Updated December 2025 Edition
In our previous articles Financial Modeling for FP&A: How Finance Moves From Reporting to Strategic Leadership - Findep Consult Transforming Finance: The Untapped Power of Financial Modeling and Operational Financial Models: Elevating Finance Management Beyond Investment Evaluation - Findep Consult Operational Financial Models: Elevating Finance Management Beyond Investment Evaluation, we discussed the different types of financial models, introduced the definition of the Operational Financial Model (OFM), and explained how it differs from other modelling approaches and where it should be applied.
In this updated edition, we move from theory to practice. We show how to start developing your own OFM, what to prepare before the build, and the foundational steps that ensure the model becomes reliable, scalable and truly useful for decision-making. This article is particularly relevant for FP&A leaders, CFOs, controllers and any organisation seeking to strengthen financial planning and performance management.
Plan First: The More You Plan, the Less You Need to Adjust Later
The success of an Operational Financial Model depends far more on the planning phase than on the technical build itself. The more time you invest upfront in designing the structure, understanding the business, and defining the logic, the less time you will later waste on redesigns, corrections and rebuilding - all of which are pure muda (non-value-adding activity).
To make this phase concrete, we recommend creating a Master Plan. This document defines the architecture and logic of your OFM before you begin any technical build. A good Master Plan typically includes these three macro-sections.
1. Business Model Study
The first component of the Master Plan consolidates your understanding of how the organisation creates value and how information flows across it. It includes:
What the company sells and how each product or service generates value.
The economic engine of the business, including pricing, margins, cost structure and operational drivers.
The minimum unit of accounting and controlling, such as product line, service type, project, department or geography.
How data flows across Finance, Sales, Operations, HR, Procurement, Production and IT.
What the company expects from the OFM output, including the level of detail, reporting frequency, KPIs, dashboards and scenario requirements.
The full list of stakeholders involved in the model and their responsibilities.
All sources of financial and operational data, such as the GL, sales systems, production tools, HR data, planning tools and CRM systems.
The company’s financial strategy and expectations from the OFM.
Only after you understand the business model, its processes and information flows can you design a financial model that truly replicates reality and supports operational and strategic decision-making.
At the same time, it is important to recognise that there is no universal standard for an Operational Financial Model. An OFM created for a manufacturing company will differ from one built for a retail business, a scale-up, a service provider or a multinational group. Even within the same industry, the model will vary depending on the size of the organisation, its internal processes, its management expectations and the phase of its life cycle.
There are best practices for how to format, structure and optimise the model, but there is no single financial model that fits every case. Each OFM must be designed around the company’s specific value drivers, reporting needs and decision-making processes.
2. Prototype of the Operational Financial Model Definition (Conceptual Design)
This stage involves designing the logic of the model. You are not writing formulas at this point; you are outlining the blueprint.
It should include:
Assumptions. Identify which assumptions the model will require, such as volumes, prices, productivity, timing, headcount, capex and other operational drivers.
Input Data. Define what data will enter the model, its sources, granularity and frequency, and how it will connect to the model categories.
Analytical Mapping. Determine how inputs will be transformed into analytical categories such as P and L items, KPIs, drivers and business units.
Intermediate Calculations. Outline allocation rules, driver-based logic, bridges and dependencies.
Output Structure. Design the layout of the P and L, Balance Sheet, Cash Flow, dashboards, variance analysis, scenario comparisons and other reports.
Data Integrity Controls. Plan how data quality will be ensured, including GL to model reconciliations, cross-check formulas, control flags, automated alerts for mismatches and periodic validation steps.
The objective is to foresee the entire logic of the model while it is still easy, low cost and low risk to refine and adjust the design on paper. This conceptual design is essential for reliable, scalable implementation.
3. Technical Build Preparation
The third section of the Master Plan defines the technical standards and structural rules that will guide the build. You are still planning at this stage. Your goal is to ensure consistency, readability and robustness throughout the entire model.
This includes:
Formatting standards.
Sheet structure and sequencing.
Naming conventions for sheets, ranges and tables.
Documentation rules. For complex calculations, include comments that explain the purpose and logic behind the formula.
You may refer to established Classic Financial Model best practices, adapting them to operational finance. For example, all sheets, including assumptions, inputs, calculations and outputs, should follow a consistent structural layout. This significantly improves readability and reduces user error.
A practical structure we often use across all sheets (just for example):
Column A contains all categories, reporting items, product names and cost items.
Column B remains empty as contingency space and may later host additional parameters or opening balances for periods outside the scope of the model.
Column C, Row 7 marks the first period of the model timeline.
Rows 5, 6 and 8 host auxiliary parameters and flags, such as Actual or Forecast or Budget status, dynamic period labels and other indicators. These should be automatically updated through formulas and linked to the reporting month.
By defining all technical standards upfront, you ensure that the OFM will be easy to maintain, audit, scale and hand over to other Finance team members.
The Build itself
Once the Master Plan is complete, the model can finally take shape. The key to a successful build is to follow the right sequence. And counterintuitively, the sequence starts from the final outputs.
Begin with the final outputs
Before constructing assumptions or intermediate calculations, design the reports that will ultimately drive decisions. In an OFM, these include the Profit and Loss views, the Cash Flow and the Balance Sheet.
The Balance Sheet, even if not explicitly requested, is necessary because it confirms whether everything is internally consistent. If the Balance Sheet does not reconcile, or if it does not make sense when an automatic balancing figure is applied, nothing else in the model can be trusted. In such cases, you must check all forms and data before submitting any results.
Data integrity is critical. A model that produces unreliable or inconsistent data risks damaging credibility, which Finance must always protect. For this reason, even though the P&L or Cash Flow is often the most visible output, the Balance Sheet remains the true control mechanism of the entire OFM.
Designing a Profit and Loss Statement for different audiences
One of the first realisations in the build phase is that a single P&L or a single output form is never sufficient. Each stakeholder looks at the business through a different lens. A CEO needs a clean, strategic overview. Operational managers require visibility on the categories they directly influence. Group Finance often works with a different analytical structure for consolidation. And FP&A needs the most granular version, down to cost centres and cost items, to understand what is actually driving performance.
The most effective way to satisfy all these needs is to begin with the most detailed P&L, the controlling-level view. This becomes the foundation for every other format. Once the controlling P&L is defined, it can be aggregated into simpler structures through mapping tables and tags, allowing you to create a consistent suite of P&L views for all stakeholders from a single source of truth.
At the same time, avoid unnecessary detail that would overwhelm the model. Very granular elements, such as stock units or detailed nomenclature, should be aggregated into broader analytical categories whenever possible. This keeps the model efficient, readable and focused on what truly matters.
Parallel development is part of the process
Although the build follows a sequence, it does not progress strictly line by line. Several parts of the model evolve at the same time. While you are shaping the detailed P&L, you will also be working on mapping GL accounts and cost centres to the appropriate P&L categories, and translating budget and forecast inputs into the same structure. In parallel, you will start populating the assumptions sheet, defining how the key drivers will operate inside the model.
At the same time, you determine how the detailed model will flow into the Executive and Management versions, ensuring that each audience receives the level of detail it requires. You also structure the Balance Sheet logic so it can support all necessary reconciliations, which is essential for confirming the internal consistency of the model.
This parallelism is normal and expected. Building an OFM is similar to assembling a system of interconnected components: as one part becomes clearer, the others follow and adjust. Over time, the model progressively locks into place as the overall structure stabilises.
From structure to coherence
By the time the outputs, mappings and detailed P&L are aligned, the OFM begins to function as a coherent system. The relationships between actuals, forecasts, scenarios and operational drivers become visible, and the model starts to mirror the business in a clear and consistent way. At this stage it no longer behaves like a static document but becomes a living, dynamic representation of how the organisation actually works.
Best Practices for Financial Model Development
Developing an OFM is a meticulous process that requires careful attention to detail and consistent application of best practices. Strong Excel skills are essential, particularly in advanced formulas and automation techniques, because the reliability of the model depends on clean logic and efficient structure. It is important to avoid hard coding, keeping similar items in the same layout and relying on formulas rather than fixed values, which ensures consistency and reduces the risk of hidden errors.
Once the core structure is in place, the model should go through a trial period. During this phase, you validate the calculations by comparing actuals with both the budget and the latest forecasts, identifying discrepancies and refining the formulas where needed. At the same time, it is helpful to set accuracy targets for the finance team, which supports continuous improvement in forecasting quality.
Good version control is also critical. Each reporting month should have its own saved version in a dedicated folder, while the latest forecast for the upcoming month must always be maintained separately to ensure continuity and clarity in the reporting cycle.
Challenges and Benefits of an OFM
Creating an OFM is undoubtedly time-consuming. It requires a significant upfront investment of time, close collaboration between departments to ensure the quality of data inputs, and continuous updates and validations during the initial implementation. However, the long-term benefits far outweigh these challenges. Once established, an OFM becomes a powerful management tool that provides real-time insight into company performance, supports informed decision-making at all operational levels, and streamlines the budgeting and forecasting process.
An OFM is also highly adaptable and does not depend on the existence of a formal budget, which makes it fundamentally different from many software solutions. Traditional systems often require heavy customisation, additional costs and still lack the flexibility to integrate detailed changes dynamically and systematically. An OFM, by contrast, can evolve with the business and can easily connect to tools such as Power BI for visualisation or AI-based solutions for automating data inputs.
Although the model may contain many sheets and appear complex internally, its primary audience is the Finance and operational teams. For the Board, only the introduction, assumptions and summary pages are typically shared, ensuring that high-level presentations remain simple, clear and focused on the key messages.
Conclusion and Next Steps
An Operational Financial Model is much more than an Excel structure. It is a management system that connects strategy, operations and finance in a single, coherent framework. When designed correctly, it becomes the foundation for clarity, speed and informed decision-making across the organisation. The investment required to build it is not only justified but essential, as the OFM quickly proves its value by improving forecast accuracy, revealing performance drivers and creating full transparency around the business model.
The most successful organisations treat the OFM as a living system that evolves as the business evolves. With the right structure, governance and modelling discipline, it becomes a long-term asset that supports resilience, growth and transformation.
How FinDep Consult Can Support You
At FinDep Consult, we specialise in designing and implementing Operational Financial Models that replicate the real business, support daily decision-making and provide the foundation for strategic finance. Our approach combines deep financial expertise, advanced modelling skills and a practical understanding of how companies operate. We tailor every OFM to the organisation’s structure, data flows and management needs, ensuring both precision and usability.
If your company is ready to enhance its performance management, strengthen its forecasting capability or bring clarity to its financial processes, we can help you build a robust and scalable OFM that becomes a true asset for your leadership team.
Contact us to begin developing your Operational Financial Model and take your financial decision-making to the next level.
Frequently Asked Questions: Operational Financial Models
What is an Operational Financial Model in FP&A?
An Operational Financial Model is a driver-based forecasting and performance management model that connects operational activity with financial outcomes. It is used monthly and sometimes weekly, unlike Classic Financial Models which are annual or deal-focused.
Why is the Balance Sheet necessary in an OFM?
The Balance Sheet is the statement that confirms internal consistency. If it does not reconcile or doesn't make sense, the entire model must be reviewed. It is essential for maintaining credibility and data integrity.
How is an OFM different from budgeting software?
Unlike many software tools, an OFM does not require rigid structures or extensive customisation and adapts easily to detailed operational changes. It evolves quickly and reflects the real business model.
Who uses an OFM inside the company?
Normally the Finance function, such as FP&A or the Financial Controller, is the primary owner of the model. However, in an integrated OFM there are many participants and users across the organisation. Different Finance teams, including Tax, Treasury and Accounting, may act both as information providers, contributing assumptions or actuals, and also as users of the model outputs. For example, Treasury may use the OFM for short-term cash planning or evaluating cash needs.
The CEO and CFO use the different output formats for overall financial performance review and, in practice, also for financial studies before deciding on strategic projects. Operational managers may use the outputs relevant to their area of responsibility to monitor performance and plan activities.
In organisations that foster information sharing and open communication, key outputs of the OFM, such as performance against targets or KPIs, may be shared more broadly. This helps build transparency, alignment and motivation across the company.
What level of detail should an OFM include?
It should include as much detail as necessary for performance management without overwhelming the model. Cost centres, major cost items and revenue drivers are typical, while stock units or detailed nomenclature should be aggregated.
Why is Excel still the preferred tool for OFMs?
Excel offers flexibility, transparency, automation and rapid iteration. It remains unmatched for building bespoke operational models that reflect the business logic in detail.
About the Author
Anastasia Aleksenko
Managing Partner, FinDep Consult, ACCA Fellow and Dottore Commercialista (CPA) in Italy
Finance professional with more than 25 years of experience in different areas of Finance - from general accounting and reporting to FP&A and controlling, Cross-border M&A integration and strategic planning.
Expert in Operational Financial Models, Financial Clarity frameworks and finance transformation.
Author of "FP&A Strategico – Come Finance guida il business e previene la crisi".
Anastasia advises multinational companies and high-growth organisations on financial modelling, strategic finance and performance management, helping Finance leaders build clarity, structure and long-term value.
