Checklist before any financial analysis task

The following points are a suggested checklist for review and consideration before any financial analysis task is begun. This list should be helpful to the person actually doing the work as well as to the manager who may have assigned the question or project to an associate:

1. What’s the exact nature and scope of the issue to be analyzed? Is the issue and its relative importance in the overall business context truly understood, and have its attributes been clearly spelled out, including all the relevant alternatives that should be considered?

2. Which specific variables, relationships, and trends are likely to be helpful in analyzing the issue? What’s the order of their importance, and in what sequence should they be addressed?

3. Are there possible ways to obtain a quick “ballpark” estimate of the likely result to help decide (a) what the critical data and steps might be, and (b) how much effort should be spent on refining these?

4. How precise an answer is necessary in relation to the importance of the issue itself? Would additional refinement be worth the effort?

5. How reliable are the available data, and how is this uncertainty likely to affect the range of results? What confirmation might be possible, and at what degree and cost of effort?

6. Are the input data to be used expressed in cash flow terms—essential for economic analysis—or are they to be applied within an accounting framework to test only the financial implications of a decision?

7. What limitations are inherent in the tools to be applied, and how will these likely affect the range of results obtained? Are the tools chosen truly appropriate to solving the issue?

8. How important are qualitative judgments in the context of the issue, and what’s the ranking of their significance? Which analytical steps might in fact be made unnecessary by such considerations?