Modelling skills becoming the most important, universal skill in project finance

19 January 2016

Operis is today releasing an eBook examining how financial modelling skills have become essential for professionals in every discipline across the finance industry. With financial models taking an ever-greater role in defining transactions contractually, it is vital that project finance professionals receive the training they need to operate effectively in the future.

The new eBook argues that assessing increasingly sophisticated deals is dishearteningly time consuming for junior finance professionals and veterans alike. The eBook particularly addresses the struggle of senior professionals, whose experience was gained in an era when models played a less central role in concluding transactions.

The eBook features contributions from experts in the fields of law, finance and accounting who provide perspectives on the roles they play in project finance deals. These interviews have been combined with Operis’s 25 years of project finance modelling and training experience to present a snapshot of the current pressures facing market participants.

Jonathan Swan, Director of Training at Operis, comments: “The range of professionals that interact with a financial model in the course of their work is always growing, and yet training in model interrogation and analysis is not growing to match. What the eBook highlights is the fact that people in different disciplines need different things from the model. Currently, many training courses on offer are ‘one size fits all’, but we believe they should be tailored to the individual profession.”

Historically, training has only been widely available for developing models, but the areas most useful to bankers, lawyers and bid managers are assessing and interrogating models and aligning contracts and financial models. These sections outline the core areas for professionals to increase their skills:

Developing financial models:

A spreadsheet that estimates a project and shareholder return, as well as debt coverage ratios across different time frames, is a substantial piece of work. The best modellers accomplish the calculations in a way that appears effortless and is easily understood by the reader.

Assessing and interrogating models:

Assessing a model involves deciding whether a deal described by spreadsheet is attractive, and whether that description is trustworthy. The central elements include applying checks, verifying results, and tracing formula logic, as well as understanding and interrogating subtleties that affect debt coverage ratios and other metrics. This section covers imperative skills for lenders and investors who need to decide whether to participate in transactions.

Aligning contracts and financial models:

Confirming whether the ratios defined in the agreements between the parties meaningfully describes the maths performed by the project model is a crucial step in any deal. Knowing the issues in play imparts a deep understanding of the commercial trade-offs involved in definitions. This context is essential to bankers who put forward term sheets, and legal advisers who formalise the bankers' offer in a credit agreement or equivalent.

Jonathan Swan adds: “Model interpretation should provide a clear and unambiguous understanding of a transaction’s possible outcomes. These aren’t minor technical matters – they can determine the price in competitive bids, or the difference between success and failure for a project. As the importance of models continues to grow in all areas of finance, model interpreting skills are taking an increasingly central, universally important role.”

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