Sample interview questions: How do you ensure the accuracy and reliability of your financial models?
Sample answer:
Ensuring Model Accuracy and Reliability
1. Input Data Validation:
- Verify data sources for accuracy and completeness.
- Cross-check data against multiple sources and historical trends.
- Perform data cleaning and error correction to eliminate inconsistencies.
2. Model Structure Validation:
- Use appropriate mathematical and statistical techniques to ensure logical and coherent model structure.
- Test different model scenarios and assumptions to assess model sensitivity and robustness.
- Conduct thorough unit testing to verify individual model components.
3. Output Verification:
- Compare model outputs to actual historical data and industry benchmarks.
- Review modeling outcomes with subject matter experts and stakeholders.
- Perform sensitivity analysis to assess the impact of changes in input variables on outputs.
4. Sensitivity Analysis:
- Identify critical input variables and perform sensitivity analysis to gauge model stability.
- Determine key assumptions and potential risks associated with model results.
- Disclose the sensitivity analysis results to users to enhance model understanding.