What is a common pitfall in financial modeling?

Hardcoding numbers in financial modeling is a common pitfall because it makes the model less flexible and more prone to errors. When specific figures are hardcoded, any necessary changes to those numbers require manual adjustments throughout the model, increasing the risk of inconsistencies and inaccuracies. This approach undermines the dynamic nature of financial models, which are typically designed to allow for easy updates and scenario analyses, leading to potential miscalculations if any input needs to be revised.

Instead, best practices in financial modeling emphasize using cell references and formulas that automatically update when inputs change. This enhances the model's reliability and accuracy, enabling users to see the effects of different assumptions or changes in underlying economic conditions more efficiently. Recognizing this pitfall is crucial for developing effective and robust financial models that can adapt to new information and provide valuable insights.