With over 15 years of specialized experience in Financial Planning & Analysis (FP&A), I’ve navigated the ever-changing landscape of challenges and opportunities that define this dynamic field. My career has exposed me to a variety of financial models, each presenting its own complexities and limitations. Early on, I often found myself inheriting inflexible, single-use models that became outdated as soon as the scope changed. Although these experiences were frustrating, they served as valuable lessons, planting the seeds for a concept that would later mature into a more tangible and invaluable framework.

The Genesis of TACTIC

As I progressed professionally, I began to proactively design my models to not only provide immediate solutions but also serve as a foundation for future analytical needs. The need for speed was undeniable — I had to generate quick, initial answers to pressing financial questions. But I also recognized that these initial answers frequently led to more complex inquiries requiring further analysis using the same data set, often for the same client. The real challenge was in enhancing these models without turning them into an unwieldy mishmash of elements.

It was this iterative, back-and-forth process of adaptation and refinement that made me realize I had developed a unique approach to financial modeling. This realization culminated in the birth of the TACTIC Financial Model. This dynamic, pyramid-shaped framework empowers FP&A professionals to create, adapt, and refine their financial models systematically. Unlike many traditional models I had encountered throughout my career, the TACTIC framework embraces the inherent flexibility and dynamism needed in the FP&A field. It offers the structured guidance professionals need, while preserving the flexibility essential for adapting to new data and evolving business objectives.

The Framework: A Deep Dive

The TACTIC Financial Model comprises six layers, each serving a unique purpose while remaining interconnected to allow for continuous improvement and adaptation. Let’s break it down:

1. Target: Framing the Questions

The foundation of any robust financial model starts with well-defined targets or objectives. In the TACTIC framework, the “Target” layer aims to outline the specific business questions or issues that the financial model is designed to address. These questions can range from high-level strategic queries like “What is the impact of a 10% increase in sales on our overall profitability?” to more tactical questions such as “What are the financial implications of extending payment terms for our key clients?”

Practical Uses and Examples:

· Budget Planning: If the target is to build a comprehensive budget for the next fiscal year, then the specific questions could be, “What are the projected revenues, costs, and profits?” or “What are the key growth drivers?”

· M&A Scenarios: If you’re looking into a potential merger or acquisition, questions like “What is the valuation of the target company?” or “What are the expected synergies?” become the focus.

· Product Launch: For new product initiatives, the target could be answering questions like “What is the expected ROI of launching this new product?” or “How long will it take to break even?”

· Cash Flow Management: When dealing with liquidity, your target might be “What are the expected cash inflows and outflows for the next six months?” or “How much reserve cash is needed for operations?”

Understanding your targets not only provides direction but also allows for flexibility. As you move through the subsequent layers of the TACTIC pyramid, you may find that your initial targets need to be adjusted or refined. This iterative process ensures that your model remains aligned with the most current and relevant business objectives.

2. Assets: More than Just Data — The Building Blocks

The term “Assets” is intentionally used in the TACTIC framework to encompass more than just raw data. It includes not only numerical and categorical data but also crucial information and assumptions that add context and depth to your model. By calling this layer “Assets,” we acknowledge the multi-dimensional nature of the inputs that contribute to a sophisticated financial model. In essence, we’re saying that good data, correct assumptions, and reliable information are valuable assets to any financial model.

· Data: These are the raw numbers and facts you have, such as historical financial statements or sales figures.

· Information: This involves contextual details that help interpret the data, like market conditions or industry trends.

· Assumptions: These are educated estimates or hypotheses that fill in the gaps where data or information may be missing or uncertain.

Practical Uses and Examples:

· Revenue Forecasting: If your target involves projecting future revenues, your assets may include historical sales data, market growth rates, and customer retention statistics.

· Cost-Benefit Analysis: When evaluating a new project or initiative, your assets could be estimates of the project’s costs, expected revenues, or key performance indicators (KPIs) from similar past projects.

· Debt Restructuring: If you’re looking at the implications of restructuring corporate debt, assets might include current loan terms, interest rates, and the company’s credit rating.

· Competitive Analysis: When assessing market position, your assets could consist of competitor financials, market share data, and industry reports.

As you collect and scrutinize your assets, you might find the need to go back and refine your initial “Targets.” This iterative feature is a hallmark of the TACTIC framework, ensuring that your model remains adaptable and rooted in reality.

3. Calculations: The Backbone of Your Model

The third layer, “Calculations,” forms the backbone of the TACTIC Financial Model. At this stage, you synthesize your assets — data, information, and assumptions — into actionable calculations that power the entire framework. This is where the primary computational work gets done to generate new sets of data that will serve as the foundation for your tools and insights.

The Importance of a Strong Backbone:

Most often, the backbone consists of a simplified version of the three-statement financial model (Income Statement, Balance Sheet, and Cash Flow Statement). This setup is common because a myriad of analyses can be derived from these core financial statements. Establishing a well-connected and calculated three-statement model ensures that any iteration in the previous levels (“Assets” or “Targets”) can be quickly and accurately reflected in your overall financial model.

Other Backbone Models:

While the three-statement model is commonly used, there are instances where alternative models may serve as the primary calculations:

· Discounted Cash Flow (DCF): In valuations, a DCF model could serve as the main calculation engine, especially when the focus is on future cash flows rather than historical performance.

· Monte Carlo Simulation: For risk assessments or projects with a lot of variables, a Monte Carlo model may provide the most insights.

· Zero-Based Budgeting: When every expense needs to be justified, a zero-based budgeting model can become the backbone, particularly for cost-optimization projects.

· Econometric Models: When dealing with macroeconomic factors, models that take into account inflation, interest rates, and other external conditions may be the most appropriate.

The unique feature of the TACTIC framework is that it allows you to go back and iterate upon your calculations. For example, if a new set of data becomes available or if the business objectives change, the calculations layer can be easily adjusted, and these changes can cascade down to your tools and insights. This dynamic nature keeps the model flexible and robust, always ready to accommodate changes and improvements.

4. Tools: The Extensions of Your Model

The fourth layer, “Tools,” functions as an extended arm of your TACTIC Financial Model. This layer is specifically designed to carry out extra calculations, scenarios, or analyses that are critical for addressing the questions outlined in your “Targets.”

The Versatility of Separate Tools:

Separating “Tools” from “Calculations” offers unparalleled versatility to your financial model. It allows you to plug in different tools as needed, making the framework highly adaptable. You can swap out one set of tools for another, depending on the questions you’re looking to answer, without tampering with the foundational calculations. In other words, your primary model remains intact; only the ‘attachments’ change.

Practical Uses:

· Scenario Analysis: By using the data generated in the “Calculations” layer, you can simulate different business scenarios to evaluate various outcomes and make informed decisions.

· Sensitivity Analysis: Assess how sensitive certain variables are and how changes in these variables impact the financial model.

· Valuations: Use various valuation methods like DCF, Comparable Company Analysis (CCA), or Precedent Transactions to determine the worth of a business.

· Break-even Analysis: Use this tool to find out the minimum level of sales needed to cover all costs.

Benefits of Modular Tools:

The modular nature of the “Tools” layer makes your TACTIC Financial Model infinitely reusable. With a robust “Calculations” backbone, you can easily pivot and add or remove tools as necessary, making it incredibly efficient to tailor the model to specific projects or evolving business needs.

By creating a distinct “Tools” layer, the TACTIC Financial Model supports a more agile and adaptable financial modeling process. This separation ensures you’re not just building a model for a single use case; you’re creating a flexible system that can cater to a myriad of questions and scenarios.

5. Insights: The Peak of Understanding

The “Insights” layer is the pinnacle of your TACTIC Financial Model. It serves as the summation point where all your analysis and calculations converge to answer the questions outlined in your “Targets.”

The Power of Synthesized Data

When you reach this layer, you’re essentially compiling and distilling the work done in the previous layers into actionable insights. You translate the data and calculations into comprehensible findings that directly respond to your business questions.

One of the most crucial components at this stage is the creation of an Executive Summary. An effective Executive Summary serves as the storefront of your model; it’s usually the first thing that users will look for and engage in. Therefore, it needs to accomplish several objectives:

· Answer the Target Questions: The Executive Summary must directly answer the questions you set out to solve in your “Targets” layer. If it fails to do this, it won’t matter how sophisticated the underlying model is.

· Tell a Data Story: Beyond just answering questions, your summary should weave together the different elements of your model into a compelling narrative. It should connect the dots between what the data is saying and what that means for the business.

· Be Complete yet Succinct: Your summary needs to be comprehensive enough to include all the crucial points but concise enough to be easily digestible. It’s a delicate balancing act between informativeness and readability.

By achieving these objectives, your Executive Summary becomes a powerful tool for conveying insights in a clear, impactful way, shaping the direction for informed decision-making.

Practical Uses:

· Decision Support: Armed with insights, you can make recommendations to stakeholders and provide strategic direction to the company.

· Performance Metrics: Insights often include key performance indicators (KPIs) that allow you to track the effectiveness of various business operations.

· Forecasting: Use the insights to predict future performance and make proactive business decisions.

6. Correlations: The Outward Arrows

The final layer, “Correlations,” takes your insights to the next level. It focuses on the actionable steps and additional analyses that stem from your primary insights.

The Dynamic Evolution

The “Correlations” are represented as arrows emanating from the peak of the pyramid, symbolizing the ongoing evolution of your financial model. Your model doesn’t just end at “Insights”; it opens doors to new questions, analyses, and strategies.

Practical Uses:

· Strategy Formulation: Use correlations to form new strategies or pivot existing ones.

· Risk Assessment: Identify potential risks or opportunities that were not initially apparent but became evident through your insights.

· New Projects: Correlations may lead to the identification of new projects or investment opportunities for the business.

· Feedback Loop: The correlations often feed back into the model, requiring you to revisit and revise earlier layers, keeping the model dynamic and relevant.

The Power of Iterative and Modular Design in TACTIC

The TACTIC Financial Model framework stands out for its dynamic, iterative, and modular approach to financial modeling. What sets TACTIC apart is its inherent flexibility and adaptability, characteristics often missing in traditional financial models. With each layer — from Targets to Assets, Calculations, Tools, and finally Insights — you’re not just building a model but creating an evolving, adaptable system.

Iterative Improvements

The framework’s design encourages going back to refine earlier layers. As you proceed from one layer to the next, you gain new perspectives and data points, often revealing areas for improvement in the preceding steps. This iteration ensures your model stays relevant, precise, and aligned with business objectives, thus preventing the stagnation that often plagues static models.

Modular Flexibility

TACTIC’s modular nature is especially evident in its ‘Calculations’ and ‘Tools’ layers. By keeping core calculations separate from supplementary analytical tools, you ensure a level of flexibility that allows for easy adjustments or extensions. Whether you need to swap out specific tools for new analysis methods or incorporate fresh data into your core calculations, the modular setup makes these changes seamless and efficient.