Ever since we have purchased the Monopoly board game, it has become a weekend ritual for us. Almost every Friday/Saturday night Jo would pull out the board, currency, wooden dice, small houses and deed cards and spread them.
We are in for a surprise after playing the game for few weeks. As kids we thought the game is a GAME, ie random to high extent but fun. But as we develop an eye for the detail, the game does come out to be rather unfair. How else can you explain that one of us is paying rents through their noses to the other one owning reds and oranges and how else can you explain that the one who purchased properties next to GO seldom gets a visitor, including themselves. We started questioning, is monopoly fair? And thats where I set out to find it myself.
For starters, The monopoly board has 40 cells, and every player starts at GO. The moves are decided by sum of the faces on a 2 dice throw. If you get a double you get to throw again.
I have tried to simulate the game using excel. I have observed all the rules like community chest / chance cards, Jail and go to jail. But I have not observed doubles rule for I thought it had little impact on the outcome. I wanted to see if the expected probabilities of each cell (which is 1/40 or 2.5%) are close to the actual probabilities.
When I ran the simulation for 10000 dice throws for 4 players, the absolute difference between expected probabilities of each cell, color group are more or less near to the actual probabilities as you can see in the below charts. (click on them for bigger versions)
The maximum deviation is to the tune of 6% for individual cells and 1.93% for a color group (for there will be cancellations in color groups, as one cell gets more visitors the other would get less)
But that is not we experience when we play the game. We end up landing in Jail or a chance an awful lot of times more than we expect to land there. Thats because, no one ever plays a 10000 throw per person game, not in day to day versions. Its more like 200-400 throws. So when I ran the same experiment for 200 turns for 4 players, the results were more interesting as you can see them below.
As you can see the deviation in the actual probability and expected probability is huge. Some times 60% more for individual cells and 20% for color groups. This I guess explains the reason behind the Monopoly game strategies like buy anything in Orange and Red groups etc.
Obviously one fault of this experiment is if you run it again the actual probabilities are going to change in favor of something else. But almost always far from the expected results.
Write to me just in case you want to play around with my monopoly board game simulation excel sheet, I can mail it. The file is rather huge for upload.
Related links: Monopoly Wiki, Monopoly Fun Facts & Strategies, Similar Monopoly Simulations [1, 2]
62 Responses to “Introduction to Financial Modeling using Excel [Part 1 of 6]”
Oooh! Chandoo - are you looking to outperform the Altman Z-Score?
I'm all ears 😉
Many thanks, Paramdeep. Looking forward to the remaining parts of the series
Thank you Paramdeep. I look forward to following the series.
Those interested in Financial Modelling may also find this site interesting:
http://www.fimodo.com/
Hi Chandoo,
Really looking forward for this awesome financial modeling journey 🙂
All the very best..
Regards
Rohit1409
Hi Chandoo,
it seems the future is not away when we will have a new software/spreadsheet as competitor to Microsoft Office/Linux etc.......Hats Off to you..
KEEP SMILING
GURU
@apex, clarity: Thanks...
@all: I do hope that you have started creating the model for the simple case given.. Lets see, what according to you all is the best way forward. So your views on the best practices for the template for valuation?
The planning process varies depending on the project and type of data I am looking at.
If I am doing a cost impact study based on actuals, verses a cost impact study to estimate future cost, verses reviewing historical data then creating a model, verse having to review historical data, apply it to a draft model, update the model based on the draft outputs and the presentation then sometimes repeat the process a few times.
Revisions are an absolutely necessary part of corporate financial modeling especially for the presentation sections. A good presentation will be revised multiple time. There are just to many elements which cannot be planned for, especially with ad hoc reports/models.
Revisions are leading cause of errors, and time spent tracking down errors. The more complex the model the more important revision control is. I would be interested in a section on revision control and good methodologies to determine the effect of changes on models. That is without having to due detail review of the whole model over again.
Hi Paramdeep,
I can't wait for the continuation of this series. You have done a great job in making technical terms appear simple and easy to understand. This article is also very useful in our line of business, in fact i will be featuring this article in our site. Of course the credits will go out to you.
Many thanks and keep it up!
Drew
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@Drew: Thanks! Hope that you found the tutorials useful. Feel free to get back with any queries.
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Great information, i also want to learn financial modeling, how to learn
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chando bhai i m tired for looking financial modeling detail but i cant find it anyway. so plz kindly send me full detail of financial modeling from beginning levelo to final. where i learn complete modeling procedure n order to become professional
You noob, you won`t become a professional like that, you need to do it on your own and learn as you go
@Nadeem Bhai,
The 6 links to the tutorial at the top of this post, build a small integrated financial model step by step. We are also running a complete 8 weeks course on financial modeling (similar to excel school). But that is almost 50% complete right now. If you want to join, you can join the next batch (probably starting in Jan/ Feb)
Feel free to get back, if you have any queries regarding the model/ steps in creating the same
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I want to learn how to build a financial model
Dear Lulama,
You can use this tutorial to learn to build a financial model. We also run a course on financial modeling and project finance modeling. The details can be obtained from:
http://chandoo.org/wp/financial-modeling/
You can consider joining that as well.
I would strongly encourage you to join the newsletter to get the updates about financial modeling and the next batch starting for the course.
I want to learn thorough excel and financial modelling thing !!! I am a chartered accountant..CAn you please suggest a detail syllabus that should be learn by me. Also suggest any classes that would cover everything in excel and financial modelling related things.. I stay in mumbai, so please suggest a class in mumbai or any books..byyee.. thanks ..
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Hi Vivek,
We do conduct the financial modeling course online as well as in Mumbai. We start with the basics of excel and build a completely integrated financial model in the class. For details you can look at:
http://chandoo.org/wp/financial-modeling/
or
http://www.edupristine.com/courses/financial-modeling/prisitne-fm-offering
Please describe to me various type of financial modela and demonstrate how a model can be build.
Regards,
Dear Immanuel,
This series of articles does exactly that. If you go step by step through the articles and create the excel sheets on your own, you will understand how to create an integrated financial model.
Alternatively, if you are looking for video sessions, you can consider joining our course:
http://chandoo.org/wp/financial-modeling/
It is expected to reopen somewhere in mid july.
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Thanks Paramdeep this is great!
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Paramdeep Hi! A bit ignorant here, but let's ask anyway. Can I access "recorded" video sessions apart from following the step by step articles?
Thanks!
@Marius: Yes, we do have a training program with recorded video sessions. If you are interested, you can enroll for the same. The details can be obtained from: http://chandoo.org/wp/financial-modeling/
i want to know about the scope of financial modeling.i also want to know after doing financial modeling course what are the job prospect, like where i can found job so plz send me full detail of financial modeling from beginning levelo to final.
I am interested to join your Financial modelling class cos am involved in a new business. But I have a Macbook Air with Excel for Mac installed. Would that work with your program?
Dear Charsiew,
The complete training program is built using Excel 2007 with MS windows. Though there is nothing specific to Microsoft in the training. I think a few people have joined the program and are using MAC. If you write an email to me on paramdeep @ gmail.com, I can send you the email ids of those participants and you can get to know their feedback and difficulties in using the program.
This is great, when does the next batch start?
Dear Karan,
The course is in recorded format and you can register for the same as soon as you want.
Paramdeep, thanks. I'm venturing into financial modelling for the first time and from the little I've read from your website already, I'm sure I'll find your resources very useful; thanks once again.
Dear Seun,
I am glad that you are finding the resources to be useful. Feel free to send in comments with your feedback and further questions.
hie ppl...I jst wantd a small favour cn smone help me out in calculating EBITDA, along with its working, from wipros annual report 2011-2012, link - http://www.wipro.com/investors/annual-reports.aspx
...PLZ plz... i am having a submission tommorow.
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Nice article.
In designing Excel Financial Models I design the user interface as friendly as possible and structuring the input variables in the workflow of the client's operations so that they can flow through the impact of the input variables in Excel using buttons and macros and giving the model transparency.
Cheers
Arthur
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Another step to build any financial model is to do a financial analysis beforehand. This normally helps to design and come up with good projections.
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