More specifically, modelling can help to:
Financial models are used in many areas:
Excel is the most widespread tool used to build financial models (by direct numerical implementation, coupled with background knowledge and appropriate documentation). The CertFM Program therefore covers a wide set of modelling-related functionality and functions in Excel, as well as its ever-increasing tools to manipulate and analyse data sets.
However, to master financial modelling (in Excel), one needs knowledge that goes far beyond the direct use of Excel. Notably, a good knowledge of economic theory, finance, decision analysis, and statistical methods (amongst others) are all required: These are all topics which are separate to Excel in concept, even as using Excel can help to create a better understanding of them, and to implement many aspects in practice.
Thus, Excel is the focus of the methods used within the CertFM Program, even as many other topics and concepts are also covered.
The modelling process consists of several possible steps:
In the “mathematical” approach to modelling mentioned in the last section, the “modelling” is considered to consist only of the first stage: If this is done correctly and in sufficient depth, then “only” the implementation and the associated decision-making remains.
In the “direct numerical implementation” approach to modelling (as also described in the last section), it is the specification stage which is typically de-emphasised (or largely overlooked as an explicit step): The relationships captured only by the formulas built into the Excel file, and not by a separate explicit (or external) reference. In such cases, it is implicitly assumed that the behaviour of the real-life situation is either standardised, or provided by knowledge that is common or is available to users through some other route. In fact, this discussion highlights one of the weaknesses of main Excel modelling processes, and notably the potential to create better models by having more rigorous approaches to the specification and documentation stages (than is often the case).
The materials within the CertFM Program aim to ensure an appropriate balance between concepts and implementation, including aiming to ensure that the approaches used are transparent and based on sound logic.