Are We There Yet? – The time it takes to become a financial modeler

Are We There Yet? – The time it takes to become a financial modeler

How long does it take to become a financial modeler?  To answer that, we first need to define what success looks like. What’s the benchmark?

A Project Finance Financial Modeler is someone who can transform contract inputs and market data into a clear, digestible Excel model that drives financial decisions and can concisely and accurately explain how outputs respond as inputs are adjusted and sensitized.

So, if this is our standard  for what a good modeler can achieve, how do we get there and how long does it take? We arrive there most effectively through education followed by practical repetition and more repetition.

Education

We start with what Project Finance is, and what it isn’t. We learn who the players and participants are in the ecosystem and define the roles that they hold generally and those specific to certain assets. Once the umbrella of Project Finance is set, we learn to recognize risk; how those risks manifest; and what impacts are left in the wake. In recognizing and categorizing risk, we  learn how to assign that risk to the various participating parties.

A brief interlude into contract law

We then take a small detour. At this stage, we are no longer  financiers or developers, but junior lawyers. We need to understand how to read and understand contracts. Or at the bare minimum, how to extract the core information from those contracts for our models, CAPEX costs, OPEX costs, PPA pricing, feed-in tariffs, liquidated damages, escalation multipliers, etc. We learn what these terms mean; how they impact a project; and where to find them.

Excel

So, we have the foundational financial understanding of Project Finance, and we have our cursory legal training.  We then need to master excel. We start with the various formulas we will need. and we learn to understand the logical steps within each one. IF this happens, do that. Otherwise, do this. It’s a lot like learning a language with syntax and diction. So we learn the formulas as building blocks and we learn the language so we can translate what we’ve learned above into model logic.

The Modeling 

Now finally we can start modeling.

We can read a term sheet and look at a project organogram. We know the terms and the players. We can extract the appropriate information.

We open excel and enter all known data into an Inputs or Assumptions tab. We create more tabs: REV, OPS, FS, DASHBOARD, DEP & TAX, and then some. We think for quite a while about how to group ideas by financial logic so the lines flow together into segments and the segments connect to express whole ideas.

We write IF and AND and OR and MAX and MIN and, early on, way too many IFs all bunched together like Russian nesting dolls and some overly complex formulas that ultimately aren’t necessary.

Hopefully, we have time to consider each line and each idea. and  become very familiar with OUR model. We become an expert in our model. Then after hours, days, maybe weeks of work, we have reached our IRRs and NPVs, we have DSCRs and LLCRs and haven’t violated any covenants.

Then, if things have gone well and the stars are aligned, when asked “how much a 10% increase in operating costs might impact the model?”, we have an answer. An answer that is fulsome and precise enough that our manager responds with, “that makes sense. Thanks.”

This process takes time, but it doesn’t take forever. Ultimately, how much time depends on the quality of the instruction and how much your own patience can last as you extract data, hit #REF errors and perhaps run into a dreaded circularity.

The Finale

You persevere. You complete your education and build a practical financial model for a real transaction. You say, “I might be a financial modeler”.

Then you do it again. and again. You sign up for a Pivotal180 course and build on your education. Until one day you say, “I am a financial modeler.”

Pivotal180 Training

Want to learn to be a financial modeler and understand how to  evaluate and optimize your projects, no matter which way the economic or legislative winds are blowing?

Enroll in a Pivotal180 course! We offer a range of training programs for modelers of different backgrounds and experience levels:

Renewable Energy Project Finance Modeling
Project Finance Modeling
Introduction to Project Finance Modeling
Financial Modeling Fundamentals 

Come model with us!