microsoft office excel 2010 ® ® tutorial 10: performing what-if analyses

Microsoft Office Excel 2010® ®

Tutorial 10: Performing What-If Analyses

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New Perspectives on Microsoft Excel 2010 2

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

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Objectives• 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) analysis– Studies the relationship between expenses,

sales volume, and profitability–Helps predict the effect of cutting overhead

or raising prices on a company’s net income– Sometimes called break-even analysis

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Comparing Expenses and Revenue• Types of expenses–Variable expenses change in proportion to

the amount of business a company does– Fixed expense must be paid regardless of

sales volume–Mixed expense is part variable and part

fixed

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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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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

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Performing a What-If Analysis with Goal Seek

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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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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

• 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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Creating a Two-Variable Data Table

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Charting a Two-Variable Data Table

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Visual Overview

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What-If Scenarios

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Using the Scenario Manager• 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–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 scenarios– Each scenario includes a scenario name,

input cells, and values for each input cell–Number 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 Scenario– Edit the assumptions to view other

possibilities–Worksheet 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

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Using Solver

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Understanding Price Elasticity of Demand• Point of maximum revenue occurs somewhere

between lowest and highest sales price• Demand and revenue as functions of price

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Understanding Price Elasticity of Demand• Elasticity– Effect of one financial variable upon

another• Price elasticity of demand– Effect that price has on demand

• Elasticity measures are always expressed as positive values

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Price Elasticity of Demand• Relatively inelastic

– Price elasticity of demand isless than 1

– Large changes in price cause small changes in demand

• Perfectly inelastic– Elasticity equals 0– Changes in price have no

impact on demand

• Relatively elastic– Price elasticity of demand is

greater than 1– Demand is very responsive to

changes in price

• Perfectly elastic – Large elasticity values– Any change in price causes a

huge change in demand

• Unit elastic– Elasticity equals 1.0– Any change in price is met by

an equal and opposite change in demand

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Maximizing Net Income Through Trial and Error

• Using the trial and error process can be very time-consuming if you have a large range of possible values

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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 int–binary or bin–dif 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 ToolData 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

microsoft office excel 2010 ® ® tutorial 10: performing what-if analyses

Documents

microsoft excel

xp new perspectives

microsoft office excel

revenue slide

fixed slide

breakeven analysis slide

variable data table

different excel scenarios