FAST rules of Financial Modeling and 20 Principles of Good Spreadsheet Practice

When I was a sophomore at Middlebury, I was told to pick up a copy of Strunk and White’s classic, “Elements of Style“, and stay close to its guidance on writing conventions. In no small way, has helped guide generations of writers to draft better, clearer compositions.

There are no such broadly accepted standards in the world of spreadsheet programming.  However, there are some individuals and organizations that have tried to produce such a document.  It’s a difficult task, however, because there are so many different kinds of financial models, and what works in one model may be inappropriate in another.

Nevertheless, here are links to two resources that might be useful for understanding the basic rules of spreadsheeting.

The first is the FAST standard.

According to their website:

The purpose of the FAST Modelling Standard is to establish a continuously updated and developed guideline for building financial models that creates a shared global language. These recommendations are founded upon the acronym FAST, demonstrating the belief that models should be flexible, accurate, structured, and transparent.

The FAST website contains the following PDF document which outlines many of the key practices that are useful in creating clean models.

The second document is 20 Principles for Good Spreadsheet Practiceand was prepared by ICAEW, which is the Institute for Chartered Accountants in England and Wales.  Despite their funny accents, they have some good ideas:

The spreadsheet’s business environment
1. Determine what role spreadsheets play in your business, and plan your spreadsheet standards and processes accordingly.
2. Adopt a standard for your organisation and stick to it.
3. Ensure that everyone involved in the creation or use of spreadsheets has an appropriate level of knowledge and competence.
4. Work collaboratively, share ownership, peer review.

Designing and building your spreadsheet
5. Before starting, satisfy yourself that a spreadsheet is the appropriate tool for the job.
6. Identify the audience. If a spreadsheet is intended to be understood and used by others, the design should facilitate this.
7. Include an ‘About’ or ‘Welcome’ sheet to document the spreadsheet.
8. Design for longevity.
9. Focus on the required outputs.
10. Separate and clearly identify inputs, workings and outputs.
11. Be consistent in structure.
12. Be consistent in the use of formulae.
13. Keep formulae short and simple.
14. Never embed in a formula anything that might change or need to be changed.
15. Perform a calculation once and then refer back to that calculation.
16. Avoid using advanced features where simpler features could achieve the same result.

Spreadsheet risks and controls
17. Have a system of backup and version control, which should be applied consistently within an organisation.
18. Rigorously test the workbook.
19. Build in checks, controls and alerts from the outset and during the course of spreadsheet design.
20. Protect parts of the workbook that are not supposed to be changed by users.

Links
http://www.fast-standard.org/document/FASTStandard_02a.pdf
http://www.icaew.com/~/media/Files/Technical/information-technology/excel-community/166-twenty-principles-for-good-spreadsheet-practice.pdf

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