7. Advantages of using financial models

From the previous few pages, it is easy to see that there are many reasons why financial models are used.

In your examination, if you are asked to identify the advantages of using financial models, here are some of the reasons which you could give:

- “What if...?” statements can be asked without rebuilding a model from scratch each time the test is executed.

- Models try and minimise financial risk, as you know 'if you do this' then 'this is likely to happen'

- Models provide quick answers to things that may take months to actually happen. Automatic recalculation means that if a change is made in the model then all related formulae and values change.

- Graphs can be produced to help understand the result: these will automatically change as any values are added.

- The model can be shared between different people in different locations.

- As long as the person is familiar with the model and has a good set of rules to follow then it is easy to run the model.

- They provide consistent results - the same inputs will always produce the same answer so a decision to 'make that loan' to a customer by a finance employee does not depend on how that person is feeling that day.