Financial Modelling: An imperative sound for decision making

What is Financial Modelling? Financial modeling is the task of building an abstract representation of a financial decision making situation. This is a mathematical model, such as a computer simulation, designed to represent the performance of a financial asset or a portfolio, of a business, a project, or any other form of financial investment. Theoretically speaking, a financial model is a set of assumptions about future business conditions that drive projections of a companys revenue, earnings, cash flows and balance sheet accounts. However, financial modeling is a general term that means different things to different users. In the US and particularly in business schools it means the development of a mathematical model, often using complex algorithms, and the associated computer implementation to simulate scenarios of financial events, such as asset prices, market movements, portfolio returns and the like. Or it might mean the development of optimization models for managing and controlling the risk of a financial investment. In Europe and in the accounting profession financial modelling is defined as cash flow forecasting, involving the preparation of large, detailed spreadsheets for management decision making purposes. What is the Objective of Financial Modelling? The objective of a financial model is to position clients for success in their foreign investments. Whats the cost of doing business in a given country? Whats the breakeven point? When might you exceed the profitability of a similar operation in the United States? The importance of financial modelling cannot be overstated. and financial models often are a key element in most major business decisions. For instance, a financial model is prepared whenever any organization is considering project finance, bidding for a project, evaluating acquisition target, carrying out monthly financial planning, conducting capital structure studies, etc. The proponents of the model must first undertake a qualitative review - i.e. determine whether the story underpinning the model makes sense. There needs to be a logic behind the adoption of the model and a compelling case that it will be supported by its intended target audience. This useful tool also allows business options and risks to be evaluated in a cost-effective manner against a range of assumptions, identify optimal solutions in evaluating financial returns and understand the impact of resource constraints to make the most effective business decisions. What is the characteristics of a sound Financial Model? A good financial model is: (a) Easy to understand - uses a transparent design; (b) Reliable - uses control checks so that an error is automatically flashed; (c) Easy to use - so that one can be more productive in using the model for analysis rather than struggling just to produce simple results from a badly designed model; (d) Focussed on the key issues - so that one does not waste too much time in development of immaterial items; Related posts: 1. Risk Management from Project Managers Perspective Risk Management from Project Manager's Perspective... 2. GARP confers Risk Management award to Chinese Banking Regulators GARP confers award to Chinese Banking Regulators... 3. Lehman Bros fancy accounting Lehman Bros fancy accounting... 4. Magic behind Financial Projections in a Startup This is the article by Amit Grover, Founder, Nurture Talent... 5. Greeks and Goldman Sachs Greeks and Goldman Sachs...

Basic Project Portfolio Manager Functions

Pipeline Management and the Project Portfolio Manager It is not only in-flight and pending approval projects that should be visible to an enterprise project office. A project office should also have line of forward sight to possible projects and those that are yet to commence. The term for this is the pipeline. Pipeline management is generally another responsibility of the Project Portfolio Manager. Some of the key pipeline management activities, to be undertaken by the Project Portfolio Manager are as follows: * Liaison with all areas of the enterprise to remain informed of initiatives that they are proposing to progress in the coming 1 to 3 years * Ongoing liaison with areas of the enterprise to ensure previously flagged initiatives are still on track to progress * Maintenance of a pipeline view to ensure appropriate long term resource management activities are undertaken (e.g. Recruitment of appropriately skilled staff) * Communicating the pipeline view to all relevant areas of the enterprise Project Portfolio Resource Coordination Increasingly, project resource supply and demand management is the responsibility of the Project Portfolio Manager. The fundamental theory behind this is that as the Project Portfolio Manager has a clear pipeline view and the best understanding of project portfolio priorities then they are best placed to make decisions about the allocation of project resources. Resource groups that the Project Portfolio Manager may be responsible for coordinating supply and demand for could include, but not be limited to, the following: * Project Managers and other administrative project staff * Software development resources * Business Analysts * Testing resources and environments Organisation Risk Management via Project Portfolio Management A key function of project portfolio management is the responsibility for identifying, reporting and mitigating as far as possible any risks that affect the project portfolio as a whole. Portfolio level risk reporting should form an integral part of the organisations risk management practices. The risk register used for this purpose may be very similar in layout and function to that which would be used by an individual project as part of the project risk management framework. Portfolio Dependency Management Project portfolio management has an important role to play with respect to identifying and managing portfolio-level dependencies. Portfolio-level dependencies are those project dependencies related to the portfolio as a whole, which could potentially impact multiple in-flight projects across the enterprise portfolio. For example, if three development projects all require the skills of a single team of programmers then completion of Project A and Project B might be dependant on the completion of work for Project C. With multiple projects linked by this dependency, the dependency itself should be identified, documented and managed at the portfolio level. Provision of Management Information by Project Portfolio Managers Provision of project-related reporting, on an aggregated basis, is traditionally the responsibility of an enterprise project office. Some of this reporting is the responsibility of the Project Portfolio Manager. Although the reporting provided through the project portfolio management process may vary as a function of organisation size, maturity, complexity and nature of business, there remains some general reporting areas that should be developed as part of this function. Some such areas are: * Pipeline status (e.g. Number of pending projects, projects in-flight) * Current work in progress broken down into areas such as resource requirements and capital spent against proposed project budget) * Resource utilisation (i.e. supply and demand tables and charts) * Project portfolio composition in terms of project types, enterprise strategy alignment and size of capital investment What does Project Portfolio Management Deliver the Organisation? With the fundamentals of PPM established, the question remaining is, what does effective project portfolio management provide an organisation. Varying benefits are postulated by numerous theories and specific approaches to PPM, but the common benefits of a PPM approach to enterprise project management and coordination are, at minimum, the following: * An optimised project portfolio which delivers projects aligned with organisation strategy * Ability to more closely govern and guide projects across the enterprise * Transparency and better management of organisational risk born of projects across the organisation * Optimal resource utilisation and reduced resourcing costs on a per-unit-delivered basis * Improved project risk management through the identification and management of portfolio-level risks * Greater forward planning through pipeline view management In summation, Project portfolio management is essentially a simple collection of fundamentals, aimed at improving the management and coordination of projects, project resources, organisation capital and risk. As with other enterprise project management approaches, there are a myriad of variations on the theme. Regardless, the basics of project portfolio management remain unchanged.

Basic Project Portfolio Manager Functions

Pipeline Management and the Project Portfolio Manager It is not only in-flight and pending approval projects that should be visible to an enterprise project office. A project office should also have line of forward sight to possible projects and those that are yet to commence. The term for this is the pipeline. Pipeline management is generally another responsibility of the Project Portfolio Manager. Some of the key pipeline management activities, to be undertaken by the Project Portfolio Manager are as follows: * Liaison with all areas of the enterprise to remain informed of initiatives that they are proposing to progress in the coming 1 to 3 years * Ongoing liaison with areas of the enterprise to ensure previously flagged initiatives are still on track to progress * Maintenance of a pipeline view to ensure appropriate long term resource management activities are undertaken (e.g. Recruitment of appropriately skilled staff) * Communicating the pipeline view to all relevant areas of the enterprise Project Portfolio Resource Coordination Increasingly, project resource supply and demand management is the responsibility of the Project Portfolio Manager. The fundamental theory behind this is that as the Project Portfolio Manager has a clear pipeline view and the best understanding of project portfolio priorities then they are best placed to make decisions about the allocation of project resources. Resource groups that the Project Portfolio Manager may be responsible for coordinating supply and demand for could include, but not be limited to, the following: * Project Managers and other administrative project staff * Software development resources * Business Analysts * Testing resources and environments Organisation Risk Management via Project Portfolio Management A key function of project portfolio management is the responsibility for identifying, reporting and mitigating as far as possible any risks that affect the project portfolio as a whole. Portfolio level risk reporting should form an integral part of the organisations risk management practices. The risk register used for this purpose may be very similar in layout and function to that which would be used by an individual project as part of the project risk management framework. Portfolio Dependency Management Project portfolio management has an important role to play with respect to identifying and managing portfolio-level dependencies. Portfolio-level dependencies are those project dependencies related to the portfolio as a whole, which could potentially impact multiple in-flight projects across the enterprise portfolio. For example, if three development projects all require the skills of a single team of programmers then completion of Project A and Project B might be dependant on the completion of work for Project C. With multiple projects linked by this dependency, the dependency itself should be identified, documented and managed at the portfolio level. Provision of Management Information by Project Portfolio Managers Provision of project-related reporting, on an aggregated basis, is traditionally the responsibility of an enterprise project office. Some of this reporting is the responsibility of the Project Portfolio Manager. Although the reporting provided through the project portfolio management process may vary as a function of organisation size, maturity, complexity and nature of business, there remains some general reporting areas that should be developed as part of this function. Some such areas are: * Pipeline status (e.g. Number of pending projects, projects in-flight) * Current work in progress broken down into areas such as resource requirements and capital spent against proposed project budget) * Resource utilisation (i.e. supply and demand tables and charts) * Project portfolio composition in terms of project types, enterprise strategy alignment and size of capital investment What does Project Portfolio Management Deliver the Organisation? With the fundamentals of PPM established, the question remaining is, what does effective project portfolio management provide an organisation. Varying benefits are postulated by numerous theories and specific approaches to PPM, but the common benefits of a PPM approach to enterprise project management and coordination are, at minimum, the following: * An optimised project portfolio which delivers projects aligned with organisation strategy * Ability to more closely govern and guide projects across the enterprise * Transparency and better management of organisational risk born of projects across the organisation * Optimal resource utilisation and reduced resourcing costs on a per-unit-delivered basis * Improved project risk management through the identification and management of portfolio-level risks * Greater forward planning through pipeline view management In summation, Project portfolio management is essentially a simple collection of fundamentals, aimed at improving the management and coordination of projects, project resources, organisation capital and risk. As with other enterprise project management approaches, there are a myriad of variations on the theme. Regardless, the basics of project portfolio management remain unchanged.

Yield Spread

What is Yield ?

The term yield indicates the amount in cash that the owners of a security will get.