Financial Modeling gets cheaper and cheaper

Cheap is Good

 How is it that Financial Modeling is finally within the reach of Small Business?  It is because SurvivalWare makes it cheaper – an order of magnitude cheaper – for a company to install and use a financial model that fits.  SurvivalWare provides the infrastructure that makes the model inexpensive to feed with data and easy to use.   With the new SurvivalWare Pro (coming in December), we have enabled consultants and accountants and bright analysts with the on-the-ground knowledge of a specific company or groups of companies to provide the final “fit and finish” on top of the solid Fort Knox model structure. 

Our Model Generator technology – set to be released shortly thereafter – promises to reduce the cost of developing a completely customized financial model.  You might want to have a highly specialized financial model for say for a franchise system, or a specific industry like convenience stores – to a fraction of what it was four years ago when we first applied Survivalware to such a setting.

Moore’s Law

People in the computer industry are familiar with the concept of Moore’s law.  It states that computer power roughly doubles every two years, and has done so for almost four decades. 

Below is a graph of transistor counts found in the Wikipedia entry on Moore’s law. 

Moore's law - transistor counts

Since transistor count is an approximation for power per unit of cost, we have seen dramatic declines in the cost over the years of processing power and memory.

 You may have seen this quote making the rounds on the internet, attributed to Bill Gates at Comdex in 1999 (there is some doubt he really said it):

“If GM had kept up with technology like the computer industry has, we would all be driving $25 cars that get 1,000 to the gallon.”

The rejoinder of course is that GM issues a press release that says if GM had developed technology like Microsoft,  cars would have the following characteristics: 

  1. For no reason at all, your car would crash twice a day.
  2. Every time they repainted the lines on the road, you’d have to buy a new car
  3. etc., etc.

But you get the point.  The cost of computing continues to get smaller and smaller while the power continues to grow.

Financial Modeling Power

 So what has happened to Financial Modeling power over the years and its cost per unit of power?

Financial Modeling Power per unit of cost - last 30 years

I’ve been in the financial modeling field for over over 30 years and can provide some insight.

Back in the late 1970’s, most financial modeling was done through commercial timesharing services who not only sold “raw cycles” but added value to their offerings by charging a premium to use 3rd generation software such as financial modeling languages.

Back then, I serviced the Marriott account for Comshare, which sold access to a really good financial modeling package called FCS.  They spent about $10,000 per month to do cash flow projections for Hotel development projects in the course of structuring deals and attracting investors to put up the money to actually build the hotels.  Marriott was great at getting hotels built with OPM – Other People’s Money.

I’m intimately familiar with those models and their complexity because I was the one that developed the models for them.  My estimate is that they were moderately complex financial models with a limited number of time periods analyzed, equivalent to about 2 SMU’s of power.  An SMU is a SurvivalWare Modeling Unit, and is equal to a standard 200 variable model applied to 12 months or 10 years for a month’s worth of usage.  So we can say that Marriott was paying a monthly fee of $5,000 per SMU.  Expressed as power per dollar of cost, we get 0.2 SMUs per $1,000.  This was in 1978 and 1979.

I started my first company in 1979 just to get out on my own.  I quickly realized that the microcomputers being introduced then were more powerful than most people gave them credit for.  I set out to drive down the cost of financial modeling by figuring out which features were absolutely critical, and which were not – and providing 90% of the functionality at less than 10% of the cost.  The first product was developed for the Apple II computer in 1980 and called RCS (which stood for Rusty’s Computer System – the ego thing started long ago).  I believe it was the first financial modeling software to appear on a personal computer.

RCS Brochure from Sept, 1980

RCS lowered the cost to Marriott from $5,000 per SMU to $500.  Power rose to 2 SMUs per $1,000.

ENCORE! Plus - 1988

ENCORE! Plus was introduced for MSDOS in 1988 with a power rating of 20 SMUs per $1,000.

ENCORE! for Windows - 1996

ENCORE! for Windows appeared in 1996 continuing the increase in power while holding steady on the cost.  We estimate the cost per SMU at about $20, equivalent to a power rating of 50 SMUs per $1,000.

SurvivalWare 3.0 - 2009

The combination of SurvivalWare 3.0 and the Fort Knox model as currently sold delivers about 10 SMU’s of modeling power.  If we look at the life cycle cost over 5 years, we can convert it to a monthly by dividing by 60 months.  Then divide the monthly cost by 10 to get the cost per SMU which turns out to be about $3 – equivalent to 333 SMUs per $1,000 of cost. 

That turns out to be a 1,700 fold improvement over 30 years. 

And when you look at applying SurvivalWare to a GROUP of small companies, the improvement is even more dramatic – another threefold increase is power per unit of cost.

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One Response

  1. Great to see another company prove small business technology does not have to expensive to be powerful. Our award winning software makes it for small businesses to optimize inventory with Fortune 500 level features while starting out as low as $15/month. With the right technologies, small businesses can survive and thrive amidst the biggest competition.

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