Project Finance Model Build Checklist
Executive Summary
Key Takeaways
- ✓ This is a construction-sequence checklist for the model builder, distinct from the pre-financial-close audit checklist and lender model review checklist, both of which verify a model that already exists.
- ✓ The build sequence runs assumptions, sources and uses, construction-period funding mechanics, debt sculpting, reserve accounts, and the cash waterfall, in that order, each with its own construction discipline.
- ✓ Following this checklist while building does not itself constitute an independent audit; it is intended to produce a model more likely to pass one cleanly.
- ✓ The most consequential build-stage failure is a sources and uses statement that only balances through a hardcoded plug, since it masks a structural error the rest of the checklist is designed to prevent.
Objective¶
This checklist guides the construction sequence for a project finance financial model, from the model builder's own perspective, applying the specific disciplines described across the project finance modelling technical guides at each build stage. It is distinct from the audit-oriented checklists on this site, Pre-Financial-Close Audit Checklist and Lender Model Review Checklist, both of which verify a model that already exists. This checklist is used earlier, while the model is being built.
Applicability¶
Applicable to any project finance, infrastructure, PPP, or renewable energy financial model at the construction stage, before it is submitted for lender or independent technical adviser review. Used by model developers and advisory firms as a self-check against the construction disciplines described in the Project Finance Model Audit pillar's Modelling Best Practices section and its supporting technical guides.
Checklist¶
| # | Check Item | Why It Matters | Reference |
|---|---|---|---|
| 1 | The model's three phases, construction, operations, and end-of-term, are built as distinct modules with clearly labelled hand-off points | Prevents construction-phase and operations-phase assumptions from being blended into a single undifferentiated cash flow line | Project Finance Model Structure |
| 2 | All assumptions (construction cost, interest rates, covenant thresholds) are centralized in a single labelled module, not embedded inside downstream formulas | Supports reliable sensitivity and scenario testing | Project Finance Model Structure |
| 3 | The sources and uses statement balances through formula alone, with no hardcoded plug figure | An unbalanced statement forced to reconcile with a plug masks a real structural error elsewhere in the model | Sources and Uses Modelling |
| 4 | Interest during construction is calculated on the opening drawn balance each period, not a static lump-sum estimate | Ensures the total funding requirement responds correctly to changes in the construction schedule or interest rate | Construction Period Modelling |
| 5 | Construction contingency is tracked as a distinct, triggered reserve, separate from the base construction cost line | Allows the model to represent both the base case and a cost overrun stress scenario | Construction Period Modelling |
| 6 | The drawdown schedule tracks the actual construction cost curve, with an explicit, labelled funding competition assumption | A drawdown profile disconnected from the real cost curve misstates the funding requirement and interest during construction | Drawdown and Funding Mechanics |
| 7 | The construction-to-operations transition is controlled by a single switch cell (commercial operations date test), not duplicated logic | Prevents construction-phase and operations-phase logic from diverging as the model is revised | Construction Period Modelling |
| 8 | Debt sculpting interest is calculated on the opening balance, and the DSCR definition used matches the loan agreement exactly | The most common structural error in sculpting implementations is an average-balance circularity or a DSCR definition mismatch | Debt Sculpting Mechanics |
| 9 | Reserve accounts (DSRA, MRA) are modelled as live balance schedules with an explicit drawdown mechanic, not static assumed balances | A reserve account that cannot represent a drawdown has not modelled its actual protective function | Reserve Accounts in Project Finance Models |
| 10 | The maintenance reserve account funding requirement is derived from an independent technical adviser's maintenance schedule, not a generic annual assumption | Avoids underfunding a known future capital event | Reserve Accounts in Project Finance Models |
| 11 | The cash waterfall is built as an explicit tier-by-tier calculation, with no lower-priority tier referencing a higher-priority balance before it is calculated | Ensures the model can demonstrably enforce payment priority, particularly in a downside scenario | Cash Waterfall Construction |
| 12 | Any distribution lock-up test is modelled as a hard block on the distribution calculation, not a soft warning flag | Ensures a covenant condition failure actually prevents a distribution from being paid | Cash Waterfall Construction |
| 13 | Every structural circularity (IDC, debt sculpting, cash waterfall) is explicitly documented in the model's assumptions log | Distinguishes deliberate, controlled circularity from an unintended structural error | Circularity in Debt Models |
| 14 | Gearing is derived as an output of debt sizing and the sources and uses reconciliation, not entered as a fixed input | Ensures the model correctly represents how gearing responds to a change in cash flow, interest rate, or covenant assumptions | Gearing Ratio |
Common Failures¶
- Sources and uses balanced with a hardcoded plug figure, masking a real error elsewhere in the funding requirement calculation.
- Interest during construction estimated as a static lump sum rather than calculated from the actual drawdown profile, understating or overstating the total funding requirement.
- Contingency folded into the base construction cost line, preventing the model from representing a cost overrun stress scenario.
- Construction and operations logic built as separate, independently maintained calculation blocks that diverge as the model is revised.
- Reserve accounts modelled as static balances with no drawdown mechanic, unable to represent their actual protective function.
- Cash waterfall built as a single blended formula rather than an explicit tier-by-tier sequence, unable to demonstrably enforce payment priority in a downside scenario.
- Gearing hardcoded as a fixed target rather than derived from debt sculpting output and the sources and uses reconciliation.
Recommended Evidence¶
A model built to this checklist should be accompanied by a documented assumptions log (including every circularity's resolution method), a sources and uses statement that reconciles through formula alone, and a covenant compliance schedule showing DSCR and LLCR at every test date across the full loan life. The table above is structured for direct use as a self-review checklist before a model is submitted for lender or independent technical adviser review.
How to Use This Checklist¶
Work through the checklist in build sequence, from the assumptions module through to the cash waterfall, rather than as a single end-of-build review, since several items (the sources and uses circularity, the construction-to-operations switch) are more easily built correctly from the outset than retrofitted afterward. See the Project Finance Model Audit pillar for the independent verification perspective this checklist is designed to prepare a model for, and the Pre-Financial-Close Audit Checklist for the closing-stage documentation process that follows.
Continue Reading¶
Related Pillars¶
Related Technical Guides¶
- Project Finance Model Structure
- Sources and Uses Modelling
- Construction Period Modelling
- Cash Waterfall Construction
Related Checklists¶
Related Products¶
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Frequently Asked Questions
How is this checklist different from the pre-financial-close audit checklist?
The pre-financial-close audit checklist verifies that an independent audit of an existing model is genuinely complete ahead of a closing date. This checklist is used earlier, while the model is being built, to guide the construction sequence and discipline applied at each stage.
How is this checklist different from the lender model review checklist?
The lender model review checklist is applied by a reviewer examining a model someone else built. This checklist is applied by the model's own builder during construction, as a self-check against the construction disciplines described across the project finance modelling technical guides.
What is the correct build sequence for a project finance model?
Assumptions module, sources and uses, construction-period funding mechanics (drawdown, interest during construction, contingency), debt sculpting and covenant testing, reserve accounts, and the cash waterfall, each built as its own module with clear hand-off points to the next.
Does completing this checklist mean the model has been audited?
No. Following a sound construction discipline makes a model more likely to pass an independent audit cleanly, but it is not itself a substitute for independent verification. See the Pre-Financial-Close Audit Checklist and Lender Model Review Checklist for the audit-side checks.
What is the single most consequential item on this checklist?
Confirming the sources and uses statement balances through formula alone, with no hardcoded plug figure, since an unexplained plug typically masks a real structural error, most commonly in the interest during construction or contingency calculation, that the rest of the checklist is designed to catch before it reaches that point.
Related Articles
What Is a Project Finance Model Audit?
A project finance model audit is a financial model audit applied to the specific class of model used to finance infrastructure, energy, and long dated capital projects: debt sculpted, multi decade, cash flow driven structures with mechanics that do not appear in a typical corporate model. It is frequently a formal condition of financial close, not an optional check, and lender requirements for it exist almost entirely inside non public bank credit policy rather than any single consolidated public source. This page defines what makes project finance models structurally distinct, why lenders require independent verification of them specifically, and what the audit process looks like in this context.
Financial Modelling Best-Practice Checklist
This checklist sets out the construction-time disciplines a financial modelling team should apply while a model is being built, synthesising the common ground across the FAST Standard, the ICAEW Financial Modelling Code, and general spreadsheet engineering practice. It is not a certification checklist and does not test whether a model's calculations are correct — it is a builder's self-check aid, distinct from the Financial Model Audit Checklist, which is used for independent, post-hoc structural verification rather than during construction.
Pre-Financial-Close Audit Checklist
This checklist covers the model-related audit steps and documentation typically required as a condition precedent before a financing transaction reaches financial close. It focuses on audit completion status, model version lock, sign-off documentation, and reconciliation between the audited model and transaction documentation. It is intended for borrowers, sponsors, and advisors coordinating the model audit workstream ahead of a scheduled close date.
Lender Model Review Checklist
This checklist covers the checks a lender, credit committee, or independent reviewer should apply to a borrower's financial model as part of credit approval or financial close. It focuses on covenant calculation integrity, debt sculpting mechanics, cash waterfall priority, and circularity resolution specific to debt-financed models. It is intended for banks, credit teams, and advisors conducting lender-side model review ahead of a financing decision.