Download - Tutorial 10: Performing What-If Analyses
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TUTORIAL 10: PERFORMING WHAT-IF
ANALYSES
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Objectives Explore the principles of cost-volume-profit relationships Perform a basic what-if analysis Use Goal Seek to calculate a solution Create a one-variable data table Create a two-variable data table Create and apply different Excel scenarios Generate a scenario summary report Generate a scenario PivotTable report Explore the principles of price elasticity Run Solver to calculate optimal solutions Create and apply constraints to a Solver model Save and load a Solver model
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Visual Overview
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Data Tables and What-If Analysis
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Understanding Cost-Volume-ProfitRelationships
Cost-volume-profit (CVP) analysisStudies the relationship between
expenses, sales volume, and profitability
Helps predict the effect of cutting overhead or raising prices on a company’s net income
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CVP (Break – Even Analysis) Cont.
Used to determine at what point a product or activity becomes profitable In break even analysis, there are fixed costs that do
not change There are variable costs based on the number of
units sold These are the costs of raw materials and direct labor
Break-Even Analysis determines how to just pay for costs (net income of zero) The break-even point is that point where the total
net profit is 0
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Comparing Expenses and Revenue
Types of expensesVariable expenses change in
proportion to the amount of business a company does
Fixed expense must be paid regardless of sales volume
Total Expenses = Fixed expenses + variable expenses
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Determining the Break-Even Point
Break-even point: revenue equals expenses
A CVP chart shows the relationship between expenses and revenue
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Ways to Perform What-If Analysis in Excel
Goal Seek Automates trial-and-error process
One-variable data tables Works by changing the value of one input
variable Two-variable data tables
Works by changing the value two input variables
The Scenario manager Input variables are changed using two or more
scenarios
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Performing a What-If Analysis with Goal Seek
What-if analysis lets you explore the impact of changing different values in a worksheet
Goal Seek automates trial-and-error process Allows you to specify a value for a calculated
item Excel returns input value needed to reach the
goal Goal Seek dialog box – determining break-even point
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Performing a What-If Analysis with Goal Seek
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One-variable Data Tables (Introduction)
Use to calculate different expected outcomes by changing the value of a single variable
Note that we could do this by hand using mixed formula references
When creating data tables, the structure of the data must be in a specific form
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Working with Data Tables Display results from several what-if
analyses One-variable data table
Specify one input cell and any number of result cells
Useful in business to explore how changing a single input cell can impact several result cells
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One-variable Data Tables (Creating 1)
Set up the worksheet for a data table
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One-variable Data Tables (Creating 2)
Select the columnar grid for the data table
Formula to copy
Inputvalues
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One-variable Data Tables (Creating 3)
Select the input variable to be modified (interest rate) Select Column input cell because the data are
columnar
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One-variable Data Tables (Result)
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Charting a One-Variable Data Table
Gives a better picture of relationship between sales volume, revenue, and total expenses
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Creating a Two-Variable Data Table
Conceptually, they work like one-variable data tables Two inputs are changed instead of one input The resulting output is a grid
Analyzes a variety of combinations simultaneously
Uses two input cells, but displays only a single result value
Must identify the row input cell and the column input cell
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Two-variable Data Tables (Creating 1)
Set up the worksheet for a data table
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Two-variable Data Tables (Creating 2)
Select the two-dimensional grid for the data table
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Two-variable Data Tables (Creating 3)
Select the two input variables to be modified
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Two-variable Data Tables (Result)
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Creating a Two-Variable Data Table
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Charting a Two-Variable Data Table
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Visual Overview Scenario Manager
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What-If Scenarios
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The Scenario Manager (Introduction)
Use the Scenario Manager to vary one or more input value
Each unique combination of input values is called a scenario Input cells are called changing cells There can be many scenarios Scenarios usually vary from best possible case to
worst possible case Scenario input must be well-structured
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The Scenario Manager (Cont)
Using the Scenario Manager can be confusing as you don’t see the input values to the scenarios
Create scenarios to perform a what-if analysis with more than two input cells
Define names for all input and result cells that you intend to use in the analysis Use named ranges for the input values to simplify the
creation of scenarios Defined names automatically appear in reports
generated by the Scenario Manager Using defined names makes it easier to work with
scenarios and understand the scenario reports
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Using the Scenario Manager
Use the Scenario Manager to define scenariosEach scenario includes a scenario name,
input cells, and values for each input cellNumber of scenarios is limited only by
computer’s memory Input cells are referred to as changing cells
Contain values that are changed under the scenario
Can be located anywhere in the worksheet
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Using the Scenario Manager
Edit Scenario dialog box
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Using the Scenario Manager
Scenario Values dialog box
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Using the Scenario Manager
View the effect of each scenario by selecting it in the Scenario Manager dialog box
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Using the Scenario Manager
Editing a ScenarioEdit the assumptions to view other
possibilitiesWorksheet calculations are
automatically updated to reflect the new scenario
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Creating a Scenario Summary Report
Displays the values of the input cells and result cells under each scenario
Tabular layout makes it simpler to compare results of each scenario
Automatic formatting makes it useful for reports and meetings
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Scenario Summary Report
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Creating a Scenario PivotTable Report
Displays results from each scenario as a pivot field in a PivotTable
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Creating a Scenario PivotTable Report
Results for the table can be displayed in a PivotChart
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Visual Overview (Solver)
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Using Solver
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Finding an Optimal Solution Using Solver
Solver searches for the optimal solution to a problem involving several variables
Arrives at optimal solutions through an iterative procedure
Because it is an add-in, Solver might need to be activated
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Setting Up Solver to Find a Solution
Specify three Solver parameters Objective cell Variable (or changing) cells Constraints
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Setting Up Solver Constraints
Constraints confine the solution within a reasonable set of defined limits
Constraints supported by Solver<=, >=, and =integer or intbinary or bindif or AllDifferent
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Setting Up Solver Constraints
Add Constraint dialog box
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Setting Up Solver Constraints
Completed Solver Parameters dialog box
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Creating a Solver Answer Report
Solver can create three different reports Answer report (the most useful) Sensitivity report Limits report
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Sections of a Solver Answer Report
Titles Information about the objective cell:
location, cell label, and cell’s original value and final values
Information about the changing cells (variable cells): location, column and row label, original value, and final value of each cell
Information about the constraints: not binding and binding, and slack
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Creating a Solver Answer Report
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Choosing a What-If Analysis Tool
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Data tables • To perform several what-if analyses involving one or two input cells and to display analysis in a tabular format
• Easily displayed as charts
Create a scenario
• For what-if analyses involving more than two input cells• Scenario summary tables and scenario PivotTables can be
used to obtain a quick snapshot of several possible outcomes
• Scenarios can be merged and shared among several workbooks
Solver • To maximize or minimize a value (provide a single solution or “best outcome”)
• To set a calculated cell to a specific value
Goal Seek • If you don’t need to specify any constraints on your solution
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Saving and Loading Solver Models
Save parameters in cells in the worksheet Reload the parameters from the worksheet
cells without having to reformulate the problem
Create dozens of models that you can load and apply to your analysis as new data is entered
Load/Save Model dialog box
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Saving and Loading Solver Models
Saved Solver model
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