financial modeling and model supervision

Budgeting, Planning & Forecasting

- 4 min read

The Board approach to financial modeling and model supervision

As the provider of the #1 decision-making and modeling platform for organizations globally, Board International was delighted to sponsor the recent AFP Guide to Financial Modeling and Model Supervision. 

The guide makes numerous references to ‘agile financial models,’ and rightly so. To create these models, companies need a highly iterative implementation methodology. This flexibility dovetails nicely with the prevailing trend among our customers to go all in. They want to embark on a full-scale, transformative process that encompasses multiple disciplines and activities, from FP&A activities or HR workforce management models to CapEx and OpEx runs; you name it. 

Start with the basics and build on Board’s flexible platform 

Clients want to see a return on their investments in relatively short order, so Board implements applications quickly. The quick utilization lays a solid foundation for future implementation of the calculation-driven, data-entry process. This flexibility and ease of expansion also mean that a client can start with a basic model and add more functionality in the future. By having the infrastructure in place, there’s no need for a system overhaul. In fact, Board’s whole mindset for development – which is to do it in an incremental approach – applies to building financial models. Fast rollouts, and even speedier accommodation for changes, is Board’s mantra. Build for the future as well as the present and make scalability the byword. 

In building financial models with Board, the importance of standards and standardization cannot be over-emphasized. Driving alignment between all facets of the business is a critical piece of the Board implementation approach. It equips clients to make the best of their change-management activities, especially when faced with information in scattered Excel databases. Board has seen many clients where no one person or department has an end-to-end, inclusive view of activities. 

Finance professionals are aware of the limitations of a siloed information environment. Once they have approval from executive management to make changes – along with the resources necessary to affect change – the first place they start is with data standardization. Board has a two-step approach to deal with this issue, including both an integration module, which identifies the data going into Board, and a workflow process, which standardizes the views that get approved and rejected throughout the customer’s organization. The process involves preparing department budgets to be approved by department heads. With Board, there is transparency across the approval line (what has been approved, what remains in process, and what has been rejected), extending all the way to the executive level. In this way, all levels are able to review each stage and keep tabs on possible rollout delays. 

It’s an accountable, visible approach and puts everyone on the same page, with access to data and reports as authorized. In some ways, Board becomes the change catalyst that super-fuels a client’s digital transformation thinking. 

To be clear, existing company data sources – mainly acres upon acres (or hectares upon hectares) of legacy Excel spreadsheets – must be leveraged. But Excel was never intended, for the most part, to be a budgeting-and-forecasting tool for an entire enterprise, no matter how useful it’s been for certain applications and departments. 

Models need visualizing 

Handling significant data volumes and showing actual vs. forecast, actual vs. budget, and so on, has its challenges. Being able to review all this data, such as looking at the actuals and plans with detail and the same levels of granularity, is difficult. Many vendors struggle to deliver this adequately, whether it is being able to make data easy to comprehend, delivering high-value analytical capability, or by having to export and import data from system to system which lengthens decision-making considerably. Board is a differentiator in the market because it addresses all of these concerns.  

With the #1 Decision-Making Platform, users can build essential reports (such as actual versus forecasting reports) by importing data from disparate sources to a single platform, providing a single source of truth. This is an automated process, drastically reducing the time needed to take data from one system to the next. With data more readily available, modelers can compare large amounts of data, enabling multi-year forecasts and multi-year budgets. The platform’s dashboard approach makes data easier to visualize and enhances the ability to truly drill into the details, something that Board does natively.  

Once you’ve built your financial models, it’s incumbent on finance professionals to monitor, update, and maintain the models – often grouped under the term, model supervision. Board helps manage the various levels and is welcomed by those who know the nitty-gritty calculations that power the model, those who know how it’s intended to work. Then there are people making decisions off those reports who benefit from Board’s visualization capabilities. Using a retail-HR example, a store manager can view their store’s performance, understand data around the store’s output, and own and know that data comprehensively (and spot errors). 

Model supervision should be automatic 

There is automatic supervision, at different levels, of the model information. Then there is the executive oversight, which looks at the consolidation as a whole. If any piece of that model has an issue, it’s dealt with the least impact on the whole model. 

Another way of looking at building and supervising financial models is to create a center of excellence within the customer, empowering them through the implementation. Board looks to work with the customer in this way, to establish pre-defined roles that pinpoint:  

  • who will maintain the models 
  • who will enter data 
  • who will manage the whole process, at different levels 
  • who will have authority to accept or reject pieces (typically at department-level reviews).  

It’s often a brand-new process that the customer must communicate and promulgate throughout their organization. 

Additionally, although there may be the occasional CFO who can accurately discuss details of financial model building, in general, it will be the Financial Analysts within organizations that will maintain applications and models, and potentially data entry and management.  

We have also found that the IT department has a significant role to play. This role does not necessarily focus on the data but more on maintaining the Enterprise Resource Planning (ERP) applications – SAP, Oracle, and SQL Servers – where data is pulled from. Board has prebuilt connectivity to all of these applications, as well as a significant amount of data sources. This massively lifts pressure from IT teams as there is no need for coding or large-scale development to establish intersystem connections to pull data.  

Another important stakeholder group that plays an essential role in financial modeling and supervision are the department heads and owners, who do the first-level supervision and checking. And then we see the executives – CFOs and Finance VPs – who see it all in a consolidated view and sign off on the budgets based on the models at the final level. 

Managing the risk of models requires checkpoints 

Regarding risk management vis-à-vis financial modeling, Board is all about finding and resolving issues while building the model. Often the culprit is a black box in an Excel worksheet. With Board, getting it right from the start means having different checkpoints at different data levels. As Board loads data from the ERP application, Board has a validation area that shows the user what is being loaded from the source. If there are any errors at this stage, they will be flagged there and then – before it affects the model further downstream. 

That’s one checkpoint. Another is when Board creates the calculations – the logic that is needed – and if it involves more than a single-step calculation, it is documented and shared with the customer. The tool itself has an ‘impact analysis’ feature which shows the calculations feeding a specific report and is traceable. That’s one way of finding issues, thereby mitigating risk; the risk is that the error could go undetected and compromise the report’s validity. 

Board’s project team takes empowering the customer’s employees as early as possible in the implementation process seriously. They aren’t just given the Board application and documentation and left to their own. Board wants them fully involved, from the time they are doing prototypes right through to full launch, identifying and preparing the people who will be maintaining and using the application. Additionally, if the customer lacks the resources to support the application, Board offers support, such as 24/7 application support if IT resources are constrained. And there’s always a clear hand-off between Board’s implementation team and the customer’s (or Board’s) support team. 

Board’s active role across the financial-model lifecycle includes development, implementation, validation, and ongoing governance. Specific to development, Board ensures extensive data gathering, proper formatting, and data cleansing by validating it early on when pulling in data and populating the models, ensuring it’s correct. That’s the first step when designing cooperative transformation projects with our clients.  

When addressing the FP&A, budget-forecasting process, Board has prebuilt connectivity with all sources of data, centralizing it in one platform. From there, any data/information that is required at the time can be virtualized/federated without needing to physically load it all beforehand. Data is then validated and established with a sound database based on the different data levels of the actuals (where budgeting is based on those areas). This high level of flexibility aids general budget comparisons too. 

Board can do whatever the client wants it to do to help create best-of-breed financial models. It begins with establishing goals based on what the client is trying to accomplish. Understanding the business processes and improving them makes for a deep relationship, a partnership that will last decades. 

So, how important is it to get it right with financial modeling? In a word, very! However, the process cannot be rushed. Although it’s tempting to steam ahead and install just the first features as soon as possible, a customer may skip over things that will require some reworking to achieve later. Take the time to: 

  • consider the endgame, what needs to be achieved 
  • understand how staff will be empowered to support the delivery of a new system 
  • communicate to the rest of the organization what is being implemented and what needs to be done. 

If stakeholders are not informed and educated along the way, it won’t be a fully collaborative effort (as it needs to be) and may even raise some resentment among the ranks. 

See Board in action 

You’ve read about what Board, as a platform, can deliver to your organization and how Board, as a company, will fully support its integration. Take the next step to drive digital transformation across your organization and request a demo now. 

Be the first to comment on this post

Your email address will not be published. Required fields are marked *

See Board in action

Take the next step to drive digital transformation across your organization with the #1 Decision-Making Platform on the market