With over 20 years experience designing and building financial models, CPF specialises in providing clear, easily operable models that guide what questions are asked of a project and yield answers that can be used to structure projects from financing through to implementation.
Modelling projects can be an enlightening and productive activity, or it can be immensely frustrating and provide added layers of complexity rather than useful insight. We understand the clarity and understanding that a well-designed model can yield.
Our objective is to provide understanding and confidence in a flexible modelling framework that allows projects to be structured and tested against stakeholder requirements risk.
The Modelling Dilemma
The problem lies with balancing functionality with cost, the skills required to maintain and operate the model and the audience that will ultimately consume and audit it. Financial institutions are often hobbled to Microsoft Excel, which will dictate how modelling outputs will be required for audit. This can be both a benefit and a drawback.
For small projects Excel is often the simplest approach, providing a convenient way of quickly modelling structure and assumptions. For larger more complex projects that require use of complicated funding instruments, multiple rounds of funding and encompass a range of operational components, Excel can quickly become unwieldy to maintain and audit. In these cases, extending Excel functionality with programmatic solutions often enables a front end that can be easily operated and understood with a back end that provides the desired functionality.
What you should get from your models
We suggest that, in the first instance, financial models should enable you to build a functional representation of your project which forces you to confront and justify your assumptions. Following this, models should enable you to examine multiple project structures simultaneously, highlighting the sensitivities of each and enabling you to identify, manage and respond to risk. Finally a financial model should be translated into your operational systems to allow for KPIs that yield an understanding of how performance impacts the overall bottom line.
What you shouldn’t get from your models
This is easier: You shouldn’t get a false sense of security. Modelling the future is not the same as knowing it. A great many of your assumptions will be incorrect, you will have missed some key parameters entirely and there will be factors that have not been considered. And there is always the Black Swan…
Key Modelling Components
Structural Assumptions enable you to examine how your project will function, where dependencies occur and what drivers exist.
Value Assumptions should, where possible, be researched from existing implementations that are as close to the project as possible. Providing a level of transparency that allows sensitivity to be tested and traced through the model to well defined justifications of Value Assumptions yields a higher level of confidence in financial models.
Structural Scenarios provide multiple views of how a project can be structured. Multiple structural scenarios should be available simultaneously to enable testing of project design against stakeholder requirements and changing implementation environments.
Incremental Scenarios are used to manipulate value and structural assumptions in order to stress test projects against factors such as changes in pricing, regulatory requirements, implementation or operational timescales, currency, finance service or commodity prices. Incremental scenario testing forms the basis of an understanding of risk and tolerance and should be a continuous process during project design and implementation.
Modelling Outputs tailored to key stakeholders, be these funders, regulatory bodies or project partners, should be provided in a format and level of detail that is appropriate for the audience, enabling a rapid understanding and confidence in the underlying project.
Governance and Audit is a key component of a financial model, encompasing both in-built programmatic error checking and the facility to perform rapid and comprehensive manual audits where neccessary. A model that facilitates audit accelerates the development and funding process and provides confidence to all stakeholders.
Operational Insight gained from the modelling process should be easily translated into implementation of the project. Stress testing will help to identify the assumptions that impact your project and where these fall under your control this understanding can be utilised to build KPIs that provide minimum performance requirements and provide early warnings when KPIs approach operational thresholds. This is where a model comes to life and gives you advanced understanding of the implications of operational performance.
Understand
At the centre of what we do is understanding why projects exist and how they will succeed.
Approach
Our approach to working with you and the promise we make.
Structure
Structuring projects and our approach to them.
Model
Financial modelling used for the right reasons.
Present
Presenting projects to the right people, at the right time and in the right way.
Deliver
Managing initiation and delivery of projects.