Developing and using Excel models for financial decision making
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Excel models can be applied for financial decision making purposes including that of investment analysis. The Excel models must incorporate sound design principles required to ensure that the variables are all taken into consideration for effective forecasting and possible scenario assessment. The development of the above for the evaluation of new products may be hindered by the lack of available historical data as well as the need to also take a wide range of possible scenarios into consideration.
Modeling must thus be built upon solid planning and design principles which incorporate goal setting. The purpose is of the utmost importance and as such the modeling should be done around that. Other considerations that should not be ignored include that of acknowledging the distinctive attributes of a new product or service.
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The basic steps involved are as follows:
- Create a basic summary of the required steps, formulas, and relationships present.
- Save time by building a focused model. If you attempt to consider every possible scenario it will become a lengthy process.
- Obtain information about the user demand for the specific service or product with consideration given to possible pricing structure variables.
- Do a break down of expenses regarding the service or products which can be used for separate projections.
In addition to the above you will also need to conduct a scenario assessment. Well defined and developed Excel models will make provision for the assessment of various situations and the possible effects of those situations. The Audit Excel team has several years of experience in this area and can be contacted for assistance in developing new Excel models for financial analysis purposes.
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