5g - Preventing Errors by Design

Introduction

Model errors can cost millions and crush careers. 5g modeling methodology prevents errors by design.

| "An ounce of prevention is worth a pound of cure."  Benjamin Franklin, 1736

The traditional modeling workflow is build, check, and fix errors. Some errors are often missed. The result is the vast majority of spreadsheets contain errors and even one error can be catastrophic. 5g modeling methodology breaks this cycle. Using the 5g modeling methodology, some errors are prevented by design rather than detected after the fact.

5g eliminates inconsistent formula errors entirely.

These often occur when modelers hard-code values in formula rows that should be scheduled. A second cause is when modelers hard code values to determine why their balance sheet doesn't balance but neglect to remove them after the problem is solved. A third cause happens when our client changes numbers to tell a different story. But with 5g all of these causes are prevented by design.

5g prevents high-cost modeling mistakes.

Alpine Energy overcharged customers $16.9M due to "...depreciation of some assets after the assets had reached the end of their accounting life." 5g replaces the type of ad hoc formulas that caused this problem with pre-tested functions. The 5g function, Depreciateλ(), prevents this error by design.

5g reduces cell error risk by over 90%.

Research indicates formula cell error rates are approximately between 1 and 5%. Reducing the number of formula cells reduces our error risk. 5g reduces formula count by replacing cells copied to each period with a one formula in one cell the spills results to all periods, thus, a 10-year annual model reduces formula count by a factor of 10 to 1 and a 5-year monthly model reduces formula count by a factor of 60 to 1. 5g measurably reduces cell error risk by design.

5g solves circularity.

Advanced native Excel formulas provide solver-like capabilities without VBA, Python, Office Scripts, or enabling iteration (which can obscure errors).

5g increases flexibility.
5g models allow adding debt tranches or assets, without adding or changing formulas which also keeps formula cell count down and, with it, cell error risk.

Course Objectives

By the end of this course you know how to leverage the 5g modeling methodology to prevent errors, reduce risk, eliminate circularity and increase flexibility. 

Follow the course outline at right and begin driving errors out by design.