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What is a financial modelling ecosystem?

What is a financial modelling ecosystem?

Earlier this week, Corality proudly sponsored the Alternative Funding for Transport Infrastructure conference in Sydney. Alongside a line-up of interesting speakers Corality’s Managing Director, Rickard Wärnelid, held a session on ‘The role of financial models in infrastructure projects – from technical feasibility to completion’.

The presentation highlighted the challenges around financial forecasting for lengthy projects typical in the infrastructure sector, as well as, the importance of developing a ‘financial modelling ecosystem’ as a way of looking at the bigger picture.

The role of financial models in infrastructure projects

The infrastructure sector requires detailed financial modelling and forecasting for projects with a life time from 25 up to 100 years. The long project life time is a huge differentiator to other industry sectors, such as natural resources, energy or utilities (which have similar attributes in capital requirements, return analysis and partnership etc.). Rickard’s presentation highlighted the complexity created by the vast number of stakeholders and their respective requirements on robust analysis.

What are the key considerations in financial modelling for the infrastructure sector?

As with any complex situation, you can go a long way by sticking to two main themes; keep things simple and transparent, and allow for a structured planning process. The rushing of decisions, or development of complex and dysfunctional financial models for quick wins, is unsustainable and results in long term problems.

Clearly defining financial modelling interfaces (i.e., the interaction segments between various stakeholders) is critical for success. This should be coupled with interface champions, financial model owners and robust documentation. With a great amount of certainty, different individuals will be responsible for the financial modelling over a 30 year project. This means that it is important to develop a flexible system that allows exchange between the people involved in the process.

The concept ‘financial modelling ecosystem’ is a good way of looking at an overall view. As long as an infrastructure asset is analysed with reference to the financial model, the situation will never improve. It is essential to recognise the behaviour of a system of processes, data and people to build up a framework which allows for robust, transparent and rapid analysis for Greenfield bids, valuations, expansions or alternative funding analysis.

Fellow speaker Garry Bowditch extended on the topic of a financial modelling eco-system during his session. Garry made a great point about the need to understand the question that the financial modelling ecosystem is designed to answer to eliminate any analysis for the sake of analysis.

What was the feedback from the audience at the conference?

In the Q&A session after Rickard’s presentation a number of people expressed their shared concern of a weak financial model driving uncertainty in decisions within their organisations. Many comments were raised around the rushed process of ‘investment banking’ type models and how they create a lot of uncertainty for decision makers.

“It was great to see a lot of our clients in the audience which consisted of the ‘who’s who’ of Australian infrastructure development and financings. Representatives from NSW Treasury, QIC, Macquarie, AMP and Balfour Beatty are already familiar with our approach from previous projects, and it was great to get an opportunity to present to them a higher level perspective on this challenging subject,” said Rickard Wärnelid.

We were pleased to sponsor the ‘Alternative Funding for Transport Infrastructure’ conference at the Sydney Boulevard Hotel. The conference gave us an opportunity to network with new and existing clients, sharing insights on the infrastructure sector. We look forward to sharing and gathering further insights during future events such as this.