The Three Financial Modelling Standards

What are they and why do they matter?

This is the first in a three-part series following on from our Financial Modelling Standards webinar.

If you’ve been around the financial modelling world for any length of time, you’ll probably have heard about modelling standards. While they might be everywhere, it’s not always clear what they are, how they’re different, and why you should use them.

To help us find the answers, we spoke to Mazars SMART developer Rickard Wärnelid, Andrew Berkley who leads the FAST Standard Organisation (and is also managing director at F1F9), and David Lyford-Smith from the ICAEW to get their expert insight on modelling standards and practices.

What are the three standards?

FAST. The longest-standing financial modelling standard, FAST emphasises building models that are adaptable for short and long term use, consistent in their layout and easy for non-modellers to interpret. It’s defined by its extensive set of rules, which Andrew says is intended to help you focus on efficiency without getting distracted by everything Excel can do.

Mazars SMART. The SMART methodology is built around a set of ten guidelines that focus on using robust analysis to tell a story, putting the end user first with simple, neat and intuitive models. With fewer rules than FAST, Rickard describes Mazars SMART as a more flexible framework that can adapt as needed for different sectors.

The ICAEW Financial Modelling Code. The ICAEW approach is less formal than FAST and Mazars SMART. The ICAEW code instead sets out the principles of what a good financial model should be, but it gives modellers free rein on how to achieve that. David says the ICAEW code embraces different methods so long as the end result is clear and understandable by its readers, and it uses analysis to tell a story.

Many companies use these standards as a framework to build their own in-house methodology. But Rickard says that if you’re planning to use an in-house standard, you need to make sure it goes all the way. 

“Picking some colour schemes in Excel is not a standard or a methodology,” he says. “You need to have templates, quality and assurance procedures, and defined ways of doing everything.”

Different paths to the same goal.

At a glance, it can be hard to see what the difference between FAST, SMART, and the ICAEW code is. They do have a lot in common, after all. At the heart of all three philosophies is an emphasis on making models that have a clear layout, tell a story via analysis, and above all are easy to interpret for anyone reading them.

Where they differ is in how they get there. Andrew says the three standards represent a spectrum: the ICAEW code’s more open interpretation at one end, FAST’s extensive rules at the other, and Mazars SMART’s guidelines somewhere in between.

The ICAEW code is perhaps the most different as it’s actively designed to not be as prescriptive as FAST or SMART. 

“A standard might say your inputs should be yellow so that they’re easy to find,” David says. “ICAEW just says you should have inputs that are easy to find, the details are up to you.”

But less restrictive doesn’t necessarily mean better. “FAST is like strapping on ski boots,” Andrew says. “When I first went skiing and put those boots on, I couldn’t believe how uncomfortable an experience it was. But once they were on I began to realise what they could open up.”

Why standards are important?

Of course, when talking about the differences between standards, there’s one other question we need to answer — why do you even need a standard in the first place?

In Full Stack’s 2021 Global Financial Modelling Survey, we found that 91% of modellers said standards were important in principle, but only 41% used one in practice. That discrepancy isn’t all that surprising. Financial modelling standards can have a pretty bad rep. Some see them as being too restrictive or holding modellers back from their full creative potential.

But standards aren’t a leash, they’re a tool. It goes back to Andrew’s ski boots. Ski boots aren’t designed to be purposefully uncomfortable, they’re designed to protect your feet and ankles, and help you develop the proper technique. You can’t build consistent, transparent and effective models without a standard any more than you can ski safely wearing any old boots.

Financial models are made to be shared, so above all else, they have to be clear and easy to interpret for whoever’s on the receiving end. Standards like FAST, Mazars SMART and the ICAEW code drive that by encouraging consistency and placing the end-user at the heart of the build.

That’s why learning to work with standards forms such a core part of the Full Stack Modeller training programme. We know that building a comprehensive modelling skill set isn’t just about learning all the latest Excel tricks but also how to apply them using the best practice possible.

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