This is PART 14 of the online course "Financial Modeling with Analytica."

1. Golden Rules of
Financial Modeling10
PART 14 FINANCIAL MODELING

2. 1. Start with a conceptional model.
10 Golden Rules of Financial Modeling

5. WHAT

6. Influence
Diagrams

7. 1. Start with a conceptional model.
2. Document as you build.
10 Golden Rules of Financial Modeling

8. 2
1Variables have
meaningful names
No structured
documentation
Formulas work with
cells not tables
Changing dimensions
is
No built-in treatment
of uncertainty
Minimal support for
sensitivity analysis
No separation of
end-user interface10
9
8
7
6
No variables with
defined roles
Invisible model
structure
Little support
for modularity5
4
3

9. 2
1Variables have
meaningful names
Formulas work with
cells not tables
Changing dimensions
is
No built-in treatment
of uncertainty
Minimal support for
sensitivity analysis
No separation of
end-user interface10
9
8
7
6
No variables with
defined roles
Invisible model
structure
Little support
for modularity5
4
3
Each variable is a
structured object

10. 2
1Variables have
meaningful names
Formulas work with
cells not tables
Changing dimensions
is
No built-in treatment
of uncertainty
Minimal support for
sensitivity analysis
No separation of
end-user interface10
9
8
7
6
No variables with
defined roles
Invisible model
structure
Little support
for modularity5
4
3
Each variable is a
structured object

11. 1. Start with a conceptional model.
2. Document as you build.
3. Make assumptions explicit.
10 Golden Rules of Financial Modeling

15. 1. Start with a conceptional model.
2. Document as you build.
3. Make assumptions explicit.
4. Don’t put assumptions in future periods.
10 Golden Rules of Financial Modeling

19. 1. Start with a conceptional model.
2. Document as you build.
3. Make assumptions explicit.
4. Don’t put assumptions in future periods.
5. Immediately test each calculation.
10 Golden Rules of Financial Modeling

20. Test as you build

21. f(x)

22. f(x)
f(x)
f(x)
f(x)

23. f(x)
f(x)
f(x)
f(x)

24. f(x)
f(x)
f(x)
f(x) f(x)

27. 1. Start with a conceptional model.
2. Document as you build.
3. Make assumptions explicit.
4. Don’t put assumptions in future periods.
5. Immediately test each calculation.
6. Add detail gradually.
10 Golden Rules of Financial Modeling

31. 1. Start with a conceptional model.
2. Document as you build.
3. Make assumptions explicit.
4. Don’t put assumptions in future periods.
5. Immediately test each calculation.
6. Add detail gradually.
7. Let sensitivity analysis guide you.
10 Golden Rules of Financial Modeling

34. 1. Start with a conceptional model.
2. Document as you build.
3. Make assumptions explicit.
4. Don’t put assumptions in future periods.
5. Immediately test each calculation.
6. Add detail gradually.
7. Let sensitivity analysis guide you.
8. Aim for clarity and simplicity.
10 Golden Rules of Financial Modeling

35. A theory should be
as simple as possible,
but no simpler.”
“ —Albert Einstein

48. 1. Start with a conceptional model.
2. Document as you build.
3. Make assumptions explicit.
4. Don’t put assumptions in future periods.
5. Immediately test each calculation.
6. Add detail gradually.
7. Let sensitivity analysis guide you.
8. Aim for clarity and simplicity.
9. Embrace unexpected behavior.
10 Golden Rules of Financial Modeling

50. 1. Start with a conceptional model.
2. Document as you build.
3. Make assumptions explicit.
4. Don’t put assumptions in future periods.
5. Immediately test each calculation.
6. Add detail gradually.
7. Let sensitivity analysis guide you.
8. Aim for clarity and simplicity.
9. Embrace unexpected behavior.
10. Don’t trust your model … too much.
10 Golden Rules of Financial Modeling

51. Essentially, all
models are wrong,
but some are useful.”
“ —George E. P. Box