How Long Does it Take to Build a Financial Model?
07 May, 2011
Whether you are a consultant building a model for a client, or an internal modeller, you or the person who has commissioned the model build will – understandably – want to know how long it will take. The answer is never straight-forward, as like many other tasks it really depends on how long you have got (and there’s never enough time!) and how much detail you need to go into. The more time you’ve got, the better the model will be! Some models could take months and months of dedicated work, or you could throw together a very high level model in a day or two.
In a high level model, the assumptions would probably only estimates, as you won’t have had time to validate them with stakeholders, and the calculations will be pretty rough. You also might not have much in the way of fancy colours, formatting, drop-down boxes or tick boxes etc, but the numbers should still be reasonably accurate.
Building a Model Under Pressure
It’s a critical point to remember that even when under immense time pressure, the modeller should never compromise on good working practices. Even in a high level model, best practice should still be followed, correct labeling and documentation of assumptions should be maintained. See Best Practice in Financial Modelling for some guidelines on good practice. If these points have been adhered to, there should be surprisingly little difference in the base numerical outcome between a high-level model that takes a few days, and a detailed model which could take months. If pressed for time, cosmetic features such as those shown below should be omitted.
Time permitting, the detailed model may show:
1. Detailed assumptions documentation, validated by key project stakeholders
2. Scenarios and sensitivity analysis, using drop-down boxes, tick boxes or data tables
3. Table of contents or navigation tools
4. Colours and formatting, conditional formatting, insertion of company logos
5. Output summary and detailed analysis of output
Time should be spent on “quick wins” – use your judgement to spend your time on calculations that are material to the model. Don’t waste time on validating minor assumptions which are not material to the outcome of the model.
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