Avoid the humiliation of not having the answers

F1F9 FINANCIAL MODELLING EXPERTS

Author:

Kenny Whitelaw-Jones

Published:

21 Jan 2015

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Picture the scene. It’s 2001. It’s just past 1am in the London head office of a FTSE-250 industrial conglomerate. I’m sitting in the Board Room with the Finance Director and my boss, a Partner from a Big 4 Accounting firm.

I’ve been with the firm for less than 2 months. I’ve been on this assignment for 11 hours. I’m very keen to make a good impression. The client company is in trouble and they’ve brought in advisors to help get them out of it. They have days before they run out of cash.

They have to restructure their financing to be able to survive. The meetings with their bankers are hours away.

Both men are looking at me. They want to know why the working capital numbers from the model don’t make any sense. I want more than anything to be able to tell them.

But I can’t. I can’t because I haven’t looked at the working capital section of the model. Ever. It’s humiliating not to have the answers they are looking for.

I had been assigned to the team earlier in the day to help the lead modeller. He had just come back from an assignment to restructure a major European Airline. The model which had been used for the successful airline restructuring was being used for this one. I learned later that, like Dacia cars in Communist Romania it seems that the value of financial models goes up the older they are, the reasoning being “If it’s lasted this long, it must be a good one”.

He was already exhausted having worked for months on the airline restructuring. At 10pm that night he cracked under the pressure. Critically, he hadn’t built the original airline restructuring model but had done a good job of using it during that transaction. He was now struggling to adapt it for this assignment and had been working under increasing pressure.

And neither the senior people from our firm, nor the client could understand why it was all taking so long.

The person who had built the original model was on another assignment, in another time zone, and wasn’t available to help.

In short, nobody understood the model, least of all me.

The Finance Director was, quite rightly, running out of patience. I would love to say that in the years since then I haven’t seen this story repeated. But I have. Often. And it’s completely unnecessary.

If the model had been built to a common standard, everybody would have understood it.

If the model had been built using the FAST standard, it would have been much easier to change it, and a working model would have been delivered much earlier in the process, giving more time for the Partner to look at the numbers and recommend a course of action.

If the Partner in charge of the assignment had understood the difference between Conceptual modelling and spreadsheet engineering the communication with the modellers would have worked much better.

If some practical project management structures had been put in place, the whole assignment would have been under control.

None of that happened.

Download our “10 principles of Agile  financial modelling” ebook to see a better approach

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Kenny Whitelaw-Jones
Kenny Whitelaw-Jones is no longer with F1F9 but we really like this blog so we've kept it.