I had dinner with a consultant friend earlier tonight and he mentioned that he wished he had practice modeling a little bit more before starting (after he gave me the usual "I wish I had relaxed more" that everyone seems to tell me).
My question is: what kinds of models do consultants typically build? I would imagine some are built for market sizing purposes. Anything else? Any tips on how to best learn how to build the right types of models would also be appreciated.
From personal experience: - cost models: how different costs will evolve based on sales projections/restructuring/reorganisation/cost cutting measures/post-merger synergies etc. - pricing models: how to price your products based on chosen strategy/competitors pricing - sales models: how your profit would evolve if you enter a new market/introduce new product etc. - product line profitability: you basically allocate resources to products to see which ones are the most profitable, for example to decide which ones to discontinue and which ones to expand and then you model what would happen to your net profit; same can be done to distribution channels in certain industries (e.g. beverages: bars vs. supermarkets etc.) - distribution models: e.g. which warehouse to close based on location and running costs - organisation models: typically analysing how "wide" (# subordinates) and "tall" (# levels) the organisational structure is - full financial models: these are very rare but still happen, especially in restructuring or for financial services clients where the balance sheet drives the p&l
Consultants typically build models from scratch so each one is uniquely suited for the client. It would be impossible to use templates but you do learn tips and tricks as you gain more experience.
My firm does work with (brilliant) templates, but in general Enid's post is spot-on. Obviously, these templates get heavily modified/tailored though.
Most likely, the only "full" model you will ever build is indeed for restructuring projects, typically to demonstrate via on/off switches what effect different measures taken/planned will have.
Occasionally, there's also the business plan for a new market entry, where you basically treat a planned subsidiary as a "standalone business".
what Excel should one know in order to be ready on day 1?
VBA, vlookup,....?
in excel it's more about speed than anything else. Other than that understanding how a model flows will really help you, but it's something that's very difficult to learn before you actually start working.
i don't think its necessary
i started at a MBB without knowing anything about excel, however on projects i simply took the initiative to volunteer for modeling heavy workstreams and learnt on the job
I would say rather than worrying about specific functions or command, understand the following:
-real estate in excel is free, don't compress things and make them more complicated than they need to be - use one sheet for your raw data, one for your transformations, one for model inputs etc.
-put in the time at the beginning to note assumptions and data sources, as you be virtually sure that your case managers will want changes
-understand the basic logical operators of excel - this is all you really need. If you want to some complicated lookup, just use google. But, google won't help if you don't understand what excel is good at and what you want to accomplish
It helps to know the basic functions: IF, VLOOKUP, INDEX MATCH, pivot tables, SUMIF etc. (it's ironic that now I consider them "basic", while when I started I had never even heard of them). As Barbarian@theGate said in different words, the most important thing in a model is STRUCTURE: each and every model, no matter how complex, can be broken down into three basic parts: - inputs - core model - outputs
Inputs you take from the client or an external database as they are: no modifications, no calculations, just raw data - obviously it can be multiple input sheets from multiple clients. Then you have the core model (I like to call it "engine" for more complex financial models) which is where you do your calculations - again, doesn't have to be one sheet. Finally, you have the output sheets that make it easy to make graphs (for example: if something changes in the assumptions the graph gets updated automatically and can be pasted into powerpoint; if your company uses a software to make graphs, you need to have the data in a format that would allow you to copy and paste numbers into it easily). Alternatively, your output sheets need to present the data in an esthetically pleasant way to show on screen to the team or the client, or to copy and paste in powerpoint, in case your client loves endless tables of numbers (they happen!).
Don't use overly complicated formulas: any calculation can be broken down into a few steps. The result might be the same but keeping it simple will make your life a lot easier if you need to revisit your model a few months down the road. It will also save your supervisor's time (for example, me:) ) because it's easier to audit - this will get you brownie points.
Always add a comment whenever you use hard coded numbers. Note where they come from, eg "email from client X from 22/06/12 2:30pm" or "Bloomberg download file xyz_version17.xlsx".
Btw, it's refreshing to see someone asking good questions about the job, rather than the usual "how do I network my way in" type of queries. Oksure, what are your plans for the summer? PM me if you'd rather talk off line.
THIS is why I love WSO.
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SUBd
M&A Models for Consulting? (Originally Posted: 02/26/2018)
Hi guys,
I'll be starting FT management consulting in September at a T2 firm in their life science division. I have some spare time this summer and was considering doing some online courses in M&A modelling. I figured due to the high level of M&As in life science/healthcare (and the firm I'll be starting at being often called for M&A strategy work) I may have an edge compared to my peers if I know some M&A modelling on top of the usual consultant strategy stuff.
Good plan or overkill?
Hey G-I the pharma guy, I think you deserve a response...heck, everyone does. We're listening, sorry about the delay ...my best guess at places on WSO that could help:
Or maybe the following WSO members have something to say: Quaneaser nickhardgrave Oriol-Jimeno Cuervas
If those topics were completely useless, don't blame me, blame my programmers...
Anyone?
M&A consulting groups tend to focus on one or more areas of the practice. Groups have pretty niche toolkits to tackle whatever problems they tend to focus on.
It's not worth it, the chance that the modeling you learn is the same they apply on the job is low. If you're weak in excel, you're better off taking intermediate to advanced courses on data cleansing and manipulation than modeling at this point.
You have a 3-6 month buffer as a new post-UG where people aren't going to expect you to be all that great at excel or powerpoint. I'd work on building those skills during your first few months at the firm.
Also, relax. Stop thinking in terms of "edge to your peers" and start thinking in terms of self-development. Nobody likes an ultra-competitive try hard and you'll be better served in the long run.
Thanks for the advice! And I agree, I didn't mean to come off as ultra-competitive it was more for personal development and having a solid tool kit
Overkill, every firm who does M&A has their own tools and methods. If anything get connected with your firm's M&A group and get to learn those. It would be a much better use of your time.
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