look at it.

There are a few types of people who could comprise your model audience:

  • Professional modelers: If your model is for a large-scale investment or if money is being lent based on the outcome of your model, you can expect that professional modelers are going to want to “look under the hood” of your model to take it apart and audit it. You can greatly reduce the cost of an audit by using consistent formulas to reduce the number of unique formulas in the model. Do not hide sheets or attempt to protect parts of the model — it will only frustrate the professional modeler who will want to see how your numbers were calculated.
  • Occasional modelers: Some models will be used by people for whom looking at models is only part of their job — you yourself perhaps fall into this category. They know their way around Excel but aren’t really interested in understanding the intricacies of the entire model. They just want to make sure it’s working properly because they need to rely on the numbers and perhaps they need to use it by changing some of its numbers from time to time. When building a model for the occasional modeler, you want to make the model as easy to follow as possible. Keep it streamlined, and don’t clutter the output pages with unnecessary detail. Move any detailed and less important assumptions to the back so that they can be referred to only if necessary.
  • Nonmodelers: Sometimes your model will be viewed or used by members of the board, salespeople, or marketing folks for whom modeling or using Excel is not part of their everyday lives. For example, you might be producing a sales dashboard report that is produced every week and the user simply needs to change the drop-down box to look at a different product or region. You want to make the output pages as simple to use and as appealing as possible for a nonuser of Excel. The user is unlikely to want to take the model apart and look into the formulas, so to simplify the way the model looks, you might consider hiding the calculation sheets and perhaps even the data sheets — with or without a password.

Password protection should only be used as a deterrent to prevent nosy colleagues. It’s not a security system and should not be relied upon as such. Search the web for Excel password remover, and you’ll find plenty of software available that can remove the password.

In conclusion, planning and designing a financial model is a critical part of the model build. It takes a unique mixture of logic, clarity of thought, and graphic layout skills by the financial modeler to build a well-designed model, and this often proves to be difficult to implement in practice. Model design can sometimes be the most difficult part of building a financial model and it is, in one of the most difficult aspects to teach and learn.

Learning how to build a well-designed model comes with experience. But a faster way to develop design skills is to critically assess other models you come across, taking note of what works and what doesn’t, and then applying it to your own models.