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FINANCIAL MODELING

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Trends and innovation in financial modeling: How AI Is redefining the modeler’s role Ian Schnoor, CFA, CFM

Financial models are the most important decision-making tools in finance. Like many professions, financial modeling now stands at an inflection point as artificial intelligence is transforming how models are built, tested and applied. The financial modeling landscape is changing daily, and the next generation of finance professionals must understand the discipline of financial modeling and learn to lead teams that integrate human judgement, data analytics and AI tools to make informed decisions. The core principles of financial modeling remain unchanged: A robust threestatement model links the income statement, balance sheet and cash flow statement to generate a forecast and forward-looking insight. What is changing is the toolkit available to the modeler. This shift is a central focus of The ModSquad Pod, a new web series that I co-host with Paul Barnhurst, also known as the FP&A Guy, and Giles Male, founder of Full Stack Modeller and an accredited Master Financial Modeler. The premise of the series is to test, review and evaluate the growing library of AI modeling tools in real time. New tools

with big promises are released regularly, and understanding how AI can support our work and avoid pitfalls is essential for finance professionals.

Financial modeling in the age of AI: New tools, new challenges The past year has brought an explosion of AI-enhanced modeling tools. As we discuss on the ModSquad, most of these tools can “fill in the blanks.” That is, they are excellent at reading instructions, populating a schedule and even building a model. However, the tools lack context: the ability to ask the right questions, validate results and tell the story of the business to guide confident decisions. In October, Microsoft introduced Agent Mode, a tool within Copilot in Excel and Word. In Excel, Agent Mode is intended to

While AI can speed up the modelbuilding process, it cannot (at least not yet) connect stories and numbers, understand an industry or assess a company’s dynamics.

help users interact with their spreadsheets using natural language, performing multistep tasks that go beyond single formulas or charts. Unlike the Copilot chat interface (which gives suggestions or assists), Agent Mode directly edits or augments the Excel workbook by creating or modifying sheets and inserting formulas. I tested Agent Mode, and the experience was remarkable: With English-language prompts, it could build a basic model in seconds. This is one of the wildest developments I have witnessed in my decades of modeling experience. Watching a machine generate a financial model on command is both exciting and unsettling. Yet there is a caveat: These tools make mistakes, sometimes significant ones. While AI can speed up the model-building process, it cannot (at least not yet) connect stories and numbers, understand an industry or assess a company’s dynamics.

Why modeling skills matter more than ever Strong modeling skills have never been more important. As AI tools become more powerful, finance professionals must sharpen their ability to question and validate the outputs.

You will have to challenge the AI around certain concepts: • Are the generated numbers accurate and reasonable? • Does the model capture the right relationships and drivers? • Are the assumptions aligned with reality?