Model transparency: Why it matters and how it builds stakeholder trust

Why do financial models need to be transparent?

Transparency plays a critical role in financial modelling, providing clarity and confidence to both users and stakeholders. Tim Linke, RSM’s lead financial modelling expert, discusses the essential role transparency plays in financial models and why it matters.

Transparent financial models build trust and credibility

Transparent financial models help build trust with stakeholders, including investors, clients, and regulatory bodies. 

Tim explains, “At RSM, we pride ourselves on fostering trust and integrity in our relationships with clients. Transparency ensures accountability and strengthens collaboration, enabling us to deliver the right outcomes.”

Businesses that embrace transparency benefit from clear communication, swift issue resolution, and stronger client relationships. These attributes foster trust and set the foundation for long-term partnerships.

Additionally, open and transparent financial models boost the credibility of the organisation or individual presenting them. They show that there’s nothing to hide and that the figures are based on solid assumptions and sound methodologies.

Empowering clients with informed decision-making

Transparency ensures that all assumptions, inputs, and methodologies are clearly documented. This openness helps decision-makers understand the foundation of financial projections, allowing them to make informed choices with greater confidence.

A clear and logical model builds confidence in its outputs, ensuring stakeholders can understand and rely on the results.

Tim notes, “Opaque, overly complex formulas erode trust. Instead, financial models should use short, digestible calculations that are easy to trace. For instance, referencing tax rates or inputs instead of ‘hardcoding’ them within a model makes it clear how outputs are derived, fostering confidence in the process.”

With this approach, users can navigate the model’s flow and logic without needing extensive training or technical skills. By being transparent, models reduce errors, encourage teamwork, and ultimately lead to better decision-making.

Building relationships through transparency and accountability

Tim believes that transparency is key to building strong relationships. “It's about showing up for our clients, being accountable, and fostering trust.”  

Accountability goes hand in hand with transparency. When financial models are transparent, it is easier to hold individuals or teams accountable for their projections. If the outcomes differ significantly from the projections, stakeholders can review the model to understand what went wrong.

Transparency also promotes continuous improvement in financial models. By sharing methodologies and assumptions openly, others can offer feedback and suggest ways to enhance the models.

By facing challenges head-on and celebrating shared successes, we build respect and trust. This approach not only deepens our client relationships but also highlights our dedication to delivering real value beyond simple transactions.

The role of transparency in AI and automation

As AI becomes increasingly integrated into financial modelling, transparency in its application is vital. It's not just about the technology; it's about asking the right questions and verifying sources. Ensuring that AI systems provide accurate and traceable outputs avoids the risk of so-called ‘hallucinated’ answers, instilling a sense of understanding and control.

Understanding and auditing the underlying logic is crucial for businesses adopting AI-driven modelling tools. Transparency ensures that AI systems are not just a black box but a reliable tool in decision-making.

From black boxes to collaborative tools for better stakeholder engagement

At RSM, financial models are developed collaboratively with clients, ensuring visibility and understanding at every stage. 

Tim explains, “We avoid black-box models where users can’t see how inputs translate to outputs. Instead, our approach prioritises clarity, enabling stakeholders to understand, trust, and confidently rely on the tools we create.”

By demystifying complex calculations and ensuring models are built collaboratively, businesses can foster greater buy-in from stakeholders and enable more effective use of the tools.

Transparent financial models you can trust

Whether in financial modelling, client relationships, or adopting AI, transparency ensures confidence, accountability, and shared success. It's a principle we at RSM hold dear and strive to incorporate into every aspect of our work.

At RSM, we specialise in creating financial models that are as clear as they are robust. To learn more about our financial modelling services and how we can help your business thrive, visit our Bespoke Financial Modelling Solutions page.

Explore resources from the Financial Modelling Institute (FMI) for further insights on improving your financial modelling skills. With the right tools and a commitment to transparency, your business can build trust and make better decisions for the future. 

 FOR MORE INFORMATION

Contact your local RSM office to find out more about Model Transparency.