Show Notes

 

Welcome to Financial Modeler's Corner (FMC) where we discuss the art and science of financial modeling with your host Paul Barnhurst. Financial Modeler's Corner is sponsored by Financial Modeling Institute (FMI)  the most respected accreditations in Financial Modeling globally.

In this first episode, Paul Barnhurst is joined by Ian Schnoor, the Executive Director of the Financial Modeling Institute and one of the foremost educators on financial modeling globally.

Listen to this episode as Ian shares:

·      What it was like in the early days of financial modeling

·      Why FMI created a financial modeling accreditation in the first place

·      The importance of Financial Modeling as a profession

·      How FMI created a community to help all modelers find the best resources and elevate the profession in the process

 Follow Ian:

Website - https://fminstitute.com/

E-mail - info@fminstitute.com    

LinkedIn - https://www.linkedin.com/in/ianschnoor/

Follow Paul: 

Website - https://www.thefpandaguy.com/

LinkedIn - https://www.linkedin.com/in/thefpandaguy/

Instagram - https://www.instagram.com/thefpandaguy/

TikTok - https://www.tiktok.com/@thefpandaguy

Twitter - https://twitter.com/TheFPandAGuy

YouTube - https://www.youtube.com/@thefpaguy8376

Sign up for the Advanced Financial Modeler Accreditation or FMI Fundamentals Today and receive 15% off by using the special show code FMC15.

Visit www.fminstitute.com/podcast and use code FMC15 to save 15% when you register.

Go to https://earmarkcpe.com, download the app, take the quiz and you can receive CPE credit.

On each episode we will have a section called “Ask the Host/ Guests” in which you can ask your own questions. You can submit your questions about financial modeling at pbarnhurst@TheFPandAGUy.com or DM on LinkedIn.

These episodes will also talk about interesting news regarding financial modeling. So if you find something which is worth a share, send it across so that it can be discussed on our future episodes.

Quotes

“There was no opportunity for people to really learn formally how to build models.”

“If someone gets FMI’s accreditation they know you are the best in your practice, they know how to model and they know design is important.”

“Without design the whole thing falls apart.”

“Training firms can teach you and give you the knowledge you need but to really become excellent and prove it, that requires independent validation and that’s where FMI comes in.”

“We want FMI to encourage people to interact and teach each other, learn from each other and enhance this profession.”

In today’s episode

(00:22) Intro;

(00:50) Welcoming Ian;

(02:42) How FMI started;

(05:45) Paul’s experience;

(06:37) The importance of Design;

(07:37) Multi-disciplinary approach for a dynamic model;

(08:53) What makes FMI unique;

(11:23) Why Paul chose FMI;

(12:53) The importance of Validation of Training;

(14:26 - 15:13) Validate your Financial Modeling Skills with FMI’s Accreditation Program (ad);

(15:14) Resources/ Programs included in the FMI;

(18:26) Why Ian chose to be the premier sponsor for FMC podcast;

(21:15) What Ian hopes people gain from the podcast;

(24:22) Ian’s answers to standard questions;

(24:30) Which is the worst financial model ever seen;

(26:17) Ian’s take away from the worst financial models;

(27:53) Rapid Fire;

(32:00) Ian’s advice for modelers;

(33:17) Connect with Ian;

(35:12) Paul’s Top Quote from the episode;

(36:25) Have Financial Models become the most important decision making tool in finance? - LinkedIn Poll Results;

(38:13) CPE Credit with this episode;

(38:54) Outro.

Transcript

Host: Paul Barnhurst

Welcome to Financial Modeler's Corner, where we discuss the art and science of financial modeling with your host Paul Barnhurst. Financial Modeler's Corner is sponsored by the Financial Modeling Institute…

Welcome to Financial Modeler's Corner. I am your host Paul Barnhurst. This is a brand new podcast where we will talk all about the art and science of financial modeling with distinguished financial modelers from around the globe. The Financial Modeler's Corner podcast is brought to you by Financial Modeling Institute. FMI offers the most respected accreditations in financial modeling.

I am excited to welcome our first-ever guest on the show Ian Schnoor, Ian welcome to Financial Modeler's Corner.

 

Guest: Ian Schnoor

Thank you Paul Thrilled to be here.

 

Host: Paul Barnhurst

Very excited to have you So could you start by just giving our audience your background Tell us a little bit about yourself.

 

Guest: Ian Schnoor

So again, thanks for having me we are thrilled to be part of the podcast and to be a sponsoring the podcast through Financial Modeling Institute. My background is that I started my career as an investment banker Many years ago I worked in a at a bank called BMO BMO capital markets And then I worked at Citibank for a couple of years doing traditional investment banking work mergers and acquisitions et cetera. At the time modeling was a fairly new sort of early stage nascent skill and this was late nineties and I really got into it and love modeling and trying to push the envelope on what models could do. And after spending about six years as an investment banker I left banking and started a training firm.

Sort of realized that there was no opportunity for people to really learn formally and bankers were learning it on the fly on the job In fact most banks at the time all banks were just teaching their own people how to build models And when I worked in banking I was one of the guys that every year they said Hey Ian the new guys are starting can you can you run a training program for them?

There was nothing external so I started a training firm called the marquee group. That was just, we just sold And at the marquee group the marquee group runs financial training programs all over the world to bank schools all sorts of financial professionals. A number of years ago we a number of my colleagues and some other partners that I know around the world noticed the gap and noticed sort of a real need globally for accreditation. There was nothing in the way of financial modeling accreditation So we went and started the FMI which is a completely independent…organization focused on financial modeling building a financial modeling community and rigorous challenging accreditation programs. Thank you for that introduction Appreciate it. Can you share with me a little bit more of how you started the Financial Modeling Institute?

 

Host: Paul Barnhurst

You mentioned you got together with some people you saw a need but maybe a little more of the backstory there It's kind of interesting to see that accreditation.

 

Guest: Ian Schnoor

Well I mean it was it came out of the fact that as when I was running a training from what we started to see was that everybody,and training is extremely important and is and it'll always be important to kind of have opportunity to learn and to train I mean there were a couple major reasons. There was a there was a couple major drivers that led a bunch of us to feel like you know what there's a gap in the market and there's a need for accreditation And one was that we started realizing at our training from that all of the students we would teach would put on their resume, that they attended one of our training courses So banks would see, Hey all these students had attended a training course and with the marquee group and they would call me up and say Hey we noticed that this guy Paul he took your course is he any good? And I'd say I don't know probably not he took a course. I mean, courses are great but courses. As a trainer as an instructor, that you can get the students halfway you can bring them to the water but you can't force them to get really good at something. Training shows you the way it gives you the instruction but to become masterful at any skill at any topic you need to as a student, work at it yourself practice it. And that is the one thing that a trainer doesn't always know So we realized that there was a massive need for people to truly prove that they had strong modeling skills. The other thing that started happening was that around seven years ago banks and recruiters started putting right on their job postings they would say we're looking to hire undergraduates or MBAs. And we want to hire somebody who has strong financial modeling skills. That was new when I started my career nobody asked me if I had strong modeling skills when they interviewed me, but about seven or eight years ago recruiters started asking candidates do you have strong modeling skills before they hired them they made it a prerequisite. And so people more and more we're putting on training courses on their resume and so we realized that there was a need to validate people's skills in a way that really never existed. There was nothing like it in the world.

 

Host: Paul Barnhurst

Totally makes senses and I wish I would've had something like this coming out of school And I feel like one of my biggest limitations when modeling is just never really had a good training You just go into a job I went into your corporate finance in America and it's like oh hey we need this model built. And you just start throwing it together.

 

Guest: Ian Schnoor

And, the number one reason why when you ask someone hey why did you build something that way they say I don't know that because that's what my boss always did. And you ask the boss and the bosses well that's what my boss used to do and there's, there's no method to the madness people just pick up on habits and they're often bad habits and they just try and figure things out.Without any sense of discipline around it and they yeah people just hack and figure it out as best they can and that's how it's worked.

 

Host: Paul Barnhurst

Completely agree You know there hasn't been that discipline in modeling we are definitely seeing that continue to improve and seeing more rigor and discipline. But I know for me it was just hey just figure it out as I go I still remember speaking of modeling. So I had a job I had a CFO that had a great relationship with he really liked me and he wanted us to build these models a certain way. And he sat down and he had worked investment banking for years And was you know a really good modeler and he's like, I want you to use a certain type of formula to do this. I couldn't figure that part out cause I'd never done it that way and you know I'd built some good models and so he ended up bringing in somebody else to work with me And because of course I had the most difficult model in the company and then he wanted it done a way I hadn't done before I'm like, I ended up working with someone I think for seven months and I learned so much then because he had worked in investment banking as well of just saying okay here's the corkscrew here's this. So I have a real appreciation for what you're doing, that it you know enforces some rigor because if somebody gets your accreditation, they know best practice.They know how they should model and they know that design's important.

 

Guest: Ian Schnoor

 Oh you mean you've heard me say this design is the most important and modelers often don't think about that or focus on that. I mean I always love to tell people, you know I've trained I think I've personally trained 20 or 30,000 people all over the world over the years through the training that I used to run and still do run and that gave me a tremendous insight into models and modelers and I've seen thousands of models. Modelers often you know usually have an accounting or a finance background sometimes both and they are very focused on that element and the one area people give very very little focus to and very little attention to, but as you've heard me say the absolute number one reason why models fail is poor design. Modeling is a very multidisciplinary skillset which is why I love it and many people do to be a really good modeler you have to understand accounting. You have to understand and appreciate finance You have to understand the right Excel technology or the spreadsheet technology use. You have to understand design you have to understand business logic and be able to pull all of it together into one powerful cohesive tool that can be used to make effective decisions and without design the whole thing falls apart. Totally agree and I love the multidisciplinary.

Host: Paul Barnhurst

That's one of my favorite things about it is sitting down with the business and you know making changes and be like okay here's what would happen in the business and here's why and really being able to take them through it versus, well what happens if we do this? I'll get back to you next week because the model is so poorly designed I got to go rip it apart to answer a basic question.

Guest: Ian Schnoor

Oh I heard that I used to hear that all the time CFOs would call me up and say Again, Is this right I asked my team to update something or to give me a new answer, to run a scenario in the model and they told me it would take a week. Is that right should that be the case and I always just say well no I mean it really it should take about 15 seconds they should get to the answer. But I know what's happening. What's happening is they had 19 files all interconnected and they had to make that change in 42 different spots.

And they had to run a bunch of tests and they had to check it and they had to make sure and validate that every time they made a change that it was flowing through and working in all the files were updated. I knew it without even seeing it cause I've seen it a hundred times. That's what we call, you know model being dynamic. A dynamic model means that one change flows through everywhere perfectly beautifully. And you can get an answer seamlessly instantly, and many models are not dynamic. They need to be updated and manually changed all over the place. So yeah we talk about that a lot at the FMI.

 

Host: Paul Barnhurst

You know speaking about FMI what is it that makes it unique? You know if there were two or three things you were going to list that really makes FMI unique from other resources out there what would be?

 

Guest: Ian Schnoor

What makes it unique gets again into part of what I didn't mention already is why we've developed and one of the other things I should mention is one of the things that always frustrated me as a corporate finance professional is when you think about a deal when you think about most typical deals that exist think about a classic M&A mergers and acquisition deal. You have a lot of professionals that work on the transaction. You're going to have your lawyers and your accountants, and you might have engineers doing due diligence and various consultants and you might have actuaries trying to evaluate the pension plans. When you think about a whole team of professionals working on a deal every single one of those professionals is educated and independently accredited through an organization that says yeah you actually have the skills as an architect or a lawyer. Would you hire a lawyer on your team that had not passed the bar of course not you would not hire a lawyer to work on a deal if they were not a certified lawyer or the same thing with an engineer or an accountant yet the one profession that does not have accreditation the financial model or the banker the person at the middle of the transaction building the model could be anybody. There's no way for a client to know if the person modeling has excellent skills has passed some sort of rigorous exam or not. And so what's unique about the FMI is we are the only organization in the world trying to bring corporate finance. And I and I use that as a broad envelope I use that to encompass accounting and finance and FP&A and anyone who builds models, we're trying to elevate this profession and it is a profession so that it's at the same level as all the other professions I just mentioned where people are educated and accredited, but what's unique about FMI specifically is we're the only organization in the world that's offering rigorous challenging proctored accreditation exams. So think about the CFA exams or accounting. You're accounting board exams they're accredited they're proctored.

They are rigorous, same thing with our exams and to get through our level one AFM Advanced Financial Modeler means you have to build up a model from scratch and under four hours it's proctored And to do that we know for sure that you have phenomenal modeling skills. So that's what I think is. unique and there's a lot of training firms out there that offer training and then give you a badge. But that doesn't validate what's unique about FMI Is that someone who gets the AFM truly has excellent financial modeling skills.

 

Host: Paul Barnhurst

And for me that's the reason when I was looking to improve my modeling skills and we've talked about this before and then COVID hit. When I originally was going to take the FMI the reason I chose the FMI over some of the others out there is because, it's an actual accreditation I get to demonstrate that I have the qualifications I don't just take a course. Maybe take a multiple choice test and I'm done. Somebody is looking at this and saying all right this guy actually understands he has proven he can build a three-way model that is well-designed in a timeframe that makes sense.

 

Guest: Ian Schnoor

That's exactly it and listen, I'm not trying to cut down any of the training firms out there are tremendous and they are necessary and they serve a critical purpose. And there's a reason why, you know you can do a training course and you answer a few multiple choice questions and you can demonstrate that you passed it and you got a badge but modeling is a skill. I like to joke around and make an analogy I mean it's like any sport it's like playing the piano or it's like learning golf I mean I can teach you everything you need to know about golf in a few hours, but if you really want to be an excellent golfer you're going to have to go by yourself to a driving range for weeks months and to the course and work on your game over and over and over again. And only then will you become an excellent golfer and that's what modeling is like two training firms can teach you and they will give you the knowledge you need, but to really become excellent and prove it, that requires independent validation. And that's where we come in and that's, you know we're seeing a lot of great interest right now. We're partnering with some phenomenal organizations around the world that recognize that their members and their students their members are looking for true validation of modeling skills.

 

Host: Paul Barnhurst

And I totally agree with you I mean I provide training I know you used to run a training firm training is critical. People need training, but it's also great to have something that's just focused on validating that they can put the training in practice. You got it, which is really hard to do during a training session. Yes You can have them go through an exercise you can do some multiple choice some are better than others but it's different when it's a proctored exam that's reviewed by somebody and it's that standard like you think a CPA or law firm or all the others you mentioned So there's just a difference.

 

Guest: Ian Schnoor

I mean let's be honest There's a bit of a conflict of interest to a training firm running their own independent accreditation. It's impossible because imagine if you're a training firm and you put a hundred people through training and then you give them a very rigorous exam well as the training from you don't want to fail half of them because it doesn't reflect well on your training. And of course there will always be a bias and perhaps a perception out there that well maybe you're inflating the pass rate or passing more than you should, even if it's not true there might be that perception Whereas. because FMI is not a training firm. You know we provide our candidates with learning materials, the same way that CPA provides you with learning materials and CFA provides candidates with learning materials. FMI provides learning materials to our candidates, but that's not what we're selling.

We're providing that to help people prepare for a rigorous exam. It's the independent exam that is manually graded by a team of people all over the world, as you said Yeah I mean, people only pass our exams if they truly pass that very high bar and then everyone knows that that they've achieved that tremendous skill. Next question here is I know you have a financial fundamentals. You have the certifications.

 

Host: Paul Barnhurst

What other resources and programs do you offer? Can you talk a little bit of what what's all included in the FMI What are some of the things.

 

Guest: Ian Schnoor

 So you know I've talked about the fact that FMI is the world's only financial modeling accreditation body and that's true, but it was never our sole purpose to create just the accreditation body. What our goal is, is to build the world's only true community of financial modelers. And we're working to build a community where people can interact with other modelers whether that person happens to work in any continent on the planet or whether they work in FP&A or an accounting or finance.

We want to create a community of people that spend part of their day and part of their time in their work forecasting, planning modeling, And so when people join the FMI program, let's pick our level one AFM advanced financial modeler accreditation That's the first of our accreditation's when they join that they get access to our community. We've got a beautiful virtual community where you come in all of the learning materials that I told you about live in the community. We host events. We're constantly hosting events free events for our community members on all sorts of things that will be interesting to their career development. We had a great speaker a couple of days ago on blockchain the relevance of blockchain with financial modeling and, he connected modeling with blockchain work which was fascinating. We've had other speakers in on Python And so we're just bringing in speakers into our community and our community members can interact with each other and learn together.

So when people join FMI they get access to the community. They get access to learning materials, to help them prepare for the exams and they get access to the exam They get to sit a very, rigorous proctored exam. The AFM exam happens four times a year and they get the opportunity to have it graded by a team of graders. And if they pass they get the AFM badge with their name on it that they can post on social media which truly indicates that they have excellent financial modeling skills. So that's the full suite of what happens when you've joined one of the FMI programs.

 

Host: Paul Barnhurst

 I was in the community other day and I saw some of that all the webinars and different things and excited to participate in some of those. So I think that's great that you have a community in addition to the accreditation So people have a place they can go to talk to others to learn to continue to grow, not just Hey, take your exam, get your badge and have a nice life.

 

Guest: Ian Schnoor

Exactly you know for us and for me it's funny modeling people often think of as a very technical sport for me it's actually very much a social endeavor a personal endeavor And for me, You know half the battle is be getting to meet great people all over the world that have a passion and that want to share their tips and ideas. So many models have so much to share we don't want the FMI to be a spot where people can independently learn some skills and go back and hide in their office for the rest of their days.

But rather we want to get people interacting and teaching each other and learning from each other to enhance this profession this discipline of modeling. I love that I think that's great that you've made that concerted effort to do more than just the accreditation.

 

Host: Paul Barnhurst

Speaking of wanting to further their profession can you talk a little bit of why you decided to be the premier sponsor for the Financial Modeler's Corner podcast?

 

Guest: Ian Schnoor

Oh absolutely Well first of all it goes we're a huge fan of you and no I mean funny you say that it ties into the into the last question We are a big fan of you really respect the work that you're doing and I always tell people I get a lot of students and juniors that want to talk to me about career development. and career progression? I always tell people that, you know one of if not the most important decision and criteria to use when making any career decision is the people that you're going to end up working with I mean as you know in many of your listeners know life can be pretty miserable You might be doing quote excellent work.

But if you're working with miserable people, it's pretty hard to overcome just the specific spreadsheet work whatever technical work that you're doing on the contrast, having excellent people around you and a great team goes a long way Even if the work isn't always exactly what you want you can have a lot of patience, to kind of get towards the next audit if you're working with a great team. So tying into the what I said about community we are trying to build a community and as a result of that we are trying to spread our tentacles far and wide. And we are trying to partner with organizations all over the world to really create a technology And I'm thinking about back to the VHS and Betamax days which might resonate with you.

Maybe you're too young to even remember that.

 

Host: Paul Barnhurst

I do remember that a little bit It was when I was young and I can remember that.

 

Guest: Ian Schnoor

Most of your listeners have no idea what I am talking about. What the heck is he 80 this guy but what we're trying to do is create something that's open. We want to create some open source We want to be partnering with groups We've got partnerships going on with all sorts of finance organizations, accounting organizations, because we want to be the the open source place to be and as a result knowing you and what you were doing and having the opportunity to get behind a high quality podcast it's going to include an and have guests of some of the best modelers and interesting modeling minds in the world It just seemed like a natural fit and another way for us to support your work and the work of modelers to really build their skills. That is at the end of the day, the only thing that we really care about is helping people build their skills And then of course validating them to elevate our profession of modeling to the same level as other professions that exist in the world.

 

Host: Paul Barnhurst

Thank you I appreciate that answer and you know similar for me is I was looking for a premier sponsor and I had the idea I wanted to do a financial modeling podcast You were one of the first ones that came to mind for me. Cause I had always been impressed with FMI and heard really good things I knew you'd been on the podcast and I'm like it seems like it'd be a natural fit So I was really glad we were able to come together and make this work I'm excited to help further what you guys are doing, you know to share that message of the FMI.

Kind of last question speaking of that and I think you answered some of that but I'll just go ahead and ask it. What are you hoping people gain from the podcast You know for those who are listening what do you hope they kind of take away.

 

Guest: Ian Schnoor

You know you and I've talked about a lot of the guests that'll be coming up on the show And I got a lot of respect for you and the guests that will be on the show. One of the things that I really hope that people take away is first of all the understanding that if they happen to be building modeling or doing modeling as part of their job they are not a lone ranger all by themselves. Sometimes there's only one or two people at any one organization doing intense modeling but there are thousands and tens of thousands of you all over the world. And we want people to realize that this is a profession it's a discipline. I want people to realize this is very important because the FMI feels very strongly about this. And I feel very strongly about this that while there are some critical disciplines around financial modeling, that there's not just one way, that there's lots of different ways and there's lots of different ways to peel an onion or to you know whatever analogy you want to use There are lots of ways to get an answer that is beautiful.

That is well-designed. That is accurate. The communicates clearly. I want people to also recognize that while there's lots of ways some people out there in industry have a very strong view and they'll say to you, You have to do something this way this is the only acceptable way to do task XYZ whatever And I don't feel that way I don't think that's right I think there's always more than one way that can be effective and you need to be thoughtful and creative. One simple example is around whether you choose to build models using a horizontal or a vertical approach there are two major approaches to financial modeling and building models. If you join us you'll learn all about that the two ways people can model horizontal. or vertically.

Well I personally have a slight preference for one because I find that it's it's easier to avoid errors, that doesn't matter My opinion is not relevant. There are two very common ways to model and you need to understand them both and some people prefer one and some people for the other and they're both fine. The last thing I hope people learn and appreciate from modeling is that modeling is so much more than just sitting in front of a spreadsheet all day building a tool. And I like to tell people that a really good financial modeler becomes the leader on a team. The leader is the one person that can interact with the tax people and the lawyers and the actuaries and the consultants and the operating team. And people sometimes ask me if I'm building a model, what percentage of my time will I be in Excel in the spreadsheet?

And my answer is often surprising I tell people that as a good modeler you should aspire to spend only 50% at most of your time in your spreadsheet. The rest of it is talking to people doing research, asking questions pushing pushing pushing saying why, why are we doing it this way. Presenting building slides communicating taking feedback pushing back on the feedback and helping to elevate and move the process to the finish line and a good modeler is doing all that It's not just a person sitting behind the spreadsheet cranking out a tool. And so modeling is a tremendous skill that incorporates all sorts of different areas And I hope that that comes through in the podcast with the various guests that you are going to include.

 

Host:  Paul Barnhurst

I totally agree It is multi-disciplinary and it's important. It's not just about the spreadsheet, There's so much more. Now I'm excited to move into we have some standard questions We're going to ask each guest and there's a couple here that I think will be fun So you'll be the first one here. First Tell me about the worst financial model you've ever seen.

Guest: Ian Schnoor

 

 Oh my gosh the worst one Gosh. Unfortunately I've seen so many bad ones I can't just pick, pick on one.

What comes to mind this broke a record in my mind. I just mentioned horizontal versus vertical horizontal models of course mean that you're using more sheets a lot of. Each sheet does not go that deep but there's lots of sheets. Vertical means that less sheets and

more rows within each sheet are being used. We saw a model once a number of years ago that was built horizontally and it was built on drum roll please. It was built on 113 sheets. There were 113 tabs in the file and it was a disaster and as you can imagine, every single formula it was impossible to find the sheets. Every single formula was linked to four or five or six other sheets and you couldn't find the sheets Half of them were hidden. And so nobody could use it.

There's only one real definition of what makes a model a poor model. And that is that it's not transparent. Let's be clear. The only reason we use models is to make a decision. And if someone can't use a certain model to confidently make a decision because they don't understand it it's not working well.

Most corporate models that I've seen do fall into that camp but this was one that was built on 113 sheets. We fixed it in two phases. Phase one we took it from 113 sheets down to about six. We made it a lot more vertical and the client was blown away because suddenly every formula was like a waterfall. It flowed it all talked to each other It was linear but I could go on for literally days about horrible models that had billion dollar errors in them because of terrible formulas long complex calculations, but ultimately all models that are terrible cannot be understood or interpreted. And there's no confidence in the numbers that they're spitting up.

 

Host: Paul Barnhurst

So when you talk about horrible models in general, What's maybe the thing you've learned the most from seeing really bad models What's your takeaway?

 

Guest: Ian Schnoor

 Well it's sort of what we talked about earlier is that people haven't put much time at all into design and design does not just mean that the colors. Design and again we talked about this in the FMI, in the learning materials but design means how you lay out the tab structure. It design means your colors and your fonts and accessibility design means the way you construct formulas. Design means which Excel tools you pick and which ones you deliberately don't pick because they're going to cause confusion. Design means how you create your formulas so that they can be flowing One of the one of the tips that people hear me say all the time is one of my favorite mantras in modeling And you've not heard this is repeat and link. One of the biggest disasters in models is when you have a formula as I'm sure your listeners have seen this that links to six or seven other sheets. It's impossible to audit.

So what I tell people is it's so simple instead of linking to five or six other sheets, go to that big formula, Add five or six rows directly on top of it. Repeat each of the input cells that is going to go into that formula and then redo that formula just by referencing the cells that are now directly on top of you It makes a radical change. It sounds so silly and yet

If you do that 500 times suddenly everything talks and everything flows. It's the same problems you see every time in any industry it's problematic design around the formula layout logic discipline design et cetera, which causes all sorts of problems in terms of using the model latter.

 

Host: Paul Barnhurst

I would agree with that generally tends to be the case What you said all make sense. This next section here is rapid fire questions. So you have to pick one or the other You can't give me an it depends. and you get no more than 10 seconds with each of them. And then when I get through all of them about seven or eight here, you can pick one to elaborate on. Okay. So if you're ready here I'll go ahead and get started.

So circular or no circular references.

 

Guest: Ian Schnoor

I want to say it depends for all of them but I know that I'm uh

I know. You've just told me that. that I'm not too circular note circular I would say generally No. Uh unless needed And, but only if the modeler truly understands circularity and 99% of people do not I'll I'll elaborate on that one later. All right.

 

Host: Paul Barnhurst

VBA or no VBA.

 

Guest: Ian Schnoor

Preferably no VBA. Horizontal or vertical. My preference is vertical.

 

Host: Paul Barnhurst

Dynamic arrays in models Yes or no.

 

Guest: Ian Schnoor

Usually not needed.

Host: Paul Barnhurst

External workbook links Yes or no.

 

Guest: Ian Schnoor

No.

 

Host: Paul Barnhurst

Named ranges versus no name granges?

 

Guest: Ian Schnoor

No.

 

Host: Paul Barnhurst

Do you prefer using a formal modeling standard like one of the official ones out there Yes or no.

 

Guest: Ian Schnoor

These are tough questions People are going to beat me up over this. There's a place for them There's a place for them But generally I would say I struggle with them a little bit but I would say no And I'll talk about that more after. All right. And last one here.

 

Host: Paul Barnhurst

What is your lookup function of choice V lookup index match X lookup. Or if you have another.

 

Guest: Ian Schnoor

I love the choose function because it's so simple. First of all I love all lookup functions That one is not better than the other They are all good They all have a place but what I tend to do I like to pick the simplest tool to solve any given problem, because that's what clients will understand most easily. I say that a little bit tongue in cheek I use all of them I use all but I like the simplest lookup functions because they are cleanest and easiest to understand.

 

Host: Paul Barnhurst

Got it Thank you on that So is there one of those you want to elaborate on a little more?

 

Guest: Ian Schnoor

All of them.

 

Host: Paul Barnhurst

I figured you said, see. That's why I'm trying to make it hard Make you pick a side here.

 

Guest: Ian Schnoor

The reality is that None of these are hard yeses and nos.There is. On every single question you asked me, there are times when I would go the other way. In most cases I would say avoid circularity but if it's needed it's needed for a complex capital structure model that requires understanding interest on cash sweeps and knowing what the impact will be I'm fine with it but only if the modeller truly understands circularity and how to manage circularity I had turned it on and off and how to detect it. Most people get, get Really tripped up with circularity and they should not use it So most people would be best off to avoid it but it can be very effective if you know how to use it properly. So I, you know and I I could go on with that I mean on all of them

VBA has a place I like I love using VBA in models for formatting for automation I try not to use it for building formulas Things like that So, and even we talked about model standards there the model standards are great. The model standards are great, but I find that they can box people in within an organization. If an organization finds it helpful to have a set of standards that everyone adheres to fantastic then they should use it. But it does stifle a little bit of creativity I find because then people are focused on how do I find the right number to stuff into the template or the right standard as opposed to what they need to do to solve the problem. So there's a time and place for all of these things I believe. But a strong modeller or can ask the question and understand how and when to use each of these in each one So thank you for putting me on the spot for all of these And there there are good questions.

 

Host: Paul Barnhurst

Yeah no I figured it kind of fun just to see where people stand and I get it You could go we could have a show on each of these if we wanted to.

 

Guest: Ian Schnoor

And I could argue both sides for all of them easily. There's a time for vertical modeling There's a time for horizontal modeling.

 

Host: Paul Barnhurst

Well we're coming up near the end of our time So first I just want to say thank you so much for joining us as really exciting to have you. our pilot episode I'm glad you were able to share some of your knowledge I look forward to our partnership together, and as we wrap up two last questions for you, the first, if there's one nugget or one piece of advice. But you kind of learn during your career around modeling that you would like to share.

 

Guest: Ian Schnoor

What would that one thing be. First of all try to keep things simple That does not mean dumb down the ideas, but try to use simple logic simple flow simple style simple communication because that will build confidence with your reader , avoid unnecessary complexity if it's not needed And that's a very tough spot to know what the where the right breaking point is but people love being able to understand keeping it simple And also I want people to have the confidence to know that be yourself, learn a lot about these ideas. Never be comfortable if someone says do it that way just because we've always done it that way That's the way we always do it here. That's not a good answer. Be confident pushing the envelope being able to say is this really optimal. Does this feel right Can I do it better Is there a better way And if you can push the envelope and try to keep things effective and simple, you will have outstanding models. You'll be able to make great decisions and adopt a leadership role in moving processes and projects forward to come up with really powerful solutions and powerful answers and great decisions for your teams.

 

Host: Paul Barnhurst

It's great advice I appreciate it. And last question, if our audience wants It's to learn more about you or get in touch with you What is the best way to do that?

 

Guest: Ian Schnoor

Oh, that's easy I mean FMI website is fminstitute.com You can find us that way OR you can email us@infoatfminstitute.com. You know you can find me Ian Schoor on LinkedIn we try to make ourselves pretty accessible and available and so it shouldn't be hard to find us at Financial Modeling Institute.

 

Host: Paul Barnhurst

Well thank you for joining us today and we really enjoyed it and I'm excited to release this episode here shortly.

 

Guest: Ian Schnoor

We're excited to be here and support you in all the fantastic work you're doing and to be the prime sponsor of this and to be really involved very excited The industry can use this and I'm thrilled that you're doing it. So thanks for having me on here good luck with the rest of this and I'm excited to kind of kick it off with you here.

 

Guest: Ian Schnoor

I agree Thank you so much

 

Host: Paul Barnhurst

What a great first episode with Ian, I love talking to him about financial modeling so impressed with his knowledge and what he's built. I've wanted to bring you Financial Modeler's Corner a modeling podcast for several months now, and when he was interested in partnering with me and FMI I knew that was the organization I wanted. So I'm so excited to get the opportunity to bring you this podcast to talk about financial modeling. One of the reasons I'm so passionate about this subject is I've dealt with the pain of trying to build a model.

And having no idea how to build it You know just kind of throwing it together just going into Excel and starting to build not recognizing best practice or design principles. That's the reason I'm excited to bring you this podcast and to bring you episodes regularly where we talk to the brightest and best minds in financial modeling and you know along those lines as I talked a little bit about just the challenges of modeling and not knowing where to start I want to share a quote from our interview with Ian and then we're going to talk a little bit about it. So here we go We're going to listen to this clip. At the time modeling was a fairly new sort of early stage nascent skill.

And this was late nineties and I really got into it and loved modeling and trying to push the envelope on what models could do. And after spending about six years as an investment banker I left banking and started a training firm. Sort of realized that there was no opportunity for people to really learn formally and bankers were learning it on the fly. And so I like what he said there there was no formal training opportunity Bankers were just learning it on the fly and that's why he started A

training Institute and why he started FMI. And so I think one of the most important things with modeling is design Ian talked about this before in a podcast where the number one problem with models is design and something you'll learn And we'll talk a lot about on this episode is the importance of design is something you'll learn about If you join FMI is good design. So that's the first thing I wanted to share is just let everybody know That's something we're going to emphasize a lot because I can't stress that enough. Of how important it is to really think about, how to design your model to make it easier. So next I want to share something I found really interesting.

I did a poll on LinkedIn. Where I asked people this question I asked, have financial models become the most important decision-making tool in finance. So that's the question I asked 743 people responded. 89% said yes. So what's clear to me

 

is models are the most important decision making tool. Yet the vast majority of us do not get formal training. Many of us have to rebuild models as soon as the person who built it leaves because we don't understand it.

So this highlights to me the need here. It really validates for me the need of an accreditation organization like the Financial Modeling Institute and the need for more emphasis on how to build best practice financial models. Right They're just they're critical. And so what I want to say is as we move forward one of the things we're going to do each week that I'm really excited about is we're going to basically.

Have  ask the host or the guest anything you can submit a question you have about financial modeling. And we'll either ask a future guest that, or we'll have a section at the end where I answer bring somebody in. So please, what I'm asking everybody to do is submit your questions You have to pbarnhurst@thefpandaguy.com or on LinkedIn, you can DM me. So something we'll be doing as we go through each episode is we'll be answering questions. We'll also talk about things we see in the news So if you see something you find really interesting in the news about financial modeling pass it along because we'd love to discuss it on a future episode.

Last but not least. What I want to let you know is this episode is going to allow for CPE credit So for those of you who are CPA CMA and meet those requirements, You can go to earmark it's earmarkcpe.com. Download the app. And answer a few questions and you will be able to get CPE credit That's something we're really excited to bring you from day one. So if you've enjoyed this episode as much as I have I would ask that you please share the podcast with your friends and subscribe on your podcast platform of choice and leave a review for the show We'd love that If you could give us five stars that would be great.

So thanks again for joining me on this first episode And I look forward to learning with you about best practice financial modeling and bringing you some of the best and brightest names in financial modeling around the globe. Until next time Thank you. Financial Modeler's Corner was brought to you by Financial Modeling Institute. Visit FMI at www.fminstitute.com/podcast and use code FMC15 to save 15% when you enroll in one of their accreditation's today