59. Building an internal Framework for Financial Modelling with Ian Schnoor, Executive Director at Financial Modelling Institute

59. Building an internal Framework for Financial Modelling with Ian Schnoor, Executive Director at Financial Modelling Institute

Hannah Munro: 1:10 

So, hello, everybody, and welcome to this episode of CFO 4.0. As usual, I am your host, Hannah Munro, and today I am here speaking with Ian, so, Ian Schnoor. who is the Executive Director of the Financial Modelling Institute. So, welcome, Ian. Fantastic to have you on the 

Ian Schnoor: 1:26 

Thank you so, much, Hannah. Thank you for having me. It's a real thrill to be here with you today. 

Hannah Munro: 1:31 

Absolutely. And financial modelling is something that's coming up more and more in conversations generally. And Anna's a skill set that's required. But first, I'd just like to understand a bit more about how you ended up doing what you're doing. What was your journey into financial modelling? 

Ian Schnoor: 1:47 

Yeah, no, you're absolutely right. Financial modelling has gone from being a very specific esoteric skill that only a few people used to need to becoming one of, if not the most important skill that finance and even many accounting professionals need these days. And I've seen a tremendous evolution over the past 20 years. I started my career pretty conventionally as an investment banker. I worked at a couple of different banks, including BMO and then at Citibank. And I did, this was in the late 90s and early 2000s, doing traditional mergers and acquisitions type work. And a lot of the work we did in investment banking required us to build and use financial models. And I always was very, I always enjoyed it, and it was felt very gravitated towards it because these were very early days in the world of financial modelling. Excel capability was still new-ish, and Excel is the primary tool we use. But what I always loved about financial modelling was that it's, I always felt that it needs to be its own discipline. It's a discipline that allows you to really package up a lot of different skills to help you analyze a business. And I also found that people didn't do a good job with it. People were not very good at it. So, I always like to push the envelope and think about how could we improve it? And so, this is what I did in banking. And when I left banking after six years, I told people that because I really kind of took a liking and tried to kind of improve the discipline around modelling, I told some people that I could build them models that were much more robust, much more beautiful, much more organized, but I could also run some training to teach them how to do it. Back in the day when I worked in banking, all of the existing bankers would teach the new bankers. I was one of the guys every year. They'd say, hey, Ian, I know you're working 120 hours a week, but you got to teach the new guys. The new guys are starting next week. You got to teach them. That's what all banks did. In around that time, the early 2000s, when I left and I told people, hey, I could teach financial modelling because I really like it and I enjoy teaching, but I didn't think there would be any demand because nobody was hiring people to teach financial modelling. But as they say, timing is everything. Word got out that I was doing it, and one bank decided to bring me in to run a training course. And literally, it went very well. And literally, from that one session, word travelled like wildfire. And within a few years, I was running training courses in financial modelling all over the world. you know, 150 days a year traveling. And I did that under a business that I started called the Marquee Group. And that was the beginning of that business 20 years ago to teach people all over the world how to really improve their game in the field of financial modelling. That's the starting point. 

Hannah Munro: 4:37 

And so, obviously a lot of the work, you know, Marquee Group obviously is one of the organizations you work with, but you also work with the Financial Modelling Institute. So, tell us a little bit about that organization. 

Ian Schnoor: 4:50 

Yeah, well, thanks. So,, you know, as I said, I started this, it was a bit of a surprise that the training side of things really exploded because got to a point where people realized that there was a need for professionalization in the skill set of junior professionals and even mid-level professionals in this skill set. And That was going and still continues to go very well. We're very busy on that side. We noticed something though. Some of my colleagues and I at the Marquee Group and some other colleagues outside of the Marquee, we started to notice around five to 10 years ago, something very interesting happened. Financial modelling went from being a very small esoteric skill that people sort of figured out on their own in a job. And all of a sudden, around 5, 7, 10 years ago, it changed, and it became a skill that was a prerequisite that employers wanted people to have before they would hire them. And maybe you noticed this yourself. Around that time, a number of years ago, job postings started changing. So, when you were recruiting, organizations always used to stay, were looking for people with maybe an accounting background or an MBA. And around Five, seven years ago, they would start to say, and we want people with proven financial modelling skills. And so, that became another really critical piece of the recruiting process. And so, of course, business students and university students and junior professionals panicked because there was no easy way to prove that you had financial modelling skills. In fact, there was actually no way to prove that you had financial modelling skills that were very robust and strong. And we looked all over the world, and nobody was validating and testing and truly indicating that people had demonstrated and proven their modelling skills. So, we went out to create an organization, much like an accounting accreditation, like the ACCA, or like maybe some of your listeners are familiar with the CFA Institute. I'm sure many of them are, you know, I happen to have a CFA designation. We wanted to create a world-class organization. that truly allows people to validate and demonstrate their modelling skills. So, the Financial Modelling Institute, the FMI, was born. It's a completely separate, independent organization. I'm the executive director. We have an independent board and a management team, and we have been running three levels of financial modelling exams all over the world. The exams used to be in person, but because of COVID, we moved them to become virtual exams. And which has been even better. They're still proctored, very highly controlled, proctored. People have four hours on our level one exam with a case study and a blank spreadsheet to build up a well-designed, well-organized, beautiful sense model that can be sensitized and dynamic model of a company. And if they can do that, we will bestow them with what we call the AFM, which is our advanced financial modeler designations, the level one designation. And we're getting a lot of interest all over the world. Last comment, we're very excited. We've been growing and things are going very well because there's a huge need for this. The former CEO of the CFA Institute, his name is Paul Smith. He is British and he's a great guy. He is going to be joining our organization as well in the new year on our board and as an advisor to really help us. He's a very passionate and at his time at CFA, he saw that this was a huge need, and people are craving a way to validate these modelling skills. So, that's what we're doing. 

Hannah Munro: 8:27 

It's a great aspect because you see it appearing on a lot more job descriptions now. It's kind of become a bit of a, like you say, a requirement and assessing that and being able to, like you say, validate that is a challenge. Just let's step it back and let's understand what we mean by financial modelling, because it's one of those terms that's used, isn't it? And it's just thrown in there. There's a lot of buzzwords, especially in finance. We have a knack for it. So, what do we actually mean by financial modelling in this scenario? 

Ian Schnoor: 8:57 

Yeah, it's an excellent question. The truly generic definition of financial modelling is simply to take something that exists in the real world and to create a virtual representation of that in some sort of a piece of software. That's the most generic definition I can provide. And so, if you look, there are some textbooks called financial modelling written by business professors. And Those books on financial modelling will include 20 chapters, and the first chapter will be on statistical models, and other chapters will be on Black-Scholes pricing models, or they will be on all sorts of cost-to-capital models and calculations. So, in theory, if you're taking anything that exists and you want to build it in a spreadsheet, in a virtual format, that's a financial model. However, for most people, including me, In the world of corporate finance, which means bankers, accountants, people working in corporate development, people working in credit, in research, we've narrowed the term. So, for most of us, the term financial modelling typically means building a forecast of a company. It could also be a for a lot of people; there's a giant subset. For us, the term financial modelling means building a virtual representation of a company by forecasting that business X number of years or some period of time into the future. And that's how I use the phrase. And that's how most people that say I'm taking a financial modelling course, that's what they're going to learn. How do you forecast a business in a spreadsheet? 

Hannah Munro: 10:38 

Yeah. And you've mentioned a few words as we've gone through this, like beautiful financial modules and, you know, and tidy financial models. So, what, in your opinion, makes a good financial model? What is the science of excellence? 

Ian Schnoor: 10:56 

Yeah, well, it's a great question. And I always like to start if, you know, we lead through the FMI, we've been developing through the Financial Modelling Institute, we've developed a free webinar series on modelling best practice. We have partnered with lots of CFA societies, and they bring us in to run virtual webinars. We've got one this week with four or 500 people signed up from over 50 or 60 countries. There's a real craving for this. And that's because most people, most financial models that exist in the world are a mess. They are a disaster. People often think that a financial model is some horrible, terrible spreadsheet. that's impossible to understand, impossible to navigate, impossible to use. Surely you have encountered in your life spreadsheets that are a disaster and make you get a headache because you can't follow. So, I always tell people towards the beginning of any webinar or training session that a good financial model has to satisfy everybody. two criteria right up front. And if you ever look at a spreadsheet based financial model, if it achieves both of these criteria, it's probably working very well. And if it doesn't, there's room for improvement. And I can tell you 99% of models that I look at do not meet either of these or sometimes they won. So, what does it mean a good financial model? So, first of all, a good modelling is so, much more than just sitting in a corner and working in a spreadsheet. A good model, number one, I tell people has to work electronically. And when I say electronically, I mean, all I mean by that is every single formula, every single cell must make sense. So, if I built a financial model of a business or a project, and I emailed it to you, you were my boss, or my client, and I emailed it to you, and you opened it up on your computer, and you started clicking cell to cell to cell. you should start to feel like, yeah, that makes sense. I understand exactly what Ian's doing. Every single cell, every calculation is logical. It's intuitive. It's clear. It's self-explanatory. You would feel like you could actually take over that model and take ownership and be very comfortable with it at some point. So, that's the first criteria. The second criteria we tell people is that a good financial model has to work really well on paper or as a PDF tool, meaning you should be able to take the entire spreadsheet based model, press print, which is control P printed, and it will print either as a PDF or come out of your printer on paper as a nicely formatted, beautiful looking tool. And why is that so, important? Because half the battle of financial modelling is a model has to tell a story. Models have to be the best communication tool you've ever built. You're trying to sell somebody on an idea. You're trying to show them why we should make an acquisition. Why should we buy this company? Why should we invest in a new capital project? Why should we open a new division in Asia or Europe? I'm trying to sell an idea and tell a story. And so, the model has to be something that can work on paper or as a PDF because the vast majority of decision makers still make their decisions by looking at some sort of a printout on paper or now as a PDF. They're not all going in. The senior folks are not going into a spreadsheet and poking around and playing with it. And so, we need to make sure that our models work that ways and both ways. And when you do, it creates tremendous confidence for the readers, for the viewers, and it allows people to make the right decisions. So, it's a discipline. It is so, much more than building a horrible, terrible spreadsheet and trying to get the right answer. 

Hannah Munro: 14:40 

And I think... I think there's some really valuable pieces in there about storytelling and finance. And that's actually a topic that I'm desperate to dig into more. But there is something, isn't there, about actually changing. And I think it's something that's certainly shifted in the last few years. Rather than being the presenter of numbers, finance teams are becoming the stories tellers of finance and sharing that information. 

Ian Schnoor: 15:03 

But they have to, don't they? I mean, they're the ones that have intimate knowledge and they should have the intimate knowledge. I want to be able to explain why it is that that this sort of a decision or this sort of an investment can lead to the following outcomes. And what will we do? What will be the implications of that? And how will we manage that? And oh, by the way, if something's going to change, I can change it in my spreadsheets dynamic. It's a model has to be so, much more than just a giant calculator. It has to allow you to be the centrepiece of any discussion. and help people see what the future looks like so, they feel confident. So, many financial decisions are made incorrectly. So, many financial decisions are wrong because people were lying on bad data or didn't understand the full narrative of the story that was happening. And it all comes back to the ability to build a strong forecast, which is what we call a financial model. 

Hannah Munro: 16:01 

And you made a really interesting point there about the need to always show your workings when it comes to forecasting, because actually, like you say, information could be based on bad assumptions or bad data. So, is that something that you look for in a good financial model is almost like where are you making decision points or, you know, specifying numbers, etc.? 

Ian Schnoor: 16:22 

So, I hear you in the question. I hear two different things in your question. One is a technical element of your question, and one is a conceptual element of your question. The financial modeler's responsibility, I'll start with the conceptual one. The financial modeler's responsibility is not to make up all the numbers that they need. Modelling is a very collaborative process. I mean, you must be familiar with this. You do a lot of work with companies. I always like to tell people there are very few people in any organization who truly understand what the entire organization looks like, right? I mean, you work in sales, or you work on the tax department, or you work in the operations team, but those people don't typically have a full sense for the entire organization. The financial modeler is a rare person. who has to understand the entire system. But that doesn't mean I'm the expert. I truly believe that I could build, you and I could go off and build a model for any company in the world. But that doesn't mean we're experts. That doesn't mean I'm a mining company expert or an oil and gas expert or a technology expert. What it means is I can get the right people around me. If I'm hired to build a model, I'm going to make sure I speak to the sales and marketing team and the ops team. And I'm going to be talking to people All the teams I need to collect the data. And my job is to ask them lots of questions, excellent questions, so, that they are on board. So, that when I show them the model, they'll say, yep, that makes sense. Those were the tax ideas that we told you to use. And these were the sales and operating ideas that we discussed with you. My job is to collect it and organize it. But then technically... I need to make sure that within the model that it's clear and easy to present. So, one of the best practices I like to share in my best practices webinar is that all of the assumptions and inputs in a good model should be upfront. Surely, you've seen spreadsheets or models where there were inputs all over the place. Everywhere you went, there were input cells or even within formulas. We sometimes call them hard codes. Have you ever seen a formula, Hannah, which said equals A5? plus A6, plus 19.732. That's a disaster. We can't do that. So,... In a good model, all of the inputs have to be collected together because when I'm communicating it to the senior executive team, I want to spend half an hour reviewing every single assumption that was made so, they can say, yeah, that makes sense or no, that doesn't make sense. Yeah, I can say Hannah shared me her thoughts on the volumes and pricing. Great. Someone else shared with me and it's right here, all the cost assumptions. Someone else shared with me the tax assumptions and it's all collected together like a beautiful presentation. 

Hannah Munro: 19:05 

yeah and I love that because I think yeah you're very right I've you know um I hate to say it but I uh you know I do spend a lot of my time teaching people to get rid of spreadsheets there are some great uses for spreadsheets but there are some people that will use a spreadsheet for everything but I've seen some absolute beasts and a lot of it and the worst thing about it is exactly what you said is when people build these beasts that nobody can understand that you know like you say nobody can pick up and use and take it forwards and that's for me is a real danger to any organization. So, I love that concept of being upfront, putting all the assumptions in the first sheet and sharing that. So, let's just talk about that modelling process because you started that conversation about what a good modelling process looks like. Let's continue. So, is the first step to sit down with all the relevant stakeholders or is there something that comes before that? 

Ian Schnoor: 19:59 

No, you're right. And by the way, I will just toss in, even though I'm a modeler and I've spent my life, I am not... I don't believe that all forecasts necessarily should be built in Excel spreadsheets. I would never say that a spreadsheet is the be-all, end-all. We get asked this all the time. There are really only two ways to build any sort of a forecast. You can use a spreadsheet. Or you can use what I refer to. I hope you don't interpret this pejoratively, but we refer to it as black box software. Black box software just means it's a tool. It's a piece of software. It's locked and protected and you enter your inputs and all your numbers, and it spits out the forecast. And there are pros and cons of both approaches. The nice thing about using a software tool is you know that the formula, all the calculations will be correct. Nobody's going to accidentally change a net income calculation at 11 o'clock at night without you knowing it. So, there is some benefits of that. The cons, the disadvantages of using a piece of software, of course, is always sometimes the cost of implementing it. But then secondly, even more importantly, the lack of flexibility. We get people all the time saying, but I want to do this. I want to change the way it calculates this, or I want to add in a few more features. And that's often not something you can easily do. So, what we tell people is if you're going to use a spreadsheet, then at least do it the right way. Make sure that you are disciplined so, that you can build a world-class, best-in-class spreadsheet model that does not have the typical pitfalls. But to answer your question, yeah, we would always tell people that if I'm a guy who's probably built over 100 models in my life of different companies, and we work with organizations all the time, to help them with their modelling. We would always say the very first and maybe the most important thing and the first thing is to do a proper planning process. We call it a scoping process. We're trying to understand all the pieces we're going to need to build the model. I described earlier that a model is just creating a virtual representation of something that exists in the real world. So, sometimes in classes, I like to ask people, if you were hired as an architect or if you were hired as a builder to build a home or a house or a building, would you just show up one day on a piece of land and stop off at the hardware store and start building, hammering into the ground and building a structure? Of course not. It would be a disaster. If you ask anyone, what's the first thing to do if you have to build a physical building, they will say, well, of course, hire an architect, get the designs, get your permits, get your design work done. That's obvious to people. And yet when they think about virtual representations of those same things, they don't do that. They just jump right into a spreadsheet and start to build things and then inevitably, of course, fail. it ends up being a disaster. So, we want to understand, we want to ask a lot of great questions in the planning process. What's the periodicity of the model? Meaning how many time periods? How far in the future should we go? Are we going quarterly, monthly, annually? What's the rationale? What information do I need? How am I going to drive out revenues and costs and fixed assets? How does it work? I need to learn this business and understand it well. Where do we want to build scenarios and sensitivities? What outputs is my client going to use to make the decision? What metrics will they be looking for? Because if I build the model and I have not provided them the critical metrics that they need, they're going to be frustrated. So, it's my job to understand how the model should be built, what the users need, and how to structure it well, and then collect data. Absolutely. And then we can dive into the actual build stage. 

Hannah Munro: 23:47 

And that build stage, are there processes to the build stage or is it kind of, you know, because you talked about sort of documenting assumptions as one stage. Are there any others? 

Ian Schnoor: 23:56 

Yeah. So, when you actually, once you've got a full plan, you know, people apply their own personality to it a little bit. We have an approach that we find helpful. I mean, we like to start, we actually like to start by planning. putting in all the historical data. So, if you were going to use two or three years of historical data, make sure all your historical data has been entered. It's accurate. That's just a very manual entry process. There's nothing magical about that, but we need to get some historical in and we need to get all of the assumptions entered. So, when we build a model, our assumptions page is very, very nicely formatted. If we have a bunch of categories like operating costs and income tax and working capital, each element will be in its own little box. It'll be nicely formatted. So, we will have a nice area where we enter all the assumptions. And then once we do that, we're getting technical here. One of the key takeaways that we always tell people in a good model is that I never want to see large formulas on the financial statements in the future years. In the forecast years, I never ever want to see any large calculations. So, as an example, if I am looking at the revenue line on the income statement in my five forecast years, I do not want to see a big giant calculation that calculates revenue right on the income statement. If I'm looking at the depreciation line, I do not want to see a calculation that calculates the depreciation expense. That's a disaster and will always lead to errors. The only thing you ever want to see on your financial statements in the line items are links. They should be linking to schedules, supporting schedules. In a good model, the work, the buildup should happen on appropriate schedules. So, as an example, if I'm looking to build up If I'm looking to build up the revenue for, let's say, a software business, I will build a revenue schedule. And that revenue schedule will lay out what my pricing is for my different products. Maybe we have three major products, and I will show pricing for each one. And I will have expected volumes for each one. And I will very carefully build up a revenue calculation that's simple and succinct and clear to get to the revenue. for this business, and that will be my revenue schedule. And from there, that line will simply link into the income statement. The income statement should simply be a collection of links to appropriate supporting schedules. And to be honest, we also recommend I mean, there's two approaches. We like building models vertically, meaning all of the schedules and the financial statements live on one sheet. And the only reason we recommend that at times is because it means your links are simple. Everything stays up and down vertical in the same column. It's much easier to link and you minimize errors. You can also build each piece on a separate sheet, on a separate tab, and there's nothing wrong with that. That's called a horizontal approach. But sometimes we find people make mistakes when they link back and forth because when they link to different sheets, it's easier to sometimes link to the wrong one. But it is very commonly done. Either approach is fine. And when people build models for the FMI exams, either approach is fine. But the main point is don't do the work on the financial statements. Build a schedule, get an answer, and then link that in. It makes it so, easy to then have an accurate, well-built set of financial statements. 

Hannah Munro: 27:26 

So, we've talked a lot about what does a good financial modelling document look like? What does a good financial modeler look like? What are the skills that people should be looking for when they're looking for somebody to take on that role? 

Ian Schnoor: 27:43 

That's a great question. It's an excellent question. And I've always, and you've heard me use this phrase already, I think I've used this. One of the things I love about modelling and what a lot of people love about modelling is that modelling is a quintessential skill in that it's a very multidisciplinary skill. Modelling is a multidisciplinary skill. It transcends lots of single skills. disciplines if you want to be a good financial modeler you need for instance to have good accounting skills because you need to know how the financial statements talk to each other you don't need to be an accountant I am not an accountant I don't have an accounting designation I've built lots of models I teach accounting so, you need to understand accounting you need to understand things and to be able to visualize that if a certain you know if a certain capital expenditure number increases. Well, that's going to flow through my cash flow statement, which is going to touch my balance sheet. And if there's a disposal of assets, where does that go? What does it hit? Where does it talk to? And how do the numbers all speak to each other? Very often when models don't balance, it's a big pet peeve of some financial modelers is their balance sheet doesn't balance. And one of the things we tell people is if your balance sheet does not balance, you're never allowed to plug. You can't plug it, which means to just back solve on the spreadsheet to force it to balance. But when balance sheets don't balance, it's often because someone didn't understand the integration of the numbers and where they had to go and how they talk to each other. Or it's because they've made a technical mistake. We actually have a webinar on the top 10 reasons why models don't balance; balance sheets don't balance. And honestly, almost every single time I've ever seen someone's model where the balance sheet doesn't balance, they have fallen to one of the traps that we talk about. So, you need to have good accounting skills. You need to have good finance skills because you're going to use your model to help make some sort of a decision. So, whether you are looking to build ratios or some valuation work and arrive at NPVs or IRRs or some other metric, you're going to need to understand it and be able to communicate that. So, you need to understand finance and accounting. You have to understand business operations. You have to be able to speak and understand how you have to learn about how a given business works. You have to have good Excel skills. Now, Excel is the most commonly used spreadsheet for models, although Google Sheets is being used more and more as well. But you have to understand spreadsheet, which means the functionality, the formulas, keyboard shortcuts. You have to understand design. I actually tell people the number one reason why models fail is actually because of design issues. Poor design. They didn't design their formulas well. The data flow was very poor. Imagine if you had a brilliant 20-page PowerPoint slide deck. Imagine you had a 20-page PowerPoint presentation, and then somebody presented it in a random order. If you presented it in a random order, it would be a disaster. It has to flow. And there's an optimal data flow in financial models as well. So, those are some entry-level skills people need when it gets to modelling. As you progress throughout a career of modelling, you need to be able to pick up skills around judgment and knowing when something makes sense and when it doesn't make sense. When do you push back on your boss or your client? Where do you go look for data? How do you find information? How do you make sure it's reasonable? You need to have great communication skills. As I told you, the model builder is ultimately going to tell the story and help sell the opportunity or sell the project. People sometimes think that modelers spend all their time in a dark corner working on a spreadsheet. I like them to think that a good modeler should be spending maybe 50% of their time actually in Excel. The rest of it is asking questions, engaging, talking to your client, going back and forth, presenting it, and kind of facilitating a full team dynamic. So, those are a lot of the skills that ultimately get needed. And again, there's a lot of different skills that are needed to be able to really master this discipline. 

Hannah Munro: 32:03 

And have you noticed a trend in that? Obviously, modelling is, you know, you've mentioned it almost as a career and as a specialism. Have you noticed a shift in it actually becoming part of the everyday finance function and the skill set that finance leaders need? 

Ian Schnoor: 32:21 

Yeah, we're starting to see that more and more. We're starting to see that more and more where people recognize People are– so, you know, go back in time. Investment bankers and people who do finance roles like equity research, they have been involved in forecasting businesses and building models for a long time. But they're appreciating more and more that it's a critical skill, a critical discipline that they need to really get comfortable. Because even them, a lot of their models are poor. And we're seeing more and more in larger organizations investing. A desire to have frameworks or an internal approach, an internal discipline. Some of the larger organizations that we'll work with will have committees that will evaluate the way... What some senior executives sometimes don't like, and this is why they'll... gravitate away from spreadsheets is if you're a senior finance professional and you have 10 people on your team, if each one is responsible for building your model, they might all look different. They might feel different. They might be organized differently. And the senior person struggles to follow. So, they all might put together a bit of a white paper internally that says, okay, if you're working at our company, this is the flow of all models. This is the way we want to approach things. This is the way we want to design things. This is the way we're going to communicate things so, that when everyone goes away, every model will be unique. Every model will be different to represent an opportunity or a business, but they will feel like they were designed, organized, the flow, the methodologies are similar. And when that discipline gets put in place, it allows an entire team to thrive under kind of a framework. And so, we are absolutely seeing more of an interest and an awareness in people driving towards that end game. 

Hannah Munro: 34:13 

And out of interest, do you notice any differences between different countries? Is there any differences between the UK, for instance, and the US in terms of how they approach modelling or how they actually do it? 

Ian Schnoor: 34:26 

Yeah, it's a brilliant question. And the answer is yes. And in my role, it's actually been great. So, as executive director of the Financial Modelling Institute, I've had the opportunity to run webinars and talk to people and teach them things all over the world and to see what's considered best practice. And so, there are nuances and differences, I would say both geographically and also nuances within organizations. So, for instance, some of the large financial services organizations or the big four, the accounting organizations will have approach. We do a lot of work with PwC. And PwC will have a very particular, a specific approach that they've developed. But regionally, for sure, for sure. So, in some parts of the world, like in North America, we will see more commonly people will abide by what I refer to as a more vertical approach, where they'll keep a lot of pieces in their models oriented more vertically. Whereas in other parts of the world, certainly in Australia, I think in the UK as well, there's more of an inclination to have more tabs, more different sheets within the file. And so, they might be inclined. But even in North America, you do see people adopt that approach as well. One feature or one concept that does drive people, which gets a lot of passion from people. I'm not sure how familiar you are with it, but just to share with you the idea of circularity, of including circular references and models, which is one of the most confounding, complex ideas in all of modelling and gets people very frustrated. In some parts of the world, like in North America, it's considered very acceptable and appropriate at the right times to use circular calculations, whereas other parts of the world, you know, for instance, in Australia, it would, it would, it would be considered evil. The devil's work to include a circular reference. Like they will feel very, very strongly about that. Me personally, I, I don't actually personally have a strong view. My view is people should understand it. All people should understand it, understand the implications, understand why sometimes it might be helpful and why sometimes it might not be, how to manage it. And that's our view with everything in modelling. Understand options, understand frameworks, and then use what your team, your organization, your colleagues will find helpful. 

Hannah Munro: 36:58 

Absolutely. And there's obviously a real depth of knowledge that we've only just tapped the surface off, but we are rapidly running out of time. So, for those that are looking to implement a new modelling approach and are thinking of implementing it within their team, what are your top tips for a strong financial modelling framework to work with? 

Ian Schnoor: 37:23 

It needs to come. What I would say is it needs to come from the top. It needs to be, if an organization wants to put in place a strong framework around financial modelling, there needs to be buy-in. It needs to be promoted and pushed forth from the top down. You can't have the most junior people saying, hey, we need to put in place a rigorous framework and discipline because if it's not going to be accepted, or adopted throughout a team or throughout an organization, it's not going to work. So, what I recommend is that a more senior person on a team needs to take ownership and carriage of the responsibility. Very often we find it's helpful to put in a modelling team. So, there will be a modelling team of two, three, four people, maybe three or four people that will set out some approaches, frameworks. But we like to be careful as well. I don't love the idea that people get overly dogmatic about their models. There needs to be some opportunity for personality, for creativity, to adapt to different scenarios. So, I hate, I do not like the word template. I don't like it. We have at times been asked to build templates for organizations. A template just means a spreadsheet that's locked, so, locked and protected that all you can do is enter inputs in a few cells, but you have no ability to change anything. It's totally locked. So, I don't love that because I find that it suppresses people's thinking and it suppresses their creativity. If all you have is a template, then it means all you're doing is thinking, where's the number I need to go into that cell? And where do I need to go into that cell? I want people to have skills and ability to evaluate a company and capture the nuances of that business in their own model and be proud of that. So, I recommend a team get together and evaluate things. what they think their models should do. What should be the structure? How much time do they want to forecast? What's the general layout? Like if so, that if the senior person looked at 10 different models, the general flow would be pretty similar every time the layout would be similar. And if you get people thinking in that way and adopting a framework, listen, a good model always has to be checked and double checked. But that will allow for everyone to raise their game, raise the bar and have some consistency for this skill, which is an incredibly important skill, because as I said, it will drive every major decision that has to get made. 

Hannah Munro: 39:58 

No, absolutely. And it's been a real, real pleasure speaking to you and enjoying your enthusiasm as well about the world of financial modelling. It's quite sad, actually, how excited we all get about. Oh, yeah, 

Ian Schnoor: 40:10 

I know. I love speaking with fellow modelers or people who enjoy it because, yes, it's true. We can get very excited about it. 

Hannah Munro: 40:18 

Absolutely. But in a good way, it's lovely to hear your passion shining through. So, if our listeners want to learn more about financial modelling and learn more about the work that you are doing across your organizations, what's the best place to find out more? 

Ian Schnoor: 40:34 

Absolutely. Well, there are websites, the Financial Modelling Institute, as I mentioned, is this organization that we are working to, we're collaborating with on a number of with a number of groups to create, um, the world's only true accreditation organization. So, it's FM institute.com and you can take a look at what we're doing there for the financial modelling Institute. Um, now the financial modelling Institute does not run training programs. We do have learning materials and we have resources and we have a video series to help people if they want to sit one of our, well, you have to start with the level one exam, but you can If you sign up for an exam, you get full access to learning materials to help you learn step by step by step. But we also have a network of 25, approximately 20 or 25 approved training providers all over the world. These are training firms that provide training in a wide range of areas, including financial modelling. And they will often help to prepare people for the FMI's exams. And so,... I believe those are listed on our website. And there's a lot of firm people can use to kind of see local firms or global firms that can help them learn step by step. 

Hannah Munro: 41:53 

And so, for anyone that's listening, I will pop in the various different links to the sites. And I want to thank you again, Ian. It's been an absolute pleasure speaking to you. Thank you for sharing your passion and your knowledge around financial modelling. And it's been, yeah, really great to have you on the show. 

Ian Schnoor: 42:10 

Hannah, it's been a real pleasure to be here. Thank you for your time and for having me in. And I look forward to seeing you again sometime to talk more modelling. 

Hannah Munro: 42:17 

Absolutely.