A 3-Way Model, also known as a three-dimensional model, is a type of data structure used in programming, database management, and other process-oriented tasks where multiple layers of data, both physically and abstractly, must be tracked and managed. This type of model focuses on creating and maintaining three distinct layers of data: a top or surface layer, an intermediate layer known as a mid-ground layer, and a bottom or surface layer.

In order to make the most of a 3-Way Model and make sure it is functioning properly, it is important to follow certain best practices. This blog post explores the best practices for building and maintaining a 3-Way Model, from the importance of proper data organization to the need for automated process support.

Key Takeaways

  • Understand the 3 layers of data involved in a 3-Way Model
  • Properly organize your data to make the most of a 3-Way Model
  • Automate processes to ensure the model is functioning properly

Managing Model Inputs

The success of a three-way model depends on the quality and accuracy of the data it draws from. To ensure accuracy and to maximize the model’s utility, organizations should establish sound data sources, and set an appropriate frequency for inputting fresh data into the system.

Establishing Sound Data Sources

Creating sound data sources involves validating the quality and reliability of data before incorporating it into the model. Sources should be traceable, and their origin should be clear and able to be authenticated. Moreover, confidentiality of data should be secure, with appropriate access control and retention protocols, as well as secure storage media and secure data transmission techniques.

Finally, data sources should be well-understood, so that stakeholders involved in any aspect of the model can communicate accurately and effectively about the same data set.

Setting an Appropriate Frequency

Knowing when, and how often, to update a three-way model with new data is essential to maximizing the model’s value. Depending on the application, the best frequency for data inputs may range from a single update once per month to near real-time updates several times per second.

Organizations should consider the impact of inputs on model output. For example, if an input of new data regularly results in an output that differs by a large margin from previous outputs, then the data inputs may need to become more frequent. Conversely, if inputs regularly occur without impacting the output significantly, then the frequency of inputting data can be decreased.

Organizations should also consider the benefits of up-to-date information against the time and cost of maintaining a fresher data set. For example, inventories at a store may need to be updated hourly, while a yearly budget review may suffice for most organizations.

Assessing Market Responsiveness

A 3-way model aims to explain why a particular asset moves in a certain direction. To ensure that you remain ahead of any drastic market movements, it's important to assess market responsiveness. There are a few key factors to consider when assessing market responsiveness, such as taking into account short-term volatility and setting action thresholds.

Taking into account short-term volatility

When it comes to assessing market responsiveness, it’s important to take into account short-term volatility. It’s sometimes difficult to predict what the next few days or weeks will bring and short-term volatility can come with unexpected surprises. Keeping an eye on short-term market movements and anticipating any potential changes is key for a successful 3-way model.

Setting action thresholds

Setting action thresholds is another essential step in assessing market responsiveness. This involves determining the threshold point at which your 3-way model will take action and initiate a response based on the observed market behaviour. Having an action threshold in place allows you to be better prepared for any potential changes to the markets, and to respond swiftly and appropriately.

In order to ensure that your 3-way model is working effectively, it’s important to assess the market responsiveness and take into account both short-term volatility and set action thresholds. By keeping these factors in mind, you can be better prepared and ready to respond to any drastic market movements.

Turnover of Personnel and Processes

A well-designed 3-way model is built on the premise of continuity and consistency. This poses a unique challenge when personnel turnover occurs, or when processes must be adjusted to reflect new iterations of the model. To ensure the smooth functioning of the 3-way model, proper training must be provided to the new personnel and the processes must be updated to reflect any changes.

Training New Personnel on Model Assumptions

When new personnel join a team that is working on the 3-way model, it is essential that they receive comprehensive training. This should start with a comprehensive overview of the model and its components, followed by training on the assumptions that form the basis for the decision-making process within the model. This will ensure that the new personnel are able to quickly integrate into the team and can contribute to the process.

Setting Up Model Maintenance Processes

The 3-way model must be regularly maintained to ensure accuracy and relevance, in order to avoid potential inconsistencies or discrepancies. To this end, a set of maintenance processes should be established to check the consistency of the model with both reality and the decision-making process. This can include weekly or monthly reviews of the model, identifying outdated assumptions and variables, and making adjustments where necessary.

The processes should also include systems that allow for quick and accurate responses to changes in the variables and assumptions of the 3-way model. This will ensure that the model can be quickly adapted to any new situation that may arise, and that the decisions based on it remain accurate.

Versioning of the Model

When developing a complex financial model comprised of multiple components, versioning the model is an essential best practice that helps to ensure the accuracy and validity of your results. Versioning allows you to effectively track changes and differences in your model, analyze the impact of various model assumptions and modifications, and detect errors in the data or methodology that may lead to incorrect conclusions. Ultimately, versioning creates a record of the model’s development and improves the transparency of the model’s results.

Documenting Model Assumptions

An important component of versioning your 3-way model is documentation and documentation of the assumptions used in developing the model. This includes both assumptions underlying financial data points and assumptions relating to the logic, such as discount rates and rate of return, used to calculate and evaluate the results. Documenting the assumptions creates a reference point for each version of the model and helps to facilitate comparison and analysis between different versions of the model.

Versioning and Taking Notes of Results

Another key component of versioning your model is creating multiple versions of the model and taking notes of the results for each version. A practical way to manage multiple versions of the model is to store different versions in a single file, each version clearly named and labeled. Whenever a new version of the model is created, it should be appended to the existing file and the results should be documented, even if they are the same as a previous version.

For each model version, it is important to take notes of the results of each iteration. These notes serve two purposes – firstly, they provide a record of the results of each version for future reference, and secondly, they help you to compare and analyze the results between different versions of the model. By comparing and analyzing the results between different iterations of the model, you can identify any areas that may be prone to errors, assumptions that need to be re-calibrated, or any other issues that need to be addressed to improve the accuracy of the model.


Versioning is a critical best practice when it comes to building and maintaining a 3-way model. By documenting the assumptions and creating versions of the model, and taking notes of the results of each version, you can effectively track changes made to the model, and analyze the results in order to ensure the accuracy of the model. This helps to improve the transparency and accuracy of the results and should be an essential part of the process when building and maintaining any financial model.

Creating an Action Plan

Creating an action plan is an essential step in successful 3-way model building and maintenance. It should be built with both short- and long-term goals, and should include clear steps for achieving each goal. An action plan should ensure that the outputs of the 3-way model are linked to real-world action, and that consistent outcomes for common inputs are created. Below are steps for creating an effective action plan.

Linking Model Outputs to Actions

The most successful action plans link the outputs of the 3-way model to real-world actions. This helps to ensure that the model remains useful and that the outcome of the model is realized in real-world application. To link the output of the 3-way model to action, consider the following steps:

  • Identify the general outcome of the model based on its inputs
  • Identify the specific action that needs to take place in order to realize the outcome of the model
  • Determine what resources are needed to complete the action
  • Identify who needs to be involved in carrying out the action
  • Set milestones for monitoring progress or success

Ensuring Consistent Outcomes for Common Inputs

It is also important that an effective action plan ensures consistent outcomes for common inputs. This helps to ensure that the model outputs are reliable and can be used to make effective decisions. To create consistent outcomes for common inputs, consider the following steps:

  • Identify common inputs to the model
  • Analyze the outputs of the model to determine what outcomes are consistent
  • Create guidelines or protocols to ensure that common inputs generate the same outputs
  • Test the guidelines or protocols to confirm their accuracy
  • Document the guidelines or protocols for easy reference and for future use


Creating a 3-way model to manage data and provide structure to a project is an important task for any organization. It is important to understand the key best practices for building and maintaining a 3-way model in order to ensure the model is effective and successful.

Summary of Best Practices

The most important best practices for building and maintaining a 3-way model include:

  • Develop a clear plan for the model and ensure stakeholders are aware of the plan.
  • Use the right tools to support the model.
  • Create a high-level view of data to facilitate understanding.
  • Identify specific data elements and associated relationships.
  • Consider all external sources of data.
  • Determine who has access to the data.
  • Monitor data over time to detect any issues.

Benefits of Following Best Practices

By following the best practices for building and maintaining a 3-way model, organizations can expect the following benefits:

  • Improved data accuracy and integrity.
  • Increased efficiency in systems and processes.
  • Reduced costs through more effective data management.
  • Better decision-making capabilities.

By investing the time and effort in understanding and following the best practices for creating and maintaining a 3-way model, organizations can experience the many benefits of a well-structured data management system.

Expert-built startup financial model templates

500+ Excel financial model templates for your business plan