Confessions of a Project Finance Modeler

Abstract

Despite detailed financial modeling by project developers, investors, and lenders, projects seldom work out as planned, leading to questions about the value of modeling. The main uses of a project finance model, however, are not for predicting the future but for identifying the most important risks, for describing in greater detail the project outlined in signed documentation, for monitoring the project throughout its implementation, and for developing early warning signs of trouble and laying out possible solutions. In this case, the author, a lender, finds that the process of building a model to check a project’s viability helps him create and then answer the questions that allow him to understand the risks and various factors that can make or break a project.

TOPICS: Project finance, other real assets, legal/regulatory/public policy