Principles of Financial Modelling

CHAPTER 5Database Versus Formulae-driven Approaches

INTRODUCTION

This chapter provides an overview of the main issues that need consideration with respect to the appropriate structure of a model's input data, focusing on two main areas: the nature of any changes that will be made to the data when the model is built, and whether the overall situation is dominated by calculations or by data.

KEY ISSUES FOR CONSIDERATION

In this section, we discuss the key issues that typically should be considered when designing a model's overall architecture. In the next, we provide a practical example which demonstrates some of these principles. In the next chapter, we discuss possibilities for specific workbook and worksheet structures.

Separating the Data, Analysis and Presentation (Reporting) Layers

One important principle is to separate the data (inputs) from the way that the data is used (calculations). This is also known as separating the data and analysis “layers” (and applies to general technical applications). In principle, such separation allows for each layer to be modified or updated independently. It is especially important in many real-life applications: for example, it would be highly inconvenient if, in order to implement a version update to software that contains a database of customer contacts, all existing contacts needed to be deleted. This framework can be extended to include an additional presentation (or reporting) layer, such as graphs that are populated using the ...