1. Introduction to Spreadsheet Modeling
Chapter 2
Introduction to Spreadsheet Modeling

2. Introduction Introduction to Excel modeling Modeling process
illustrates some interesting and relatively simple models.
Modeling process
less well known, but particularly helpful, Excel tools that are available

3. Spreadsheet Modeling Elements of a spreadsheet/mathematical models
Inputs
Known, estimated, uncertain
Decision variables
Values must be determined using the model
Outputs
Values of interest
Computed from the inputs and the decision variables.

4. Spreadsheet Modeling Using the model Optimization Sensitivity analysis
Prepare reports

5. Best practices Readability of the model Clear and logical layout
Separation of different parts of a model
Clear headings for all inputs, decision variables, and outputs
Range names
Formatting features – bold, italics, coloring, etc.
Cell comments
Text boxes for assumptions and explanations

6. Best practices Modelling The formulas and logic must be correct
Breakdown computations to small chunks and build
Model must be flexible for modification
Plan ahead, revise your plan as needed

7. Six models Example Excel file Concepts NCAA T-Shirts
01-TShirt Sales-Shell.xlsx
Basic modeling concepts
Creating names for cells
Excel IF function
Bookshelves
02-Bookshelf Costs-Shell.xlsx
Absolute cell references
Creating basic charts
Break even analysis
03-Breakeven Analysis-Shell.xlsx
Cell comments
One-way Data Table
Goal seek
Formula Auditing

8. Six models Example Excel file Concepts
Ordering with quantity discounts
04-Quantity Discounts-Shell.xlsx
IF, MAX, MIN functions
VLOOKUP function
Two-way Data Table
SUMPRODUCT function
Adding cell comments and text boxes
Golf club demand
05-Golf Club Demand-Shell.xlsx
Scatter plot trend lines
INDEX function
MATCH function
Absolute reference in conditional formatting
NPV at Acron
06-Calculating NPV-Shell.xlsx
NPV function
Data Table
Conditional formatting

9. Summary of Management Science terms
Explanation
Page
Model inputs
The numeric values that are given in any problem statement 22
Decision variables
The variables a decision maker has control over to obtain better solutions
Model outputs
The numeric values that result from combinations of inputs and decision variables through the use of logical formulas
Net present value (NPV)
The current worth of a stream of cash flows that occur in the future 55
Discount rate
Interest rate used for discounting future cash flows to get the net present value

10. Summary of Key Excel Terms
Explanation
Excel
Page
IF function
Useful for implementing logic
=IF(condition,resultIfTrue, resultIfFalse) 24
Relative, absolute cell addresses
Useful for copying formulas; absolute row or column stays fixed, relative row or column "moves"
A1 (relative), $A1 or A$1 (mixed), $A$1 (absolute); press F4 to cycle through possibilities 29
Range names
Useful for making formulas more meaningful
Type name in Name box, or use Create from Selection shortcut (Ctrl+Shift+F3) 33
Pasting range names
Provides a list of all range names in the current workbook
Use Paste List from Use in Formula dropdown list (F3)
Cell comments
Useful for documenting contents of the cell
Right-click on cell, select Insert Comment menu item 34

11. Summary of Key Excel Terms
Explanation
Excel
Page
One-way data table
Shows how one or more outputs vary as a single input varies
Use Data Table from What-If Analysis dropdown list 36
Goal Seek
Solves one equation in one unknown
Use Goal Seek from What-If Analysis dropdown list 37
Formula Auditing toolbar
Useful for checking which cells are related to other cells through formulas
Use Formula Auditing buttons on Formulas ribbon 38
fx button
Useful for getting help on Excel functions
On Formula Bar 42
VLOOKUP function
Useful for finding a particular value based on a comparison
=VLOOKUP(valueToCompare, lookupTable, columnToReturn)
Two-way data table
Shows how a single output varies as two inputs vary 43

12. Summary of Key Excel Terms
Explanation
Excel
Page
SUMPRODUCT function
Calculates the sum of products of values in two (or more) similar-sized ranges
=SUMPRODUCT(range1,range2) 44
Trendline tool
Superimposes the best-fitting line or curve of a particular type on a scatter chart or time series graph
With chart selected, right-click on any point and select Add Trendline 47
Conditional formatting
Formats cells depending on whether specified conditions hold
Use Conditional Formatting on Home ribbon 51
Splitting screen
Useful for separating the screen horizontally and/or vertically
Use screen splitters at top and right of scrollbars 57

13. Summary of Key Excel Terms
Explanation
Excel
Page
Efficient selection
Useful for selecting a large rectangular range
While pressing the Shift key, click on upper-left and bottom-right cells of range 58
Efficient copying
Shortcut for copying a formula to a range
Select the range, enter the formula, and press Ctrl+Enter
NPV function
Calculates NPV of a stream of cash flows at the ends of consecutive years, starting in year 1
=NPV(discountRate,cashFlows)