Please, more Excel!

2017-02-14 09:17:01


Once a guest speaker at Nazarbayev University career fair was asked: “What are the skills that you expect us (the graduates) to learn (at the business school)?” She answered: “Be punctual, and learn Excel.”

Knowledge of spreadsheet modeling is an integral part of a toolbox of a business person, especially those in the fields of finance and accounting. I place great emphasis on the use of spreadsheets and good modeling practices in my courses. I cannot imagine carrying out an investment analysis or business project evaluation without detailed financial model created and implemented in spreadsheet(s).

Simon Benninga, my teacher at Wharton and the author of books “Financial Modeling” (I took part in writing this book) and “Principles of Finance with Excel”, states in the preface: “Learning to do finance with Excel serves two purposes: It teaches you an important academic and practical subject (finance), and it teaches you how to implement financial analysis using the most important tool for financial analysis: Excel.” In other words: If you want to model something in Excel, you must understand it. And: If you understand it, but need a numerical answer to a real-life problem, you often need to model it.

I realized that the (lack of) prior knowledge of Excel makes for a noticeable difference between U.S. and Kazakhstani students. U.S. business schools take for granted that the incoming students have Excel background. The MBA programs assign an Excel module for individual study before the students arrive to campus, or give Excel tutorial during orientation. Knowledge of Excel is then assumed and Excel used throughout the curriculum. The graduates are proficient Excel users.

I would argue that Excel should be a standard component of the education of business people in Kazakhstan, similarly as proficiency in English or in using new communication technologies. Therefore, it should be among Kazakhstan’s educational priorities to produce graduates who know Excel and can apply it to solve diverse range of problems. My recommendation: Do more Excel in the classroom! And in homework! Skills do not come without sufficient practice.

One of my rules for teaching is: do fewer formulas and more spreadsheets! To illustrate: determining the cost of capital, a standard topic in the entry-level course in Corporate Finance, is problematic in Kazakhstan. Most assets in Kazakhstan do not have a history of trading in a transparent liquid competitive market, and thus applying the concept of CAPM (Capital Asset Pricing Model) “beta” is questionable at best and nonsensical at worst. Nevertheless, I have seen trainings delivered to local managers using the classical textbook examples, where all numbers are provided and the only task is to plug them into a CAPM formula. With such an approach, it comes as no surprise that the topic of financial analysis and valuation is presented in PowerPoint.

In my course “Financial Evaluation of Business Projects” I focus on the steps and calculations that a local entrepreneur or manager needs to do when faced with an investment opportunity. We analyze the situation (the product/service, the market, the environment etc.) and model future revenues, costs, and cash flows that follow from the business model. We identify revenue drivers, cost drivers, and other parameters, and create a spreadsheet model of the project. I let then the company or the owner to decide what constitutes adequate return on such project (for example, by comparison with the return on their other projects). Knowing how analysts calculate the cost of capital in the developed markets helps to shape the way of thinking and I am not saying that it should not be taught in Kazakhstan. But I am critical of how some corporate trainers are quickly done with the complex topic of valuation by presenting the numbers on a platter and asking us just to plug them into a formula.

Rather, I suggest that we teach students build sound spreadsheet models. This is where the 99% of the financial analyst’s work lies, as, unlike in textbooks, inputs and model structure are not provided. The structure must be constructed, inputs identified, collected, and verified. The ability to design a spreadsheet model of a project with the right structure, inputs, and interdependencies, which is capable to give us answers, to generate scenarios, to identify risks, and to assess the added value, is a skill valuable in the marketplace, unlike using a textbook formula.

Spreadsheet modeling skills are essential: There is academic research pointing to the financial losses of corporations caused by spreadsheet errors and/or poorly designed models. Errors come in many different forms: typos, omissions, structural problems, inconsistencies, broken links, copied cells with incorrect use of absolute vs. relative cell addresses etc. Raymond Panko shows that up to 88% of financial models used by companies to support their decisions contain errors, some of them with disastrous consequences. Losses also occur if the management does not know how to carry out a proper project analysis in a spreadsheet and makes suboptimal decisions by guessing and taking chances.

I recommend that good Excel skills acquire not only young MBA students, but also experienced mid-career EMBA students. Sometimes they ask me: “Why do we need to learn Excel if our staff does all the calculations?” Even if you do not produce financial models yourself, you want to be able to verify the work of your staff, recognize early warnings of poor spreadsheet design and potential errors, and assess the level of Excel proficiency of your staff so that you can recommend further training. In the West, most executives used to work with Excel at some point in their careers, and some continue to use Excel even at top positions. But in Kazakhstan, many executives have not encountered Excel before. This is why I insist that not only young students, but also executives acquire basic spreadsheet modeling skills.

It comes to me as a surprise how often I meet managers who have inadequate spreadsheet modeling skills. Educational work done in this direction will improve the decisions, investment returns, and financial results across the board, and will increase shareholder and stakeholder values. It sounds exaggerated, but Excel is needed for the Kazakhstan economic reform to succeed. Educators across the country should act and make Excel integral part of their curriculum.


Marek Jochec

Associate Professor of Finance

Nazarbayev University Graduate School of Business


Benninga, Simon: Principles of Finance with Excel,  Oxford University Press, ISBN 978-0-19-530150-2

Беннинга, Шимон: Основы финансов с примерами в Excel, Вильямс 2014

Benninga, Simon: Financial Modeling, The MIT Press, ISBN 978-0-262-02628-4

Panko, Raymond: “What We Know About Spreadsheet Errors”, Journal of End User Computing’s
Special issue on Scaling Up End User Development, Volume 10, No 2. Spring 1998, pp. 15-21
Revised May 2008.

Panko, Raymond: “What We Don’t Know About Spreadsheet Errors Today: The Facts, Why We Don’t Believe Them, and What We Need to Do”, Presented at EuSpRIG 2015, London, UK, July 9, 2015.

See also