Why financial modeling has become indispensable: interview with Patrick Daguet
According to Patrick DAGUET, Academic Director of IÉSEG's Executive Postgraduate Program in Financial Management, financial modeling has become essential, as it is one of the most important decision-making tools in modern finance. This expert - with 40 years' experience in the sector - explains why it is essential for finance professionals to know how to design effective financial models, and to combine these technical skills with important human and managerial skills.
01/26/2024
3 min
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Why has financial modeling become an essential part of the finance profession?
Financial modeling concerns all the processes that lead to the construction, design and setup of financial models. These are essentially on spreadsheets (such as Excel), with a view to making decisions that will have an impact on a company or a financial project (e.g. for investments, planning or budgeting). So, we don’t do financial modeling just for the sake of it. Above all, it is used to guide our decisions.
Financial modeling has become indispensable for three reasons. The first is the Excel tool. Its integration into corporate information systems remains the benchmark. No matter what anyone says, even if other solutions have been developed, Excel remains the benchmark.
So, it’s important to know how to navigate Excel.
The second reason is that most professionals involved in finance (for example, in financial analysis or planning) have a good knowledge of Excel, but are often less familiar with the tool’s advanced functions. And that’s where we’re looking for real expertise.
The third reason is that data processing, and information processing in general, have become central to companies, particularly because of digitalization.
What type of skills do finance professionals (analysts or planners) need to acquire to master modeling?
These skills can be grouped into three main areas. The first, as I said earlier, is the need to be familiar with, and use, Excel’s advanced functionalities. This tool has gone from strength to strength over the last 40 years. More and more, Excel gives special attention to more advanced functions such as Dynamic Arrays or the Lambda function, to name but two. These are clearly skills that are important today.
The second type of skill concerns the integration of data through tools such as Power Query or Power Business Intelligence, which are tools connected to Excel and which today constitute the company’s data environment.
Finally, I believe that knowledge of a (programming) language is not necessarily essential, but it is desirable. In this respect, developing competences in, and mastery of, a language like SQL is a real plus.
To summarize, having a good command of Excel functionalities, a working knowledge of Power Query and Power BI and, finally, knowledge of a programming language are three key skills to develop today.
Consequently (we can see that) it’s very important to develop these technical skills. Today, dedicated training courses and professional designations recognize these competences. However, these skills have no real meaning if we don’t have a deep knowledge and understanding of the company and the projects it undertakes on a day-to-day basis. Therefore, it’s important to have experience with the business you’re in, and to have a highly critical and pertinent eye for the transactions the company undertakes.
And it’s only through this sharp, critical mind, and knowledge and understanding of the company’s workings, that the financial modeler will express his/her true value.
What role can professionals that model, and recreate their models, aspire to?
Indeed, knowing how to model and mastering the technique are both essential. But if you don’t know how to communicate and convince, particularly through the work you’ve done, you’re likely to feel a certain frustration.
The modeler is therefore at the heart of the system and must have an intimate knowledge of the transactions and subjects she/he deals with.
Often, the modeler must take the extra step of being a communicator. In other words, financial professionals need to be able to present results in a way that will guide the decisions made by their audience.
They must therefore possess presentation skills, as well as the ability to convey the essence of their work clearly and concisely. With these human skills, the financial modeler has a vital place in today’s business world.
As part of our Executive Postgraduate Program in Financial Management, we welcome participants with a wide range of professional backgrounds. But ultimately, what’s important is that we offer them both access to technical skills, which are essential skills they need to master. And that, of course, is what they come for. But beyond that, what we also offer them is the opportunity to work on all the human and managerial skills that are essential for today’s CFOs.
Patrick DAGUET is Academic Director of the School’s Executive postgraduate program in Financial Management and is involved in various programs at IÉSEG (this executive program is taught entirely in French)
The next information meeting for this program will take place on February 6, 2024.
