The way MBA programs teach financial models is really outdated for today’s world. The result is we have consultants building these incredibly static models that do not meet the needs of clients today. In effect, financial modelling as it is taught today is dead. It is an investment in the past.
The Old Way of Building Financial Models
Let me give you a brief overview of what happens on a study today, when we build fancy excel models. Let’s take the LAB study for example where we built a very effective model which answered some very critical questions for the client.
It is important to note that we rarely hand over models to clients. They do not appoint us for the models, but for the insights. Though in many cases, clients do ask for the models to be handed over and we do oblige.
This is what happened…
The client asked for the model and we emailed them a copy. In the space of 7 weeks since the study ended, that model ended up in the hands of at least 17 different users. There are probably more client employees using it but I just counted the ones on the emails on which we where cc’d.
Each employee makes their own changes. So there are now a minimum of 17 variations of the model. Some changes are assumption changes so they make sense and should be made. Others are changes to the equations and many do not make much sense. In effect, they break the model.
Some of the macros are not updated. Some of the live data feeds are broken since some clients open the model when working behind the firewall and the live data feeds cannot reach the Bloomberg feed.
By this stage we have maybe 50 to 100 variations of the model floating around.
It gets worse when the executive team wants to produce slides based on data from the model. Since the model is excel based, the executive needs to ask a lower level business analyst to first check that the correct version of the model is being used, and then run the numbers, export the results, create the slides, insert them in graphs and include them in the executive update pack.
No sane executive wants to play around with an excel model because all excel models, no matter how well they are designed, are cumbersome and awkward to use. Just printing the output graphs can be a nightmare since the formatting may be off.
Due to the problems above, clients usually end up discarding the models after a few months or hand it to some junior business analyst to tinker with. After a while, that is also discarded.
After a while, the models are outdated and clients need to assign dedicated teams to keep them running. Most clients will not do this.
Therefore, even the best financial models are pretty annoying to use.
Financial modelling today is like those computer hobby kits in the 1970’s. You need to buy the parts and assemble them yourself and tinker with them to make them work. That was and is painful to do. Tinkering with financial models is even worse.
Clients should not need to do that. They have better things to do.
We need to move financial models from being a analyst tool to an executive tool to make decisions.
So the skill to build the model is now not enough. More thought and care needs to be given to the design and user-interface. Much more thought and care.
The Future of Financial Models
In the next studies we have planned for clients, starting with the power utility strategy study, we will no longer be handing over excel models to clients.
This is what we are doing…
We will be building apps which we will update continuously.
Gorgeous, intuitive and interactive apps.
The apps will be the interface for the model and the model itself sits on our servers and the client need not interact with it.
The apps will automatically produce graphics and slides with a few clicks.
Version control and “breaking” the model will be a thing of the past since the main model sits on our servers and we control the master copy, feeding updates via apps
We can also update the models over time, run simulations for clients and ensure everything is updated. We can add more and more benchmarking data to allow clients to measure themselves.
Crucially, executives need not fumble with models. Executive dashboards will be pre-built into the apps allowing one-click functionality.
We are hiring
We are hiring app developers / boutique app design studios to join our team on the first study on power utilities. This is a contract role running from February 2015 to May 2015 and June 2015 to Sep 2015.
Please note this is not a role to replace or join the team running our website. That unit sits in New York and we are not looking to replace them.
This is what we are looking for…
Design is important to us. Sleek, simple and elegant design is a requirement for this work.
This is a distinct role to build an application which takes the financial model we are developing for the corporate strategy, and converting it into an app that can seamlessly and creatively present the insights from the model.
We are looking for a start-to-finish approach where the successful team must be able to design the application, code it, convert the financial model into a back-end database and take the app live.
The team will work jointly with our financial analyses / valuation stream on the study.
We will allow the studio / designer to work remotely but they must be available for daily video conference calls and be able to communicate with the financial analyses stream in real-time.
The ability to speak English is a requirement.
The studio / developer must have prior experience in working with real-time data intensive applications for B2C applications. We are not at all looking for anyone with B2B expertise.
Experience with Tableau software is an advantage.
The studio / developer must be able to present an app of similar functionality that they have designed in a previous project, as part of the vetting process.
We want to stress that we are looking for a team that works jointly as a part of our financial analyses stream. If your approach is to work independently and check in for routine updates, it will not match our style of working. We are looking to deploy a blended team.
If you meet these requirements and want to re-invent the way financial analyses should impact clients, please send a brief (1-page) statement of your or your agencies work to michael@firmsconsulting and a link to similar applications developed. We will send a detailed specification document to shortlisted parties.
Shortlisted firms should expect to present their ideas in early January, go through a background check in late January and be prepared to start the study on 1 February 2015.