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Whitepaper
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English like logic - a financial model is a sequence of variable definitions, and calculations that take place in a logical fashion. In a spreadsheet, you type in variable names in some cells, numbers in other cells, and formulas where you want arithmetic to take place. A formula consists of cell references such as A5 * - B7. Both Lotus 123 and Excel support something called "named ranges" that allow you in theory to create a model containing formulas that are more easily understood. In practice, these rarely are used, and following the logic of a spreadsheet model is a frustrating, mind numbing experience. The difficulty of understanding grows exponentially with model size. In AFMS, the logic MUST be written in English. The flow of logic becomes obvious to the casual observer. Yes, you can still write complicated spaghetti code in AFMS, it's just much harder to do so. You can use free form "comments" throughout your model to explain special calculations or leave an audit trail of what was changed when. Here's what a model might look like in AFMS: 'Sales' 'Cost of Sales' 'Gross Profit' = 'Sales' - 'Cost of Sales' 'Operating Expenses' 'Interest Expense' 'Operating Income' = 'Gross Profit' - 'Operating Expenses' - 'Interest Expense' { ???!!! } { 9/15/06 - Jack asked us to take Interest out of Operating Income..} Why is it important to make the model understandable? Because when the CFO calls you on the phone and wants to know right away how the hell operating income is calculated, you can pull up the logic quickly, and tell him. (Without mumbling about A7 and B6). You can tell him exactly how it is calculated, and that furthermore, he asked you to change the way it was calculated on September 15th. |