Corality 10 SMART Guidelines
Corality 10 SMART Guidelines
Corality 10 SMART Guidelines
Guidelines
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ITS TIME TO RAISE
THE BAR
comparisons
06 Communicate a story
Working with SMART is like having traffic rules:
common guidelines make drivers cooperate everyone
is safer and the traffic moves efficiently. 07 Incorporate powerful analysis
SMART
SMART
FINANCIAL
FINANCIAL
MODELLING
MODELLING
Methodology
Methodology Transparency
Transparency Flexibility
Flexibility Presentation
Presentation
10 SMART guidelines
Global challenges
Production sensitivity
-12% 0.3x 0.4x 0.5x 0.6x 0.7x 0.8x 1.0x 1.1x 1.2x 1.3x 1.4x
-10% 0.3x 0.4x 0.5x 0.7x 0.8x 0.9x 1.0x 1.1x 1.2x 1.4x 1.5x
-8% 0.3x 0.4x 0.6x 0.7x 0.8x 0.9x 1.0x 1.2x 1.3x 1.4x 1.5x
-6% 0.3x 0.5x 0.6x 0.7x 0.8x 1.0x 1.1x 1.2x 1.3x 1.5x 1.6x
-4% 0.3x 0.5x 0.6x 0.8x 0.9x 1.0x 1.1x 1.3x 1.4x 1.5x 1.6x
-2% 0.3x 0.5x 0.7x 0.8x 0.9x 1.0x 1.2x 1.3x 1.4x 1.6x 1.7x
0% 0.3x 0.6x 0.7x 0.8x 1.0x 1.1x 1.2x 1.3x 1.5x 1.6x 1.7x
2% 0.5x 0.6x 0.7x 0.9x 1.0x 1.1x 1.3x 1.4x 1.5x 1.7x 1.8x
ADOPT 4%
6%
0.5x
0.5x
0.6x
0.7x
0.8x
0.8x
0.9x
0.9x
1.0x
1.1x
1.2x
1.2x
1.3x
1.3x
1.4x
1.5x
1.6x
1.6x
1.7x
1.8x
1.8x
1.9x
GUIDELINES, 8%
10%
0.5x
0.6x
0.7x
0.7x
0.8x
0.9x
1.0x
1.0x
1.1x
1.1x
1.3x
1.3x
1.4x
1.4x
1.5x
1.6x
1.7x
1.7x
1.8x
1.9x
2.0x
2.0x
NOT RULES
12% 0.6x 0.8x 0.9x 1.0x 1.2x 1.3x 1.5x 1.6x 1.8x 1.9x 2.1x
SMART has been proven to deliver efficiencies Focus on improving the majority of your quality issues first,
then step-by-step you can increase the level of standardisation
and improved quality in thousands of
organisations all over the world because of its Accept the real-life challenges of tight deadlines, creative
ability to adapt to complex situations, rather needs and technical constraints
than adopting a one-size-fits-all approach.
Accept compromises but never compromise transparency
02 400,000
300,000
200,000
100,000
THINK ABOUT
2013 2014 2015 2016 2017 2018 2019 2020 2021
(100,000)
(200,000)
400,000
300,000
Before you start building a model, With increasing complexity in the finance sector, it is now common practice
ask yourself the question If I received for CEOs, CFOs, investment officers and board members to take more of a
this model, what would I want to see? hands-on role in using financial models. By creating a tailored summary,
Focus on creating model elements you will be able to effectively communicate the findings to senior decision
that are transparent and easy makers. As decision makers become more involved, models built with an
to understand. intuitive structure will allow them to spend less time asking how the model
works, and more time analysing the results.
Tailor all models to the intended user group, including future users
TIPS FOR Give non-technical users instructions on how to use the model
The saying goes that you shouldnt judge a Make every single calculation a step that is clear and intuitive
book by its cover, because the cover picture
Every model has a structure and presentation which fills
rarely reflects the quality of the text. In a
a first time user with confidence
financial modelling context, this does not
apply. You absolutely can judge a model
by its cover. The cover (layout, structure
and sheet presentation) has a significant
impact in the robustness of the Gain organisational agreement on best practice
financial model.
Presentation and structure in a financial model is highly correlated with a
The adage in financial modelling should be logical and intuitive flow of information. Our minds are trained to recognise
if its a mess, its likely to have errors. The patterns. At a subconscious level, we look for a level of consistency and
risk of errors is especially prevalent when a standardisation in the way a model has been developed to help us
model has been worked on by multiple people. understand how it works. By using a series of clear and intuitive steps
Poor structure and presentation is usually a from a single methodology, you will receive a high level of confidence in the
sign that varying methodologies have been models results.
used. All models should follow a standardised
structure and framework. To avoid reinventing
the wheel, use starting templates created by
your organisation.
J67 = IF(AND(J119>0,$E67>J119),1,0)*J16
J68 = IF(AND(J144>0,$E68>J144),1,0)*J16
05
USE AN
INTUITIVE TIPS FOR SUCCESS
STRUCTURE
Set up calculations to work in the way people would normally
expect them
Provide context to the model Focus on the big picture to provide context for users
Occasionally, you come across a really Illustrate commerical highlights with graphic visualisation
great book that you are unable to put
down. When you are building a model, Develop scenario fundamentals for strategic/financial outcomes
you should consider yourself the author
of that book. Take your users on a well
thought out journey that naturally flows
from the calculation block, to the next
section, and on to the next worksheet.
Ensure you send a balanced message
It is important to remember that model
users will not always have the same The way in which information is presented in Excel is crucial. Dont
context as you (the model developer). underestimate the value that intuitive presentation and powerful charts
As a model developer, you need to can add to your story. A simple, neatly presented, step-by-step approach
ensure that you provide context into a will be much faster to interpret than a complicated formula. Likewise, a
model through presentation and layout. well-designed chart will quickly provide a visual summary of a large
Providing context helps to convey your information table. The trick, to ensure you provide a powerful story, is the
thoughts to the model users. Avoid ability to strike the correct balance between the desire to capture as much
Scenario manager
understand the conceptual story behind of doing this is to use charts with only Generation one axis,Efficiency
and splitting complexCombined
items
your model, it will enhance their ability to across several charts instead Base case of combining
Base case down themdown together.
Price down down Upside
Generation Y*(1+X%) - - (5.00%) (5.00%) 5.00%
make sound decisions with ease. Efficiency Y%+X% - - (2.00%) (2.00%) 2.00%
Price path Selection Base case Base case Base case Base case Base case Base case Base case
Price flex Y*(1+X%) - - (10.00%) (5.00%) 5.00%
Incorporate scenario
Have a framework to simultaneously analyse multiple scenarios
management tools
The best models come full of tools to Use simple, well documented VBA to get the results you need
answer important questions. Being able
to get the answers to questions quickly
and efficiently is key to reducing the
stress in a live deal environment, where
accuracy under pressure is critical.
Financial models need to be capable of Keep the basic in Visual Basic
dealing with rapidly changing inputs
and scenarios. To avoid turning your model into a black box, you should design models that
dont require macros (i.e., VBA) to operate. You can often avoid the use of
A good model framework will let you run macros by thinking about a problem differently changing the order in which
sensitivities on your key model drivers. you run a calculation, or drawing on some simple algebra to rearrange the
You will want a structure that allows you solution. However, when you run into a problem that cant be solved easily,
to run scenarios with a flick of a switch, a simple macro can often be the answer you need. If you do need to use one,
so that you can spend more time just remember that a SMART macro is a simple, well documented macro.
focusing on delivering accurate answers,
and less time stressing over model
inputs. Better yet, incorporate a Scenario manager
simultaneously and have all of the Live Case 1 Case 2 Case 3 Case 4 Case 5 Case 6
answers, all of the time. These are the Generation Efficiency Combined
Base case Base case down down Price down down Upside
tools that will save you time and avoid Generation Y*(1+X%) - - (5.00%) (5.00%) 5.00%
the risk of errors when your transactions Efficiency Y%+X% - - (2.00%) (2.00%) 2.00%
Price path Selection Base case Base case Base case Base case Base case Base case Base case
and your models are under pressure. Price flex Y*(1+X%) - - (10.00%) (5.00%) 5.00%
BUILD FOR
your structure
THE FUTURE
how the model works
Categories
Anticipate tomorrows Development costs
needs today in your Turbine constructon AUD M 60.00
financial model EPC management AUD M 5.00
Civil works AUD M 10.00
The best financial model is a flexible one, Electrical AUD M 4.00
capable of adapting to a changing Wind monitoring AUD M 3.00
business and new circumstances. Within
Spare AUD M -
reason, a model should be built around
Spare AUD M -
foreseeable needs, to reduce any
Total AUD M 82.00
structural changes that need to be made.
As the need for modifications often arise
under time pressure, having the option to Spare categories allow inputs to be easily updated without making changes
switch on unused functionality that has
been pre-built into a model will reduce
the risk of introducing errors when
making updates.
Consider who will be using the financial model in
the future
To future proof models, there are a
The current users of a spreadsheet will not always be reflective of future
number of elements a modeller can
users. Management can change, employees can come and go, and models can
consider. At the simplest level, including
be passed around between teams and organisations as new stakeholders
additional rows for spare categories of
get involved. Rather than building purely with the current team in mind, think
revenues and costs can provide an easy
about who might need to use the model in the future, and ensure they
way to expand the number of inputs
understand how it works and how to meet their future needs.
without requiring calculation
adjustments. Having additional facilities
for possible or proposed sources of Senior Debt
funding will allow variations in
Debt Limit AUD M -
assumptions to be easily applied, and for
scenarios to be conveniently run.
Period Cons Op Yr 1 Op Yr 2 Op Yr 3 Op Yr 4+
Margin % p.a. - - - - -
Build model integrity checks Follow a set of modelling guidelines and ensure stakeholders
are trained appropriately
Error free models are rare. Thats why
building models that are simple and
consistent is critical. It is much easier
to find, and fix errors if models are built
Follow a set of modelling guidelines
with simplicity and consistency in
You have made it to the final SMART Guideline in our series, so you now
mind. By using step-by-step
understand the importance of adopting a set of best practice modelling
calculations, the logical flow can be
guidelines and sticking to them. Share the guidelines with your colleagues to
easily followed. This process makes it
benefit from a single methodology used across your team. A standardised
easier and faster for all users to identify
approach will ensure that the whole team builds transparent, intuitive, and
errors that lead to incorrect numbers.
easy to check and update models. Most importantly, guidelines will give you
the confidence to spend less time reviewing, due to the transparent
To ensure model integrity, the ideal
nature of the model, and more time focused on deriving insights and
approach is to create automated checks
conducting analysis useful for your organisation.
that consistently test the model for
errors. Build integrity checks to ensure
that critical outcomes such as
having a balance sheet that balances and
percentages that add up to 100% are
maintained throughout your model and Fail
checked at all times. Place the output
of these error checks in the top left
hand side of your model screen so that
they are always visible. Having the error
checks constantly visible will ensure
that you have real-time updates on the
integrity of your inputs and calculations,
once again reducing error risk.
Keep your checks visible to allow for real-time updates on model integrity
SMART.
CONFIDENCE
WHEN IT COUNTS
www.corality.com/training/campus
We are dedicated to exceptional financial modelling. Our commitment is to sharing best practice tips and techniques,
through step-by-step tutorials following our SMART best practice methodology and insightful blogs, so your financial
models give you confidence when it counts.
DEDICATED TO EXCEPTIONAL FINANCIAL MODELLING
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confidence when it counts, through leading consulting practices, exceptional
analytical capabilities and industry-specific experience.
We lead the world in financial modelling and forecasting, helping our clients with
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team, with demonstrated global knowledge, offers you a 24-hour working window
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