One of our latest financial modelling handbook guides is on Monte Carlo simulation.

We are really grateful to Gerald Strever for putting it together. Gerald is a leading expert on financial modelling and spreadsheet techniques. He is the Senior Managing Partner at Finance Training Solutions, specialising in Financial Strategy, Business Modelling and Company Valuation, and is based in Johannesburg.

It is a great topic for a handbook guide.  The topic itself has a great reputation for being complex – and like many things of complexity deserves a simple explanation. This guide gives an explanation that is both simple and practical.

The guide shows an approach to Monte Carlo simulation that requires nothing more than standard Excel. That’s not to deny the importance of software packages that work with Excel, but it is useful to see what can be done with RAND() and data tables.

Finally, it must be one of the longer guides published.  At 26 pages, it contains a lot of content – and it deserves your comments. We encourage you to download the guide and the accompanying Excel workbook – and let us know what you think.

Click here to see the guide.

By Andrew Berkley.  Andrew has taken on the role of Financial Modelling Handbook editor from Kenny Whitelaw-Jones.  He will hand on the role to a new editor at the end of 2014.

How many PC users know that you can put spaces in between words in Microsoft Word?

Answer: almost all of them.  And if they don’t, then something might be very wrong.

How many PC users know that you can put spaces in Excel formulae?  Answer: not nearly as many as use spaces in their Word documents.

Once they have the information, people can judge what best to do: is it better to have spaces in Excel formulae – yes or no?  What are the pros?  What are the drawbacks?

People can make these judgments once they have the information.

So when I am asked why the Financial Modelling Handbook is giving away so much for free, the answer I give is that it is good for everyone to have this information.  It might make the world a better place.

When it comes to financial modelling, we should not be trying to claim intellectual property on pure knowledge.  Nor on the evaluation of that knowledge.  Nor – dare I say – should any intellectual property be claimed on Excel coding that uses standard Excel functions and syntax.

As we start to share information freely and without bounds, good things begin to happen.  We have seen this in all the handbook contributions to date (that have been downloaded over 4,000 times) and the discussion that has arisen to date.

Topics of common interest emerge that never might have been identified had someone tried to write this on their own.

Experienced modellers find a way of sharing what they have learned without feeling under threat; less experienced modellers take on skills and knowledge more quickly and effectively.

It could be happening more quickly, of course.  And it is equally important that we get the content as good and clear as we can.  That way, people are more likely to improve upon it.

I would also like to see more material on foreign exchange – it is a huge topic and one that tests to the limit a modeller’s economic and accounting knowledge (not to mention their spreadsheet skills).  I will do my best to make that a priority in the next few months.

And we can take more simple stuff too.  I was chatting to a director of a well known transport business at a school sports day recently and he told me how fluent he was in using the SUM function.  His fingers know exactly where to go on the keyboard: “equals” sign, S, U, M, open brackets…

And I shared with him the little piece of knowledge that if everyone knew might make the world a better place: Alt + equals sign.

A couple of weeks ago the F1F9 modelling team had a full day “Handbook-athon”. The team came up with ideas for 15 new modelling guides. They then split into small teams and started to write the content for them and create the model example files. The new topics have been added to the Pipeline list.

Check out some of the pictures from the day.

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The first product of the “Handbook-athon” is the How to model index linked bonds  guide.

This week’s guide has been put together with Andrew, one of the modelling instructors at F1F9 and looks at depreciation calculations. You’ll see a use of SUMIF that you might not have come across. There are lots of ways of doing these kinds of “look backward” or “look forward” – this is one way that we have found to be useful.

I’ll be taking a break over Easter. After Easter I’ll be sending out a quick survey to find out what you think of the material that’s been produced so far, and what our priorities should be over the next few months. We’ll be publishing a list of “topic ideas” that you may be interested in contributing and also making it clearer how to contribute. Watch out for all that after Easter – as well as our first modelling guide translated into French.

p.s. We will be running a webinar on “Debt Sizing in Excel” on May 8th. The webinar will look at 4 different debt sizing methods using case examples in Excel that we will then share after the webinar. I know it’s cheesy marketing speak to say that it’s “filling up fast” and to “reserve your place now”, but the truth is that we announced it on Thursday and it really is nearly full; we only have capacity for 1,000 people. If you’re interested you can sign up here – Debt sizing in excel

It’s been a busy old winter period – although the number of new guides published might not reflect this. To celebrate the onset of spring we have released 3 new guides over the past two weeks, with a lot more in production.

The latest guides are:

DAY COUNT CONVENTIONS

MODELLING BALANCES

2D CALCULATION BLOCKS

We have had a number of new comments posted over the past week and the offer of contributions from all over the world – keep your eyes peeled for a French language handbook guide and spreadsheet that is due to be posted over the next few weeks, the first of many I hope.

If you have a modelling topic that you’d like to tackle but aren’t sure where to start, please get in touch and I can help you create the guide – what we really want to harness is the knowledge, once that is shared I can make sure the guide fits the handbook style.

Likewise, if you’d like me to get to work on a specific topic that you think others would benefit from, please leave your comments and suggestions on the site. Feels like we’re starting to make progress at last!

Huge thanks to Patrick O’Beirne for the latest contribution to the handbook – The Devil’s Guide To Spreadsheet Creation. This is a great, light-hearted way to end the year. Patrick really nails the annoying things we’ve all seen people do when it comes to building spreadsheet models.  My favourite from his list is “Never simplify, that just makes it’s easier for other people to get your job”. I think so much complexity in modelling serves the interest of the modeller and nobody else!

I’m about to wrap up things up for 2013.  We’ll back in 2014 with lots of new modelling guides and we’ll be starting to build out the case studies as well. If you’re an experienced modeller with sector specific insight, consider getting involved as a co-author of the handbook. Find out how to contribute.

Nobody is as smart as everybody – Kevin Kelly, Wired Magazine

Although I started boring people about my ideas for this project more than 2 years ago, I’ve only started promoting the Handbook more widely in the last month. So if you’re visiting the site for the first time, welcome. If you’ve been visiting over the last couple of years hoping to see some progress, thanks for your patience!

There are lots of good books about Financial Modelling. As useful as many of them are, they all represent one person’s view on how modelling should be done. With this project, I am trying to change that by writing a book that draws on the wisdom and experience of the wider modelling community.

I was inspired to start the Handbook by books like Business Model Generation, David Roodman’s open approach to writing his book Due Diligence, and more recently Unboss. These books were co-created by distributed groups of experts who share a passion for their topic.

Over the past few years I have taught lots of people to build models and each time I teach a class I learn just as much as the students. New insights are emerging all the time as people apply the principles of FAST to their area of modelling. It would be a wasted opportunity to write a book without tapping into all that great knowledge.

I realise there will be some who think that this is a cynical F1F9 marketing gimmick. It is not. It is an attempt to write a genuinely better modelling book.

I will not be making any money from this project and neither will F1F9. It is a non-profit venture. The whole guide will be available for free online. The modelling guides should develop into a very useful modelling reference library. In due course a hard-copy version will be available to purchase. If sales of the hard-copy version generate any profits, these will be given away to charity.

We will continue to publish small sections of the book regularly. These have been grouped together as financial modelling guides. These guides can be viewed and shared online, and freely downloaded in PDF format. They will be updated in response to the feedback we receive.

The book is based on the principles of the FAST Standard. It will teach some some essential model build skils, as well as looking at applications in particular domains. There will be lots of worked examples.

Find out how to get involved or review what’s been published so far.