ADVANTAGES

Spreadsheets models

Historically, project finance models use spreadsheets to analyse the projected cash flows on a project. The use of spreadsheets is fraught with dangers which are well recorded in a variety of publications.

The following quotes come from a recent European Spreadsheet Risks Interest Group publication

     "end users are putting their companies at risk by setting up spreadsheets without realizing that this demands the discipline of traditional programming."

     "the presence of a spreadsheet application in an accounting system can subvert all the controls in all other parts of that system."

     "Sarbanes-Oxley implies managers can't ignore un-controlled spreadsheets"

     "We nearly always find that modellers have no formal training in good modelling techniques, and that their organizations do not have even the most rudimentary internal modelling standards"

     "Spreadsheets are a powerful modelling language, mainly used by amateur programmers on a diversity of applications which are typically deployed throughout a wide range of different business functions"

Why use a proprietary program?

Spreadsheets are perfectly adequate for simple models typically developed early in the planning phase. They may also be good enough when the returns on the investment are sufficiently high that you do not have to worry about the correct calculation of the cover ratios.

However, such models are rarely adequate for proper planning. A typical model for a major project will consist of many tens of thousands of formulae, sometimes hundreds of thousands. The effort in developing an individual model for each project is high. The developer has to grapple with circular references and coding.  In practice, such models usually have many errors and are poorly documented.  Furthermore, by ignoring such factors as the accounting and loan currencies, the dividend policy and the sinking funds, many spreadsheet models overstate the returns to the investor, often by many percentage points.

Using a well-tested proprietary model allows the analyst to ignore the detailed formulae and to concentrate on the important factors which can affect the viability of the project. By examining the basis rather than the details, the analyst can make a much more valuable contribution to the success of a project.

It also allows him or her to compare different projects on a level basis.

Why use Promoter?

No programming is needed. The model has been developed with object oriented software.  It incorporates drag and drop features allowing the user to build up the model from a variety of different components.  Having started with the correct skeleton, you simply obtain the data for the project and insert them into the model. The model has sufficient flexibility to handle a large number of different technologies and financing structures.

The system guides you through key input data and it ensures that you introduce figures between predetermined limits.

Accuracy

We have closely reproduced the cash flows and the audited financial statements of single project companies which have been operating for several years.

We have compared the results of our models with those of our competitors. Take, for instance, the tax calculations. Promoter calculates the tax in whatever currency you specify. Most models calculate it in the currency in which they display the results, usually US Dollars. Tax is normally calculated in the currency of the country in which the project is located. If that country has a high inflation rate, then the balance of tax allowances carried forward from one year to the next are lower than the US Dollar equivalent (unless an exchange adjustment is included in the calculation). The calculated tax is correspondingly higher. Where Promoter calculates an after tax IRR of 15%, many models will calculate it several percentage points higher.

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