CFO Talk:  How is Modeling Changing and Why Should CFOs Care?: An Interview with Lance Rubin and Giles Male

Steve: Let’s roll the clock back a bit and put things in perspective. How has modeling been changing over the past decade? And, is that trend going to continue?

Lance: I have worked through the changes in modeling and certainly modeling tech during most of my career. If you go back when I started in financial modeling, almost 15 years ago I was building financial models at an investment bank. Modeling was primarily found in the investment banking community. We would build models for corporate finance or mergers and acquisitions. Our models were very much what I call deal models or transaction models. It was quite specific as to what it was used for. Therefore, the skills were quite limited to just those at an investment bank. Generally, the moment you step outside of that it was just the Wild West of spreadsheets. I think the Wild West, sadly, is still there. However, the number of professionals outside the core investment banking sector that actually can build decent models has increased.

There are certainly people becoming aware that financial modeling is an important skill and, in fact, it’s becoming a professional skill in its own right. We are seeing people like Gile’s as an example, where expert modelers are now working with small and medium sized enterprises (SMEs). No one was working with SMEs building models 15 years ago. Whereas, now there are all these modeling add-on apps with cloud computing. Modeling has definitely become something people are more aware of.

In more recent times, the technology to support modeling has helped boost its usefulness. However, because not everyone can build a great Excel model people are looking at other solutions. They are looking at other tools. And some of those tools are probably OK for most cases. But for the case that Gile’s mentioned and the one that I mentioned, Excel is still going to be the go-to tool because it allows you to customize for any sort of scenario. Whereas, a lot of these other tools just fuse growth rate based on volume and don’t ask the right questions. They don’t allow you to get full flexibility built into solving the problems at hand.

The other big thing is the errors. The focus on errors in governance around spreadsheets has definitely been heightened. I guess you only have to listen to the recent one with the UK where they lost 16,000 coronavirus cases due to a spreadsheet error. It is quite phenomenal how the errors have not gone away. They are still there. There is a greater awareness of the importance of resolving these type of issues.

And of course, the argument about Excel being dead is still alive and kicking. No one is winning that war because we know that Excel is here to stay

Steve: So governance is improved but is not yet perfect, we are getting SMEs involved, we’ve got more people recognizing its value. Those are all positive changes. What are the big changes in the next five to ten years that CFOs should expect to see in modeling?

Lance: There will be a high degree of automation. There is a tech vertical, a slice of modeling technology called modular spreadsheet development, which makes it possible to build spreadsheets exponentially faster while reducing the risk of errors and making spreadsheets much easier to understand. There are other technologies around analytics and visualization for modeling, but this particular vertical on modular spreadsheet development means that I can build a really robust model at lightning speed. What would take days or weeks to build can now be built in minutes. So, I think that’s going to accelerate the use of models and the value they deliver.

There has been very low adoption to these tools at the moment. There are currently two tools in the market, Modano and Openbox and they are certainly changing the perception of where the value is in modeling. Right now, the perception is that it is really hard to build and therefore the value is in the build process, not in the using. I think that’s going to change in the future where the value is in the use of models, but it’s sort of chicken and egg. You can’t use it until you build it. I think people are going to resist that change because they’re going to rationalize you need someone with great skills and knowledge to build a model. I argue that, yeah, you still need someone, but you do not need someone with 15 years of experience. I am hiring actuaries out of university and in six months they can build a model as good as if not better than an investment banker who has been doing it for 10 years.

That wraps up today’s CFO talk. Thank you for joining us Lance and Giles. I sure appreciate it.

Lance/Giles Pleasure. Thanks, Steve.

Steve CFO.University is a community of member scholars, companies and trusted advisers committed to the professional development of chief financial officers.

Next in our series with Lance and Giles - How CFOs Should be Preparing Their Business to Take Full Advantage of Modeling

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