Why financial modelling is the best forecasting tool
Goalfix director Colin Human says the dynamism of financial modelling supports growth and saves money.
Financial modelling is valuable and useful because it is flexible. The South African economy is marked by unpredictability, such as the arbitrary timing of industrial action and the (sometimes unwelcome) changes at high levels of government.
Financial modelling buffers the panic brought by change because the most effective models cut through change and complexity to help managers make good business decisions.
There are different ways to forecast and different tools for scenario planning, says Colin Human, director at Goalfix. But some tools are better than others. Traditional historic budgeting produces static budgets that can’t be adapted. Then, rolling forecasts are a combination of budgets and actuals. “Financial modelling is the most dynamic and trumps the others.”
Here’s why, says Colin:
It minimises risk
Financial modelling simulates real life (with its uncertainty and complexity). Understanding what would happen and having this knowledge helps businesses to minimise risk and make informed decisions.
It’s a quick reference point
If you need a rapid answer to a real-world scenario to inform a critical business decision, the financial model has the capability to do.
It can be shared across the business
Financial modelling provides the ability to share information easily and quickly between people and across different locations.
Financial modelling is objective: the same inputs will always produce the same decision. A financial model allows for the easy adjustment of time periods to make models reusable.
You’ll have competitive advantage
Financial modelling is what you need to be competitive. The impact of a financial decision on a business will be clear through effective modelling.
You’ll save money
Two main objectives for businesses are usually how to make more money and how to save more money; with the use of financial modelling various scenarios can be recreated to understand where there are opportunities for cost saving. Models forecast cashflow, allocating resources and setting budgets and targets.
It helps plan for growth
In any business, growth is a fundamental goal, requiring a nuanced understanding of every aspect of the business. Financial modelling assists in understanding this as well as various scenarios.
Established in 1998, Goalfix Financial Modellers offers financial modelling services, and financial modelling courses. For training info, contact Goalfix today.
Visit the CFO SA Training page to sign up for “Financial Modelling”. You’ll qualify for a 10 percent discount if you sign up with the code CFO2018.
Professionals who have completed the Financial Modelling course sing its praises:
“I enjoyed Colin as a facilitator. He has extensive knowledge of the subject. I also love how the course was laid out and how the Excel workbooks are aligned with the course manual. I can now go back and revise and redo the exercises.” - Joanne Tilley, Investec
“I am new to the Financial Modelling space but found the Masterclass to be very informative and comprehensive. I appreciate how the material complies with international standards and look forward to applying my new skill-set in the near future” – Iben Botha, Tsogo Sun