Excel Review

Weekend Executive MBA

May 2000

Agenda

Efficiency Key model-building features Five-item model-building checklist Model walk-through: Oak Products Hands-on in lab

Handouts

Paper Guides we’ll draw from today in class. Guides you might use for your own self-study.

Diskette Excel Review Demo File 2000.xls

Solutions.xls (to proficiency exercises) Oak Products Start.xls

Tips on how to build formulas

Avoid using actual values Put actual values in other cells and refer to those

cell names in your formulas

Point and click to “get” values when building a formula

Keep formulas simple Use built-in functions where possible

What you must know when copying formulas

To copy or not to copy? Excel’s three modes of addressing

Relative A3 Absolute $A$3 Mixed $A3

The meaning of the dollar sign The F4 key toggle

Another modeling tool:Data Tables

When would you use a data table? When you want to track how changes to input

values affect a model. Specifically:

• many changes to inputs (not just one or two)• the inputs are used in the model’s formulas

See the handout: Intro to Data Tables/Data Table Exercises

How a data table works

Inputs Identify one or more key inputs that you want to vary. Assign the values that you want them to take on.

Formulas Identify one or more key formulas that depend on the inputs

and calculate results you want to track.

Execution Excel executes each formula many times, on each iteration

substituting a different input value, and recording the result.

Data Tables

For example For one item your firm manufactures you want to

see the effect of 50 different retail volume levels on operating expenses and net income.

2 varieties One-input Data Table Two-input Data Table

2 varieties

One-input Data Table vary a single input value include one or more formulas

Layout example column = inputs formula above & at right (can include more than

one formula)

460024,00026,00028,00030,00032,00034,00036,00038,00040,00042,00044,00046,00048,000

volume

Operating expenses formula

2 varieties Two-input Data Table

vary two input values (volume down and price across) include a single formula (for Net Income)

Layout example column and row = inputs formula at row/column intersection

Net Income 0.05 0.1 0.1520,000 ($3,400) $36,600 $76,60022,000 ($1,800) $42,200 $86,20024,000 ($200) $47,800 $95,80026,000 $1,400 $53,400 $105,40028,000 $3,000 $59,000 $115,00030,000 $4,600 $64,600 $124,600

Summary: Some Model Building Features

Techniques for building formulas Understanding addressing when copying

formulas Making use of Excel’s built-in functions Data Tables for sensitivity analysis The special XY (Scatter) plot type

An approach to spreadsheet modeling

Model components Understand the components present in most

spreadsheet models

Checklist Make those components part of a checklist

Use the checklist items to: Get started when facing a blank spreadsheet Improve your models

Five item modeling checklist

Identify Known Values The givens; can’t be modified. (Do you need more information?)

Identify Decision Variables The quantities you control. You’ll manipulate these items to find an optimal model solution.

Determine the Outputs What you want to solve, show, find, maximize or minimize.

Checklist, continued

Be aware of any Constraints Limits to inputs or outputs. Tradeoffs.

Build Relationships into the Model Relationships between known values and variables,

expressed in formulas.

Oak Products: Overview

Oak Products is a small company that manufactures handmade wood chairs. The company has 6 chair models.

Each model requires a different mix of components. August is vacation month.

Only the parts already on hand can be used for August production.

In August, Oak Products has traditionally made 40 of each model chair.

Question

Might a different product mix be more profitable?

To find out...

Data we need components needed for each model how many of each component are on hand how much profit each model generates

Then analyze the data to determine the most profitable

product mix, accounting for constraints

Model Checklist

Objective maximize profit for August

Known Values profit/chair, parts-on-hand, parts required

Constraints parts on hand & parts requirements

Decision variables how many of each model to make

Let’s build the model.

You may want to follow along with the Oak Products Project handout.

Attempting to maximize total profit

with guesswork...

40 53 40 40

75 5 28 37

Maximizing total profit

with Excel’s Solver...

Identify for Solver

Target cell Total Profit

Changing cells (or decision variables) Quantity of each chair to produce

Constraints No “negative production” Use only inventory on hand

Oak Products model summary

Before you begin identify the objective, known values, constraints, and

decision variables

Put down what you know, then get more data, if needed express data relationships using formulas rearrange the layout, if needed

Then use the model change the decision variable values (use Solver if possible) monitor the result

Next…

Work in the computer lab on whatever feature or exercise would be most help

you improve your Excel skills set.