The SMART developers - Interview with Nick Crawley

The SMART modelling methodology will increase your modelling productivity and help you build better models. But how, and where did it come from? Have a peek inside the mind of the SMART developer, Nick Crawley.

Navigator’s modelling methodology has been a long time coming, what took you so long?

A very good question – it has been about 15 years! The formula for building great, commercial grade, models has been simplified over the years. If I had developed the SMART methodology 10 years ago it would have been 500 pages, 5 years ago it would have been 100+ pages and now, 15 years on, I have managed to distill it to 20 pages. I don’t think it will get more concise, 20 pages is OK, it’s a workable document and worth sharing.

Why did you decide to name your methodology SMART?

Well I am not a fan of acronyms or anything that sounds too formal. However, I wanted the name to reflect the benefits of modelling ‘the Navigator way’ – it saves you time and money, something I believe most people would say is a ‘smart’ thing to do. Preparing and distributing SMART is not an academic exercise, as a profitable commercial business, Navigator needs to produce consistent, flexible and brilliantly presented models with a very low error rate. Achieving this doesn’t require a complex solution, just a ‘smart’ approach.

SMART is just that - it will help you work smarter, not harder. SMART will increase your modelling productivity, save you time and money and help you build better models. It’s a fitting name!

The SMART modelling methodology is focused around usability - why?

Contrary to the view of many model developers – models are built for end-user decision makers. To make a decision, management requires confidence and this is underpinned by low error rates, ease of use and consistent, thoughtful presentation. Navigator believes that usability is the key attribute of a successful project finance model. Our modelling experience illustrates the importance of focusing on ways to increase user confidence and lower model risk. The SMART modelling methodology is therefore practical, rather than theoretical and aims to accommodate the needs of a wide range of users, each with their own objectives and priorities.

SMART increases user confidence and lowers model risk – how?

The SMART modelling methodology has been used to construct hundreds of commercial grade, financial models across a wide range of industries, globally. Our modelling experience illustrates the importance of focusing on ways to increase user confidence and lower model risk. We do this by tacking three areas – transparency, flexibility and presentation.

Why is it important to focus on transparency, flexibility and presentation?

There are many parameters that can be optimised in what is essentially a programming exercise. Computation speed, precision, mathematical conciseness, maximisation of the capabilities of the spreadsheet platform to name a few. Navigator earned its reputation for analytical excellence by building financial models that users could easily gain confidence in and also adapt as the transaction evolves.

To build user confidence a modelling methodology has to account for the high pressure, fluid nature of project finance but also the diverse end-user requirements. This is why SMART focuses on transparency, flexibility and presentation, the SMART approach not only reduces error rates and improves confidence, it also lowers stress levels!

Having worked in model auditing and consulting as well as lending and credit analysis I have been able to postulate my theory regarding these priorities from different perspectives. By adopting the SMART methodology, you can take advantage of this experience.

How can SMART ensure users build financial models according to best practice standards?

Interestingly for such a complex task, the principles of SMART distill the modelling exercise down to simple fundamental concepts. When we train new joiners at Navigator the learning (or unlearning!) exercise has been likened to Kung Fu! I say this with a smile of course, but the idea is that great, very sophisticated results can be performed by putting together the most simple ‘moves’ in the right order.

The SMART user manual is very ‘hands-on’, what is the thinking behind this?

SMART takes a practical approach to modelling and our user manual is no different. The SMART user manual is packed with examples and before and after shots to demonstrate how to model the SMART way. In each area (transparency, flexibility and presentation) we illustrate the principles and show the reader what they will achieve and what their model will look like when they use the SMART modelling methodology.

In our experience, this is the best way to learn. It’s more interactive which means it also mirrors the approach we take in our training courses.

How is SMART covered in Navigator’s modelling courses?

As the SMART approach is Navigators approach to modelling, it is also what we teach in our modelling courses. We are so confident that course participants earn a SMART accreditation upon course completion.

Why should financial modellers choose SMART over other methodologies on the market?

There are a few modelling methodologies around, I refer to the great work already performed by the guys at Financial Mechanics who have the FAST approach and BPM’s SSRB. Fundamentally, both these methodologies, and SMART, are very similar and it is more important that one of them is adopted than which one.

I would however, guide a project finance model developer or a prospective end user towards SMART, principally because of its usability focus and the fact that it is tailored specifically for the project finance industry. SMART will increase any developers modelling productivity which saves time and money – it’s just the smart thing to do!

Why should an organisation adopt the SMART methodology?

It’s unacceptable for a company not to have a tried and tested modelling methodology. All organisations need to have a well defined modelling methodology to:

• reduce model risk
• increase user confidence and
• ensure modelling productivity and professionalism

By adopting SMART, an organisation gets SMART accreditation, and can refer to the SMART best practice modelling guidelines when presenting their financial models. As there is no point in reinventing the wheel, I recommend organisations interested in adopting a modelling methodology to contact us - we can assist with everything from implementation strategies to SMART modelling training.

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