Presentation on theme: "How to Install Excel Solver to find optimal solutions to business problems Demonstrated using Excel 2003 and Excel 2007."— Presentation transcript:
How to Install Excel Solver to find optimal solutions to business problems Demonstrated using Excel 2003 and Excel 2007
What is Solver? Solver is a powerful add-in for Microsoft Excel that acts as a optimizer, allowing the user to find an optimal solution for a desired goal. In other words, solver finds the best way to allocate resources – whether it’s time, money, machinery, or people skills.
More about Solver: Excel Solver uses the Generalized Reduced Gradient (GRG2) nonlinear optimization code, which was developed by Leon Lasdon, University of Texas at Austin, and Alan Waren, Cleveland State University. Frontline Systems (www.solver.com) won a competition to actually make the Solver Add-In for Excel, starting in 1991 when solver was introduced with Excel 3.0. Frontline has continued to contribute to the solver add-in, through and including Excel 2007.www.solver.com If you have any version of Excel from 3.0 and up (95, 97, 2000, XP(2002), 2003, etc), you have access to solver.
To use solver in Office 2003, simply go to: Tools, Add-Ins, and select the Solver Add-In option (If it’s not there, you need to install it by running the Office Setup program and selecting that option)
To use solver in Office 2007, Click the Office button, then click the Excel Options button at the bottom – You’ll see a screen like this:
Click Add-Ins, In the Manage box, choose Excel Add- ins, Click Go…
Setting up a sample spreadsheet: Here is a simple spreadsheet I made for a company that makes widgets, and wishes to optimize their revenue.
Behind the curtains: A closer look at the formulas that the spreadsheet depends on…
Time to see solver in action: Now that the spreadsheet is ready, go to Tools > Solver in Office 2003:
Go to the Data tab, and you should see Solver in the Analysis section: Or.. in Office 2007:
I’ve defined my target cell as G11, which is Total Revenue – now I need to define what cells will be changed to affect Total Revenue. I have chosen the subtotal cells for each type of widget my company produces. Solver will adjust these cells to find the solution that will maximize my revenue.
Not quite finished: Now I need to define my constraints: (How many widgets of each type I am able to produce, and how much time is available to do so)
What options can we choose? Solver has several options you can play with to optimize your results:
What each option does: Max time: Controls how long Solver should work on the problem. Default = 100 seconds, Max = 32,767 seconds Iterations: Number of iterations Solver should attempt. Default = 100, Max = 32,767 Precision: How precise Solver should be, Default = 0.000001. Tolerance: How close Solver should come to meeting integer constraints Convergence: Tells Solver when to stop searching for a better answer. You shouldn’t have to adjust these, but sometimes it’s necessary to find the best possible solution. We’ll use the defaults.
Now it’s time to solve: After hitting the Solve button you’ll be greeted with this message if everything worked all right: Notice that you can run a variety of reports now that Solver is finished. Click OK to see the solution.
Sensitivity Report: “In mathematical optimization problems, the method of Lagrange multipliers, named after Joseph Louis Lagrange, is a method for finding the extrema of a function of several variables subject to one or more constraints; it is the basic tool in nonlinear constrained optimization.” From Wikipedia - http://en.wikipedia.org/wiki/Lagrange_multiplier
Now I’ll show you the actual spreadsheet, and answer any questions.