Financial Modeling in Excel For Dummies, 2nd Edition

Chapter 14

Ten Common Pitfalls to Avoid

IN THIS CHAPTER

Identifying common pitfalls with financial modeling in Excel

Side-stepping those pitfalls to make your life — and your models — better

Throughout my career as a financial modeler, I’ve seen countless things go horribly awry. Many of these problems can be attributed to at least one (or sometimes several) of the pitfalls I describe in this chapter. Why focus on the negative? So you can learn from the mistakes of those who’ve come before you! If you’re aware of these potential problems, you can work to avoid them.

The Numbers Don’t Add Up

“So, are we confident in these numbers?” Often, that’s the first question you’ll be asked when presenting a model or drawing conclusions from one. You need to be absolutely sure of any numbers you’re presenting, and you need to be able to explain exactly how you came up with the results.

Confidence in the numbers comes from an intimate understanding of the process and calculations that make up the model. The audience or those you’re working with will be able to detect any uncertainty on your part. Read through the strategies to reduce errors in Chapter 13. You can employ these strategies when building your model. And if you’re inheriting someone else’s model, error checking is even more important ...