Models are often the best tool to inform a better understanding of the situation, dynamics, options and decision-making. I’ve created hundreds of models, some spanning just a few lines of an Excel spreadsheet, others that took months to build, were hundreds of Excel pages, and drove the strategic direction of multi-billion companies.
The final product, beyond the recommendations, of many strategy projects, is a robust model that represented the abstraction of the scope of reality that was the focal of the problem solving. A core competency for strategic leaders is understanding how to utilize analytic models properly. We’ll go over some of the best practices they teach in the top business schools and strategy firms.
An analytical model is a data representation of a situation or system. Analytical models are primarily used to better understand a situation and inform decisions. There are four main elements to any analytical model, which include:
Models are typically created to answer a particular question, and the answer to this question is the output of the model.
The base assumptions of a model make up the parameters of a model. Assumptions are typically based on some sort of historical data or informed by facts. A model is only as good as the parameters and assumptions that drive it.
Most analytical models are created to help make decisions, and potential decisions should be represented as a main part of any model.
The calculations of a model are performed on inputs (i.e., parameters and decisions), to create the output of the model.