Started my own development company (with a partner) and made our first hire this past year. She's fresh out of college, but very smart and catches on quickly. I put her through the BIWS financial modeling course (thank you WSO!) and also trained her on our pro forma (I started in CRE as a REIT development analyst). My problem is that 6 months later she continues to make significant errors in the pro forma and I don't know how to teach her not to. I expected a few in the beginning, but I can remember for myself after 6 months I was pretty accurate as an analyst. Does anyone have suggestions on how to teach someone to be more careful when they do pro formas? Thank you!!
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A few questions before offering solutions :
how much of your modeling is bespoke? As in - can it fit into one template every time? Or are you needing her to make changes for each deal that include full scale adjustments to the model?
She starts from a template that had a previous deal vs a blank template so ends up carrying over some previous assumptions. I’ll have her start from a blank one - good idea.
Start from a blank template. But make sure she doesn’t need to add to the template or delete. Make a template that can handle 99% of deals minus maybe nuanced debt tests like rate increases 25 bps and cash sweeps if you don’t hit a 7% DY at stabilization.
Pudding is definitely on to something here - only thing I'd add is to try and consolidate inputs in the model. Obviously many of the niche ones that don't get changed much can stay on their respective pages but regardless of how smart someone is, having to remember to check 50 different inputs scattered across 10 pages is no easy feat. If they're mostly together, or in groups on each page, it's easier for you to audit and for her to double check.
Outside of the model setup, it's probably helpful to ask her, even if you know something is off, why the UYOC is 12% or whatever so that she gets in the habit of asking herself those questions and starts to see the model & deal as a whole instead of just something to input numbers into and see what it spits out (which is definitely something I've had people do).
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I forgot about the checks and balances. That’s a great point, thank you! It’s been so long since I did them I think I’ve forgotten the most basic things.
Big of you to have some accountability VS blindly blaming your analyst. It's tough but it's the right attitude. Its sometimes easy to forget how challenging it was early on to ramp up. Not to mention the advancement in modeling detail and output expectations.
Make it easy for her as the other posters noted. Also, tell her to print out every single model and review it with a pen prior to sending it to the broader team. Its time consuming but this simple step was a turning point in my career. She'll see the deal and #s differently in no time.
Are there error checks within the models?
Not until now... RE Justin Bieber just reminded me so I'll add those in, thanks.
🙌🏻🙌🏻
can you give some examples of error checks that would be helpful generally? I like this idea a lot: I do financial analysis/UW in CRE (small family office) but am effectively the lone person on my team who can do complex modeling. I've built everything from scratch and use error checks occasionally but mainly for development draw schedules, so I would love advice on how to better error proof my models/build checks+balances into them. Often I am asked to make ad-hoc, highly customized changes on a whim that have wide-ranging implications across the model and require a lot of time to proof and adjust for. I have never been taught how to use error checks (I am mainly self-taught).
Personally I have found being hit with a big stick is the best.
I am a big fan of having the boss bring in Mike Tyson to get some jabs in
I mean what are the errors? A pro forma is pretty straight forward. Is it just negligence on her part or is she not grasping a specific concept (I.e abatments, general vacancy, etc.)?
Suspect it’s partly negligence since OP states they’re forgetting to change assumptions from previous models but also how complicated these models can be lol. Easy to miss stuff even when double checking since it “looks right”
Yeah, just negligence. I'll implement checks and balances, consolidation of inputs, and have her start with a blank template every time. Thanks all!
First off, stop dodging your own culpability - you aren't "teaching" her anything. If you had, she wouldn't have this problem. You are complaining about a problem and not understanding that you are not doing a good job as a manager (e.g. managing this employee instead of throwing up your hands after trying one single approach). If everyone never made a mistake twice then we wouldn't need managers at all.
Second, building off that, understand that, shockingly, your experience as an analyst is both high colored by bias and also not representative of every other human being's learning process.
Maybe you should help her understand why the things she's screwing up are important. It's almost impossible to give you solid advice without knowing what the issue is, of course, but maybe tell her to build her own pro forma instead of adopting a prebuilt one of yours. Maybe walk her through the model conceptually instead of quantitatively - numbers are just symbols on a screen without the context of what they represent.
With all due respect, I'm not "complaining". I am fulling acknowledging that I'm part of the problem and, since I haven't been an analyst in years, have forgotten some basic pro forma tenants and turned to this community for suggestions. I have had her build a pro forma and she understands very well how it works, these are just careless errors that are being made. But thanks so much for that brilliant suggestion.
So you came here to ignore or belittle the advice you were being given? Sure sounds like the only other reason to post is to complain.
So you've tried to teach her with care, you've been patient, and it's not getting better? Maybe it's time to acknowledge you aren't very good at spotting talent in other people, fire this person, and find someone to make your hiring decisions for you?
Can you list off a couple of the errors that you have seen her make? What are you seeing or thinking when you find them?
One issue is that she is fresh out of college and has no other experience. Because she was just given a template and did not build the model herself, there could be a disconnect between how all the pieces interact. She will update Section A for the new pro forma, not need to update Section B for this iteration or model type, but forget or not realize that she still needs to zero out Section B because it has data from a previous pro forma that needs to be removed/zeroed out.
A fresh template should theoretically help address this, but in the long run might be inefficient because A) it doesn't address the reason for the problem and B) it can take more time to have to fill in a fresh template every time.
Little things like entering a unit count/mix wrong, or forgetting to include a land value, or using real estate tax assumptions from a different deal.
That’s unacceptable IMO
This would have been good context to give in the main post...
I thought we were talking about errors that were occurring with tweaks being made to the model itself that didn't flow through properly. But what your'e describing is just plain carelessness if these are errors she's making more than once.
For me it was trial by fire. I used to make small errors as well until I had an insanely demanding boss so I knew if everything wasn't perfect I would hear about it. It sucked, but it was exactly what I needed.
Do you take the time to explain her errors to her and talk about the underwriting in general? I found that, as an analyst, my error rate decreased when I started to connect the numbers in the model to the deal itself. Let's say I'm working on a value-add deal, yet the levered IRR is only 7%, then I know something's up.
Is she making the same mistakes over and over? Does she have enough time to finish the model and review her own work?
Thank you, I probably don’t talk through it with her enough (she’s virtual so our time together has to be very intentional). I’ll work on that.
That makes it so much harder, because neither of you can't check in as easily as if you were in person together. Good luck, man.
If you re trying to help her, sincerely.
I would ask the analyst to send pieces of the model at a time. so first review is just the rents and opex, then second is the dashboard for sources and uses, then third would be the financing and valuation. It breaks it down into smaller chunks so you learn to edit pieces first.
Also what everyone said, adding checks help.
That’s a great idea, thank you!
I've had similar issues over the years. I always spend the time walking through the errors and explaining how I caught them, how they could have caught them, why it matters, etc. etc. I've always gotten feedback from the analysts that I'm the best teacher on the team. All said, that I still kept dealing with the same issues until I stopped being so soft on them and really started putting more pressure on them to make sure it's right or getting on their case. It sucks because I don't like being that way, but I quickly realized when we had a couple analysts come over from IB type shops that never made mistakes that it really all comes down to engagement and whether the analysts are losing sleep over sending you a model with errors in it that they should have easily caught or if they're non chalant and send it to you as soon as it "seems right" on a quick glance
I also think it's tough to hire a fresh green analyst at a small shop. You're going to spend so much of your time which is very valuable in answering questions, training, and mostly combing through their work to find all the mistakes. You're better off paying up and getting a stellar associate. The fresh analysts are better suited to join large teams with bullpens where they have a senior associate checking their work and doing some training before the work makes its way to you
Lol shocking you've kept her on
Absolutely nuts
maybe she plans to stay mid/long-term, so makes sense vs. some stellar analyst who is building the experience to jump to something better.
i wouldn't be surprised also for OP to have taken someone that wasn't as proficient or heavy on RE, and train her so the work/role she has it's like a huge upgrade from what she had planned to do career-wise, for then she may reciprocate with effort and motivation/+ investment is worth it i.e., training someone who will stay past the point of breakeven (starts to add value after lots of monetary/non-monetary costs to train her) and doesn't leave before that point.
"maybe"
this is not a soup kitchen
He’s probably paying like ass and she’s the best he can get
Make a to-do tab in the model template. Initially, make all the inputs linked there under one column (label the step next to it), then when there are mistakes make her link to that error point in another column in the template to-do tab (label the error). Gives her a spot to just Control + [ around the model to do the inputs, gives you an easier check on past mistakes, and you can make the mistake rate very tangible if the list grows.
That’s a great idea, thanks!
Agree with abell6. To-Do tab (model instructions tab) will help her and also validate your process and methodology (however simple or nuanced) to capital partners who might also see the model. If errors are on the inputs, it could be an attention to detail issue. Typically this is a focus problem, where behavioral practices like the Pomodoro method could help get her to hone attention (close all other tabs, set timer, hyper monk mode focus on the model for 25-minute blocks, 5-min breaks for emails; after 4, 15-min break on completely unrelated task / actual break). Error checks as RE Justin Bieber noted would help, but if she is entering the wrong data (fat thumbing unit rents, for example), then having source tabs with the source data (Costar, etc.), in the source format (i.e. if CS, then the format will be CS's), then the model variable cells should reference these source tabs. This also lends more credibility to your model to capital partners, as it adds an additional layer of validation to your proforma.
If it's a "the data that she inputted is wrong" issue (she collects bad comps, bad assumptions), THEN it's a training and experience matter. More is better, in this case. So as an example, you could first have her slap in all multifamily comps in a market study area into a source data tab, then YOU do the drill-down and note in a separate reference column ("Y" if you want her to reference it) what you changed/omitted. Eventually, her data will look like yours. If it's a formulaic issue (pesky brackets etc.), give her the agency to utilize Claude or GPT to help her with the formulas. It took me years to "master" modeling (w/o AI!). The fact you care enough help make her stronger this early in career, and with the tools available today, will put her lightspeeds ahead if she is motivated (key word "motivated").
Very well said
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