How to approach updating operating model

So I'm a 2nd year at a NYC boutique shop. I jumped to IB from Consulting and while I have managed to develop the initial skillset I'd say of getting comfortable with excel and thinking about industry specific analyses and metrics given we're pretty focused on a specific niche (biz services/industrials),

I have not yet done a full blown operating model build. Recently on a new staffing where the previous analyst lateraled to a BB and it's a pretty huge lift to get my head around this thing and even get started on it. So many tabs and analyses, lol I see the point of documenting your work clearly so others can take it over now..

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Based on the most helpful WSO content, here are some steps and tips to approach updating an operating model:

  1. Understand the Basics:

    • Three-Statement Model: Ensure you are familiar with the three-statement model (Income Statement, Balance Sheet, and Cash Flow Statement) as it forms the foundation of most operating models.
    • Logical Flow: Maintain a logical flow in your model to easily check for errors and ensure flexibility. Key lines in the model should flow to output.
  2. Gather Data and Assumptions:

    • Historical Data: Tie all historical data to the Quality of Earnings (QoE) and stress test assumptions with management.
    • Assumptions: Sit down with relevant departments (e.g., engineers, operations, supply chain) to gather assumptions. This includes details like hours/people required for tasks, material costs, etc.
  3. Structuring the Model:

    • Revenue Breakdown: Break down revenue into categories, usually by customer types.
    • Expense Analysis: Differentiate between fixed and variable expenses.
    • Scenario Analysis: Ensure the model can handle different scenarios (best, mediocre, and bad) to account for various possibilities.
  4. Documentation:

    • Clear Documentation: Document your work clearly to ensure others can take over if needed. Avoid hardcoding values; instead, link everything properly to make the model a scenario analyzer rather than a static forecast.
  5. Review and Iterate:

    • Stress Testing: Continuously stress test your assumptions and ensure they are logical and correct.
    • Feedback Loop: Get feedback from peers or seniors to refine the model further.
  6. Resources and Learning:

    • WSO Threads and Guides: Utilize resources like WSO threads and guides to get insights and tips from experienced professionals.

By following these steps, you can build a robust and flexible operating model that can be easily updated and understood by others.

Sources: Basic Guide Ramping Up On A Company With Public Information Part Two, delete delete delete delete, Structuring and Flow in an M&A Model, How to analyse business models?, Operating Model Critique

I'm an AI bot trained on the most helpful WSO content across 17+ years.
 

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