Financial Modeling Rants

I Have a Number in Mind

Since Vair’s founding in 2003, I have traveled, on average, anywhere from 200 to 300 thousand miles a year. I have just learned that at the end of this year I will become an Air France/KLM Flying Blue “Platinum for Life” member.

 

To obtain the membership you must have maintained Platinum status for 10 consecutive years. That means 10 straight years of 70 thousand miles or more. I have always thought that was a rather smart play by AF/KLM. If you are Platinum for 8 straight years, and you miss by a few points, downgraded to Gold status, then the whole thing resets again.  If you see you are getting close, you would take trips to make sure you “top off” the account every year. I have often wondered how many could actually maintain 10 straight years, especially in this economy.

 

Now I wonder what fanfare could occur at the end of this year if I hit my number. (As an aside, I already have 140 thousand miles for 2010 due to carry-over miles from last year and three international trips in January, so my status is assured. When my Croix de Guerre arrives with an autographed photo from Sarkozy and wife Carla Bruni, I will post them on our site.)

 

On one of my recent trips, I deviated from my usual gym, club sandwich room service, book-to-sleep routine and went to see “Up In The Air,” at the suggestion of friends. Needless to say, I found many of George Clooney’s character Ryan Bingham’s travel techniques humorous if not out right too close to home, especially his citing of “I have a number in mind.” So do I, and it is this year, Year 10.

 

As I have racked up these thousand, dare I say millions miles, one question, more than any other comes from both our training and advisory clients – “I have a number in mind, but I am not sure if the model is accurately reflecting that number, how do I AUDIT the number?”

 

Finding an accurate financial modeling audit technique, and/or audit program and/or firm, is akin to finding the financial modeling’s Holy Grail. Over the next couple of blogs, I will touch on some techniques that seem well established among the financial modeling community. If you have any additional comments, thoughts or ideas on the topic, I am sure that all would be grateful to hear.

 

Bests,

 

Chip

MBAs, The Model and a Surfboard

Every year that we conduct training for in-house clients, I always get the same question from some Senior Manager, “Do you know any good analyst with strong financial modeling skills that may be looking to change jobs.” To which I usually say, “I really cannot start robbing Peter to pay Paul by poaching a good analyst from one firm to another or we will lose all our clients.” However, over the years, as we have continued to hear that same question, we knew that it may be easier to go “further upstream to the source – The MBA.”

 

Now let us use the 1970’s sitcom method of the wavy TV lines that brings the character in question, me, back to some point in time when I graduated from Business School. I was a newly-minted MBA arriving to my new job on Monday morning where my new boss opened up a 3MB financial model for a USD 300 million project in Ecuador and he said, “Chip, welcome, we are glad that you are here. The analyst that built this financial model has left and you need to know how to run THIS financial model by Friday because we are negotiating contracts with it a week from today.”

 

The financial model had two balance sheets, one in local currency and one in US Dollars.  It had some crazy accounting for re-valuing hyper-inflation assets with a Monetary Correction Account. The owner’s were using subordinate loans for their equity and wanted to amortize their capital based on changing legal limits. And there I was - I had no idea how Goal Seek, Data Tables and the Ctrl key worked. For hours I pointed, clicked and dragged my way through those first many months on those financial models, probably creating circular reference after circular reference. I remember very well the first time someone showed me how to anchor cells using F4 and how to edit with various modes of F2s Point, Edit and Enter. It reminds me when my kids first discovered chocolate.  Their first reaction was pure joy, “This is the best stuff I have ever had!” followed by that What the H%#@! Moment, “Are you kidding me, how long have you been holding back on this and why haven’t we had it earlier!”

 

I never had formal Excel AND/OR financial modeling training, and it would have made my life much much easier. Also, I know that those candidates that can demonstrate efficient mouseless modeling techniques coupled with a strong understanding of financial statement analysis will have a leg up on the competition in a very difficult job market because we get the question EVERYDAY -- “Do you know someone?” There are financial jobs out there if you have the skills.

 

Now to the point at hand, let us have some fun learning those skills in one of the world’s most exquisite locations. MBAs: Come on down to Nosara, Costa Rica for Spring Break 2010. I promise you that you will learn industry-wide financial modeling skills, get to hang out in a beautiful spot, network with other MBAs and chances are pretty good that you may even pop up on a board and catch wave if you never have before.

 

CTH

Sobre Modelos Financieros...

En ocasiones se considera que es difícil expresar con palabras lo que significa una herramienta de números, sin embargo este es un paradigma que la mayoría de las personas debe romper, ya que los números en si mismos son solo números, más su interpretación es lo que agrega valor a su congregación.

 

Esto es precisamente en lo que consiste un Modelo Financiero, es una congregación de números que buscan simular situaciones y resultados de un negocio o proyecto en particular, con el fin de lograr interpretaciones anticipadas o esperadas de lo que sucedería al ejecutar una posible decisión.

 

Un Modelo Financiero no es una bola de cristal para ver el futuro, pero es la herramienta por excelencia a nivel mundial para la estructuración de proyectos, valoraciones y para la toma de decisiones, ya que permite a los ejecutivos visualizar todas las variables de su negocio y su potencial comportamiento a partir de ciertas circunstancias.

 

Un Modelo Financiero es una conjugación de técnicas de Excel que muchas personas ven con respeto e incluso con miedo, pero quienes hemos tenido la oportunidad de navegar en un modelo encontramos que no solo es enriquecedor sino retador y hasta divertido, porque podemos mover a partir de una simulación todo un negocio desde una o muy pocas celdas. Podría sonar a juego, pero en realidad mover un negocio a partir de un modelo financiero es una gran responsabilidad ya que es a partir de estos que se firman contratos importantes y es a partir de este que los ejecutivos de primer mundo dirigen sus negocios aumentando la certidumbre de sus decisiones.

 

Quienes hemos trabajado con Modelo Financieros, hemos introducido estos a nuestras vidas para la toma de decisiones personales y sin duda mis colegas concuerdan en que esta herramienta les ha dado una mejor perspectiva de sus vidas financieras al punto de que se considera ya parte de nuestro día a día, razón por la cual se invita a las personas a conocer esta herramienta, no como un monstruo de números y de Excel, sino como una herramienta para simular mis posibles alternativas de decisión.

 

Kristian Fallas

 

Negotiating off the Financial Model

The model should be used as a financial tool. Here's Vair Training Head Instructor, Chip Haskell, making his case and "negotiating off the model". The audacity!!!

Steve

Welcome to the Vair Companies Blog

At the behest of my partners, I am starting a blog on financial modeling. I have often thought writing and reading a blog on financial modeling would be as interesting as watching grass grow, or better yet, watching someone code. Really, how much can you actually blog on financial modeling? Also, any firm that writes a blog on financial modeling is just trying to boost their organic ranking on the selected search engines, and let us be honest, we are doing the same.

But if we are going to do this blog, we at going to approach it in the same manner that we approach modeling – “People do not sign models, they sign the contracts those models represent”. Roughly translated, I will not spend many lines on how do use the VLOOKUP function or asking readers to vote on Excel 2003 and 2009, but rather try to speak to what we are seeing in practical uses from our training and advisory clients.

However, when I do come across some novel spreadsheet technique, I will of course try and demonstrate it. But I have also told my partners that I will not keep this blog uniquely to financial modeling.

I have the great opportunity to travel the world and meet many interesting people who use financial modeling in their daily professional lives. Many times, with their permission, I may take the opportunity to mention some of the interesting things they are doing. And, I may just write an entry about what I believe to be the best room-service club sandwiches in every continent.

I hope that if you read this blog, you will take the opportunity to reach out and keep in touch with us and with other people that you have meet via your interaction with Vair. One of the most fulfilling parts of my job here at Vair is the honest enjoyment that I have had meeting so many of you that share this same vocation with financial models.

From the people that bring you The Model Citizen newsletter, we at Vair hope that you will find our blog enjoyable, entertaining and maybe a little bit informative.

Bests,

Chip