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Killer Errors – Base Dates

Header Image - Killer Errors – Base Dates
November 2022  |  Financial modelling

Another group of killer errors that can cause big problems are base dates for indexation, discounting, and NPV calculations.

This is one close to my heart as many years ago, believe it or not, I had included an incorrect base date in an NPV calc!

Thankfully it came to light before the bid went in, but not before it caused me as the modeller serious embarrassment and lots of awkward conversations with my client.

The problem was, the key evaluation metric in the bid was the target NPV of the availability payment. Lots of work had gone into fine-tuning and shaving off costs so that, after a lot of effort, the NPV of the availability payment was just scraping in below the target NPV.

Trouble was that the target NPV was being calculated at base date 2009 in the model rather than 2008 (shows how long the scars remain…) as per the bid documents. This meant that a year of discounting at 6% was missing. This meant that the target NPV was overstated by 6%!

With only a couple of weeks to go to bid submission, my client had to try and find another 6% in cost reductions – not an easy task, and I was not very popular.

In my defence (I still feel the need to defend myself even after all these years…), the base date I used was the same as the forecast financial close date, and was consistent with the cost indexation base date which would be pretty normal. BUT it was not right, it was not consistent with the bid documents and I had not checked it.

It is all too easy to be tripped up by base dates within Project Finance models and the impact can be large.

Learn from my mistake, double-check your base dates, and then check them again!


Read our previous blog in our killer errors series here.

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Danny Leitch


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