It is tempting to dive straight into the spreadsheet when faced with a strict deadline. However, taking the time to plan and create the model structure visually can be effective in ensuring the logic of the model is clear to the model developer and to anyone that uses the model later. This guide concentrates on producing a conceptual model using tools that are readily available in Microsoft Office.

1. Financial Modelling
HANDBOOK
CONCEPTUAL
financialmodellinghandbook.com
MODELLINGUsing SmartArt

2. ABOUT THE FINANCIAL
MODELLING HANDBOOK
Financial modelling should be collaborative. Collaboration reduces
error, speeds up development time and lowers cost. The Financial
Modelling Handbook is a collaborative, crowd-sourced guide to
building better financial models using the FAST Standard.
www.financialmodellinghandbook.com/contribute

3. Vishal Rander is an Associate Director in Grant
Thornton's Infrastructure Advisory team.
He is an advocate of the FAST modelling standard
and an experienced project finance modeller.
Vishal is based in the UAE and advises on major
infrastructure projects and transactions across the
world. He loves spending time with his family and
enjoys boxing.
financialmodellinghandbook.com
Financial Modelling
HANDBOOK
VISHAL

4. It is tempting to dive straight into the spreadsheet when faced with a strict
deadline. However, taking the time to plan and create the model structure
visually can be effective in ensuring the logic of the model is clear to the
model developer and to anyone that uses the model later.
This guide concentrates on producing a conceptual model using tools that
are readily available in Microsoft Office.
financialmodellinghandbook.comFinancial Modelling
DOWNLOAD THIS GUIDE
HANDBOOK
CONCEPTUAL
MODELLINGUsing SmartArt

5. financialmodellinghandbook.comFinancial Modelling
HANDBOOK
APPROACH
Formulating a conceptual model
works best starting from an
output and working through the
calculations to the underlying
assumptions.
Once the conceptual model is
formulated, engineering the
spreadsheet typically works in
reverse, starting from
assumptions and calculations
through to the outputs.
Outputs Calculations Inputs
Conceptual
Model
Financial
Model
Outputs Calculations Inputs
FORMULATE THE CONCEPT
ENGINEER THE SPREADSHEET

6. financialmodellinghandbook.comFinancial Modelling
HANDBOOK
SMARTART TOOLS
This guide focuses on the use of
the Microsoft Office illustration tool
known as ‘Horizontal Hierarchy’
which is found under SmartArt
tools.
The SmartArt tools were introduced
in Office 2007 and dynamically
create diagrams based on user
inputs in the form of bullet lists.
The Horizontal Hierarchy illustration
lends itself to conceptual modelling
due to its decision tree structure,
and can be created in Word, Excel
or PowerPoint.
Output
Calculation
1
Assumption
1
Assumption
2
Calculation
2
Assumption
3
Assumption
4

7. financialmodellinghandbook.comFinancial Modelling
HANDBOOK
EXAMPLE
Take the example of a solid
waste facility which charges a
gate fee for accepting waste.
Here, you start at the top level
revenue, identify the different
types of revenue with the client
and discussing how these
components are calculated.
Eventually the discussion will
lead you and the client to a list
of assumptions that will feed
the financial model.
FORMULATE THE CONCEPT
ENGINEER THE SPREADSHEET
Let's start
with
revenue
How is it
broken
down?

8. financialmodellinghandbook.comFinancial Modelling
HANDBOOK
GUIDELINES
The conceptual model for ‘Revenue’ highlights a number of guidelines that can be followed:
1. Start with the result and end each "branch" at an assumption (user input).
2. Except. where for transparency and ease of reading, it is necessary to continue the
conceptual model on a separate diagram, i.e. Indexation (factor).
3. Use clear labels and include units as this will help in spreadsheet engineering and also
indicates how the components are linked (USD/tonne multiplied by tonnes gives USD)
4. Consider excluding timing assumptions and calculations to focus on clearly
communicating how the amounts are built up rather than when they occur.
The resulting conceptual model, built using SmartArt and within Microsoft Office, can be an
integral part of the model databook or guide.
The conceptual model can also be an effective tool for communicating with the
"spreadsheet engineer".

9. financialmodellinghandbook.comFinancial Modelling
HANDBOOK
STRENGTHS & WEAKNESSES
In following the approach suggested in this guide, it is important to recognise the
strengths and weaknesses.
Strengths:
1. Flexibility – The bullet list structure can be used to dynamically adjust the diagram,
without the pain of having to manually create links between shapes.
2. Structured – The decision tree based structure can be transferred easily into
calculation blocks. Each time a set of branches meet would indicate the need for a
calculation block.
3. Transparency – Without the numerical or algebraic complexity that comes with
spreadsheets, the model can be visualised in a manner which allows the logic to be
clearly followed.

10. financialmodellinghandbook.comFinancial Modelling
HANDBOOK
STRENGTHS & WEAKNESSES (Continued)
Weaknesses:
1. Lack of clarity of "when" these calculations should occur – The approach focuses on
the "how much", yet the labels could be expanded to clarify timing considerations
such as, when assumptions are fixed/constant/non-time dependent.
2. Inability to show relationships between branches – Using a decision tree based
diagram does not allow for branch interrelationships to be shown easily, nonetheless
a reference system could be used to show where an input or calculation is used
multiple times.

11. financialmodellinghandbook.comFinancial Modelling
HANDBOOK
OTHER USES
This guide has emphasised formulating the conceptual
model in order for the model to be translated into a
spreadsheet model.
Yet creating a conceptual model can be a powerful tool
when reviewing or rebuilding spreadsheet models.
Developing a conceptual model from a spreadsheet
model extracts the logic and presents it visually for any
inconsistencies to be queried or confirmed.

12. financialmodellinghandbook.comFinancial Modelling
HANDBOOK
OTHER TOOLS
There are many tools that can be used to visually represent a conceptual model,
apart from Microsoft Office's SmartArt.
1. Influence diagrams: The conceptual model described in this guide is a simplified
version of an influence diagram. Tools such as PrecisionTree can be used to
create influence diagrams, which have a specific methodology in terms of
representing results and variables.
This approach involves a learning curve in understanding the purpose of the
different shapes and colours and the use of proprietary software.
2. Flowchart shapes: Another option is to use flowchart
shapes and link the shapes to show relationships.
However, this is a manually intensive process,
without proprietary software, especially if the
conceptual model is likely to change as
discussions and clarifications are
communicated with the modeller.