How can financial modeling improve your engineering decision making?

1 What is financial modeling?

Financial modeling is the process of creating a mathematical representation of the financial performance and impact of a project, product, or business. It entails using assumptions, data, formulas, and scenarios to estimate and compare various outcomes and metrics, such as cash flows, revenues, costs, profits, returns, risks, and sensitivities. Through financial modeling, you can answer questions such as how much the project will cost and how long it will take; how much revenue and profit it will generate and when; what are the key drivers and uncertainties that affect the project's performance; how does the project compare to other alternatives or benchmarks; and what are the best ways to finance, manage, and optimize the project.

2 How can financial modeling benefit your engineering projects?

Financial modeling can assist in improving engineering decision making, such as evaluating the feasibility and viability of a project idea or proposal, assessing its profitability and value, analyzing risks and uncertainties, optimizing performance and efficiency, and monitoring and controlling progress. It can also help identify the best options for scope, design, and execution, demonstrate the attractiveness and potential to stakeholders, investors, and customers, develop contingency plans and mitigation strategies, find opportunities to reduce costs or increase revenues, adjust plans based on actual data and feedback.

3 What are some common methods and tools for financial modeling?

Creating financial models for your project requires the use of various methods and tools, depending on the purpose, complexity, and scale. Spreadsheet software such as Excel, Google Sheets, or LibreOffice Calc can help you create, edit, and share models with formulas, functions, charts, and tables. Programming languages like Python, R, or MATLAB can automate, customize, and enhance your financial models with data analysis, visualization, and simulation capabilities. Financial modeling software like PlanGuru, Quantrix, or FinModelsLab can build, test, and validate your financial models with specialized features, templates, and integrations. Additionally, frameworks like FAST SMART or eFinancialModels can help you follow best practices for creating clear, consistent, and reliable financial models.

4 How can you learn and improve your financial modeling skills?

Financial modeling is an invaluable skill for advancing your engineering career and achieving better results for your projects. To learn and improve your financial modeling skills, you can explore online courses, workshops, or certifications such as Coursera, Udemy, or CFI. Additionally, reading books, blogs, and articles like Financial Modeling and Valuation, Financial Modeling for Dummies, or Investopedia can help you understand the concepts and principles of financial modeling. You can also practice and apply your skills to real-world or hypothetical engineering problems with guidance from experts, mentors, or peers. Finally, joining online communities, forums, or groups like Reddit, Quora, or LinkedIn can provide resources, tips, and insights on financial modeling.

5 How can you get started with financial modeling for your engineering projects?

If you want to get started with financial modeling for your engineering projects, there are several steps to consider. First, you must define your objectives and scope, including the purpose, goal, key questions, assumptions, inputs, and outputs of your financial model. Then, you must choose a method and tool that best fits your needs. After that, you must collect and organize the data needed for your financial model. This includes assessing the accuracy and reliability of the data and formatting it for storage. Once you have all the data, you can build and test your financial model using formulas, functions, charts, and tables. Finally, you can analyze and communicate your results by interpreting the outcomes and metrics of your financial model and presenting it to stakeholders or investors.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?