Authors
David Whittaker
Abstract
Getting a grip on a large and complex model is a real challenge, particularly when time is of the essence. When under pressure, the techniques illustrated here can swiftly reduce, but not fully eliminate, modelling risk.
However, being focused on what is important and being creative with testing techniques can ensure that the greatest value is obtained from the time spent reviewing the model.
Sample
Key techniques to reduce modelling risk:
- Model design review. Make a rapid assessment of whether the model appears to be fit for the purpose intended and is built to an adequate standard.
- Top level/analytical review. Review the model's "big picture" to detect potentially large errors.
- Integration and reconciliation of financial statements. Failure to properly integrate P&L, balance sheet and cashflow is a common error.
- Parallel modelling. Used for the model as a whole or for areas that are perceived as the key risk areas.
- Flex and sensitivity testing. Review the reasonableness of the model's sensitivity runs and the range of potential user input assumptions.
- Macro review. Modellers are increasingly using more complex macros. Differentiate between low- and high-risk macros.
Publication
1999, Management Accounting, Volume 77, Issue 9, October, pages 50-51
Full article
Not available
