Scenario Modelling

Many strategic decisions can only be properly considered by testing and modelling a variety of possible courses of action across a range of scenarios.
For example, an organisation wishes to reduce its back-office costs, exploring options from retaining all functions in-house to a fully outsource model, or some hybrid combination. As each option is explored, another layer of questions present themselves. What is the payback period on any investment? What systems investment is required within the payback period if in-house capability is retained? Does the outsource route require the retention of key staff in-house, and by how much does this dilute the outcome? Over what period is the outsource company’s prices secured, and are price increases within the payback period capped? How is risk in any price-capping formulae managed, if based on economic indices outside the organisation’s control? What happens to the cost if the client grows or shrinks significantly? Is the outsource solution more cost-flexible than a full in-house solution if the client shrinks or grows?
Modelling the cost-benefit of the options across each scenario (growth, contraction or stability), with ease of amendment as the shape of each option evolves, is a highly complex exercise requiring a combination of advanced spreadsheet design skills and deep business and accounting knowledge. Significant modelling errors frequently occur when inexpert staff, lacking the necessary skills and experience, undertake this work. We have this capability and would be delighted to provide you with this service to ensure that your key business decisions are made with the fullest and most strongly supported information at your disposal.

Cash Flow forecasts

We are all familiar with the basic (and correct) philosophy ‘cash is king’. How strongly, however, are our cash management processes? Do we forecast our cash position regularly? Is the accuracy and reliability of these forecasts ever measured? Are recurring forecasting errors – whether of principle or spreadsheet design – squeezed out of your models? Does the person preparing the forecast clearly distinguish between commitments, invoices and cash out of the door? Do they know which inflows and outflows attract VAT and which don’t? Are core cash forecasting assumptions consistent with those applied to the Profit & Loss/Income & Expenditure Account and Balance Sheet? What is your level of assurance on any of this, and what is it based on? We know how to develop robust integrated forecasting cash flow models – whether for the whole of a business or a particular project – that address all these areas and make the input and maintenance of these models child’s play.

Pricing & Break-even Analysis

You may have encountered the expression ‘break-even’ analysis, and wondered exactly what this seeks to calculate, and how this relates to your pricing strategy. In simple terms, it describes the level of sales of a product or service at a given price that cover both the variable and fixed costs of a business. In practice, the realities of business life – the need for the selling price to reflect what the market will bear, the product or service mix continually changing, or a business strategically choosing to sell products or services using a ‘loss leader’ pricing strategy – make the task of modelling the right mix of prices and volumes a highly complex modelling exercise, requiring strong spreadsheet design skills combined with business and accounting knowledge. As with other advanced accounting and business modelling spreadsheet design work, we have the knowledge, technical know-how and experience to meet all your modelling requirements in this area.

Investment Appraisals

Investment Appraisals seeks to calculate the merit of an investment or expenditure proposal, by measuring the anticipated benefit against the cost, taking account of as many financial and non-financial factors as possible, and determining at what point, if any, the initial outlay starts to pay for itself (perhaps in 3, 5 or 10 years’ time, occasionally longer still).
They are usually subject to greater levels of sophistication by ‘discounting’ the value of a future return, to take account of anticipated inflation and the opportunity cost of employing the capital applied to the project in some more secure interest-bearing activity. The ‘discounting’ technique applied in these calculations generates what is known as the Net Present Value (NPV) of a future return on a current investment, and can be compared across different investment options to determine the most profitable course of action. We have strong experience and capability in devising appropriate investment appraisal models, including ‘Treasury Rules’ compliant ones (models that are built in conformity with published guidance from HM Treasury, and which are a requirement for all projects seeking to secure public funding).

Budgeting

Although the concept of budgeting is well understood, the process, ranging from the identification of the right budgeting approach and appropriate level of sophistication for your organisation, to the development of suitable spreadsheets capable of handling the inputs, calculations and consolidations in a user-friendly environment, is a role most smaller organisations lack suitably skilled personnel to provide. Additionally, organisations frequently fail to develop budgets which integrate the Profit & Loss/Income & Expenditure account, and balance sheets and cash flow, resulting in a failure to plan for all elements of the organisation’s finances. Even where this happens, the spreadsheets lack integration and modelling strength resulting in unnecessary repeated entry of core data or failure to flush out material errors and inconsistencies. We have many years of experience in budget development and will gladly take over responsibility for all these areas on behalf of your organisation, leaving you to get on with what you do best – planning and delivering.

Spreadsheet Integrity Audits

Your business may place great budgeting and general calculative reliance on spreadsheets developed in-house, possibly using templates built a long time ago and modified over time by different personnel. Research shows that many such spreadsheets contain an alarmingly high number of formulaic errors and erroneous links, resulting in incorrect business critical calculations. Our expertise in spreadsheet design, deep knowledge of Excel and all its functions and native background in audit (assisting in developing sound audit and risk assessment methodology), will provide you with all the necessary audit comfort and assurance in this key area.