Model assurance

Best practice financial modelling is about having the right people, process and principles in place. Review and testing are critical components in those processes. Work in partnership with RSM to cut the risk of errors and build or refine a financial model that’s fit for purpose.

Surveys and other research have repeatedly shown that spreadsheet financial models are prone to errors. That’s not because there is something wrong with spreadsheets per se. Rather, their users and developers are just as prone to make mistakes as in other fields of human endeavour. The difference with spreadsheets is that their ubiquity, speed of development and perceived ease of use allow people to make those errors faster.

The good news is that these risks can be mitigated during development through the adoption and application of best practice financial modelling. This involves three areas in particular:

Process

  • Having the appropriate project governance and structure for the model’s development.

People

  • An appropriately skilled team to conduct and review the model development work.

Principles

  • The consistent application of a set of robust modelling best practice principles.

Whether for models in the planning phase, for those in flight or those that have been completed, a range of model assurance techniques and services can be applied to gain comfort over the risk of errors in a given model:

  Advisory  Opinion 
 Structural

Model health check

an objective, structural risk assessment of a given spreadsheet model against core best practice principles.

Model best practice confirmation

an assessment of specific best practice requirements resulting in a formal opinion confirming compliance, common in government tenders.

 Comprehensive

Model review

a detailed review of a given model's logical integrity and arithmetical accuracy, typically to answer the question 'is the model fit for purpose?' and aimed at providing actionable development feedback for the modeller.

Model audit

a form of model review, usually iterative and resulting in the issue of a formal opinion on the model for the model sponsors and/or third party stakeholders. The scope is often wider than a model review, incorporating specific procedures to look at eg taxation and accounting treatment within the model

We conduct model review using a variety of techniques, from code review and analytical procedures, to proof in total and parallel rebuild testing. In each case we select the approach best suited to the client and subject matter.

Our review work is supported by a variety of proprietary and industry standard diagnostic tools to facilitate workflow and reduce risk.

For more information about our model assurance services and how they can help your organisation, please get in touch with Alistair Hynd, our head of financial modelling and project finance.