What Makes a Good Financial Spreadsheet?
July 31, 2007 by Akira Hirai
We’ve seen hundreds of spreadsheets, and frankly, some are just painful to look at. In our experience, an excellent model is both “correct” and “user friendly,” and typically exhibits the following characteristics:
- Generates useful insights that the intended audience(s) can quickly grasp
- Engenders confidence that the model is working as intended
- Easily understood and manipulated by its intended audience(s) without requiring extensive modeling experience (e.g., all assumptions/inputs are segregated and identified, rather than buried within formulas)
- Easily modified and maintained by its owner as the underlying conditions change
- Focuses on the big picture and gives priority to the most material aspects of the business by employing numerous simplifying assumptions and by relegating details to separate but related sub-models
- Based on reasonable and justifiable assumptions
- Based on logically correct economic and financial principles
- Avoids errors of implementation, such as incorrect or overly complex formulas
Quite often, it is difficult for the author of a spreadsheet to look at their own work objectively and decide whether or not it meets these criteria. When in doubt, have a colleague perform a thorough audit of your work before showing it to your intended audience.
Other articles by Akira Hirai.
Filed under: Finance & Accounting
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