As Finance professionals we’re good at prioritising (perhaps too good in fact), and it can feel a logical step to apply the concept of materiality to our financial models. In the world of modelling however, every single input or calculation matters. Here’s why:
In fast-moving businesses, every decision counts. From strategic investments to operational budgets, organisations traditionally rely heavily on financial models in excel to guide their path forward. Yet, lurking within these complex spreadsheets lies a hidden danger: the exponential impact of a single wrong number or formula. In this blog post, the first in a series, we introduce the repercussions of such errors and highlight the critical importance of accuracy in financial modelling.
The Butterfly Effect of Errors, a seemingly innocuous typo in a revenue projection cell. At first glance, it may appear inconsequential. However, as calculations ripple through interconnected formulas and cells, the consequences escalate. A minor discrepancy snowballs into a cascade of misaligned forecasts, skewed profitability analyses, and misguided strategic decisions. What began as a temporary “plug”, now threatens the very foundation of your model’s reliability.
The saying goes “prevention is the best cure”, therefore, error prevention is a non-negotiable priority when developing or enhancing your financial models.
Moving away from the traditional excel planning process with a custom modelling solution help negate errors by design. Some are built to prevent user-overrides of pre-determined calculations, others will clearly guide the user to their required inputs. The more modern tools even contain such features as Anomaly Detection, designed to catch potential errors in budgets, forecasts, scenarios, and other models by flagging data which is outside the historical norm.
At Plan Assist we have our foundations deeply rooted in Best Practice Modelling. We know the topic well, and the difference it makes to the success of our clients. That’s why we’re sharing our insights, in an upcoming series of content releases we’ll be covering the risks and how to leverage technology to avoid them!
