1. Session 3 Managerial Spreadsheet Modeling -- Prof. Juran1

2. 2 Principles of Spreadsheet Design Developing Spreadsheets for Others Principles for Spreadsheet Layout –Accounting vs. “Live” –Hyperlinks –Design Consistency –Parameters, Arcs Outline

3. Managerial Spreadsheet Modeling -- Prof. Juran3 Spreadsheets are a specific (non-procedural) type of computer language. –Procedural: When calculations need to be sequential. Programmers learn the standard computer languages (C++, Java, Visual Basic) in formal classes. –The principles of programming style are emphasized. –Powerful debugging support systems help reduce errors. Managers (typically) learn Excel either through informal training, or else on their own, as needed. –Little or no training in debugging, design, or readability. Spreadsheets are Computer Programs

4. Managerial Spreadsheet Modeling -- Prof. Juran4 What sorts of efforts could be put into spreadsheet design? –Documentation (titles, cell labels, comments, external manuals, change tracking, chronological list of changes made) –Ease-of-use features (graphical controls, input prompting, macros) –Error prevention (auditing, cell protection, data validation) How much effort should be put into design? “It depends” on how it is to be used. –By the author, or by others? –One-time, frequent, or infrequent use? –Modified by others, or just used? Spreadsheets for Others

5. Managerial Spreadsheet Modeling -- Prof. Juran5 These are rules-of-thumb for communicating effectively through spreadsheets. –Different rules will of course be appropriate in different situations. Accountants have their own standards. –More focused on printed spreadsheets. We’ll focus on “live” spreadsheet use. –“Here’s a spreadsheet with my analysis. Play around with it, and let me know what you think.” –Using a spreadsheet as part of a presentation. Spreadsheet Layout Principles

6. Managerial Spreadsheet Modeling -- Prof. Juran6 Divide the spreadsheet into multiple sections. –Introductory –Data (Input) –Data Validation –Model –Results (Output) –References Accounting Standards for Spreadsheet Layout

7. Managerial Spreadsheet Modeling -- Prof. Juran7 Better suited for a procedural computer language than a spreadsheet. More appropriate for printed (black and white) output. Too formal and strict! –The reason why spreadsheets are so popular is that managers can calculate what then want, how they want, when they want. –Conflict: Sarbanes-Oxley requires each CEO to confirm that his/her firm’s financial system has been “effectively controlled.” Limitations of the Accounting Layout Standard

8. Managerial Spreadsheet Modeling -- Prof. Juran8 Make (a section of) the first worksheet an introduction to the spreadsheet. –Purpose, explanations, instructions –Explicit statement of assumptions made –Identify sources of data –Author, date created, and date last modified –Table of contents / List of worksheet names –With hyperlinks, to navigate within large spreadsheets. –Usually OK to just specify much of this information in File | Info | Properties | Show Document Panel — as long as you’re sure that your audience would know to look there Introductory Sheet

9. Managerial Spreadsheet Modeling -- Prof. Juran9 To write in paragraphs: –Widen the column, –Turn off the gridlines, –Under Page Layout | Sheet Options | Gridlines, uncheck the View box, -or- –Under View | Show, uncheck Gridlines –Let the text wrap around –Choose Home | Alignment | Wrap Text Introductory Sheet

10. Managerial Spreadsheet Modeling -- Prof. Juran10 Recent research has shown that people read longer lines (100 characters) faster, but prefer shorter lines (45 – 72 characters). Introductory Sheet

11. Managerial Spreadsheet Modeling -- Prof. Juran11 Choose Insert | Hyperlink, ctrl-K, or right-click Hyperlink. In the “Link to” choices on the left, click the “Place in This Document” button. Identify the worksheet and cell reference you want to go to. –Cannot link to charts. Change “Text to display” to something more meaningful than the address. Click on the ScreenTip button, if you want to add a message that appears when you hover over the hyperlink. Inserting Hyperlinks

12. Managerial Spreadsheet Modeling -- Prof. Juran12 You can even add your own screen tip: Inserting Hyperlinks

13. Managerial Spreadsheet Modeling -- Prof. Juran13 Can add hyperlinks to any picture. –Choose Insert, and then Picture from the Illustrations group. Some button-ish looking pictures let you add text. –Choose Insert, and then Shapes from the Illustrations group, and then Bevel from the Basic Shapes group. –Choose Insert, and then Shapes from the Illustrations group, and then Rectangle from the Rectangles group. Right-click to Format Shape, and add the Shadow at the top left. –Attach hyperlinks to invisible (no line, no fill) boxes, placed on top of (say) a map. Hyperlinks from Pictures ACC

14. Managerial Spreadsheet Modeling -- Prof. Juran14

15. Managerial Spreadsheet Modeling -- Prof. Juran15 Internally, within the spreadsheet –Use the same orientation (horizontal or vertical) for any series (e.g., locations, time, departments, individuals) throughout your document. –Stick with one style (font type, size, etc.). –Format all of your numerical cells. Externally, with standard practice –Time is the horizontal axis. –Revenues before costs. –Assets before liabilities before equity. –Colors for gender or political affiliation. Externally, with your organization’s design requirements. Design Consistency

16. Managerial Spreadsheet Modeling -- Prof. Juran16 First organize the data you will need, and then build your model around it. Spreadsheet layout should be determined by its needs. Use more rows than columns. Subdivide your worksheet into smaller sections. Separate the sections from one another with borders and blank space. Use physical proximity (or color, shading, borders, and fonts) for logically related cells (e.g., all input parameters; left-hand sides and right-hand sides of constraints). “Live” Spreadsheet Layout

17. Managerial Spreadsheet Modeling -- Prof. Juran17 Choose Formulas, and then the Formula Auditing group –Show the precedents or dependents for a cell. –Alternatively: Ctrl-[ and Ctrl-] Unless there is a good reason not to, organize the data as you would read: (left  right, top  bottom). Make the blue arcs as short as possible. Precedence Arcs Spaghetti:Better:

18. Managerial Spreadsheet Modeling -- Prof. Juran18 Generally a bad practice. –Often caused by an incorrect cell reference. –Planned circularity might mask errors. –Often possible to avoid, with little effort. –Cannot use with simulation (@Risk). Common in constructing pro forma financial statements. Circular References

19. Managerial Spreadsheet Modeling -- Prof. Juran19 Circular Reference Example B3=B6*B4 (B3 depends on B4) B4=B1+B2+B3 (B4 depends on B3)

20. Managerial Spreadsheet Modeling -- Prof. Juran20 Explicitly define parameters (constants) in their own (properly labeled) cells. –Use different formatting (text or background color) or location, so that they’re easy to find. –Identify source and date in a comment. –E.g., “Best estimate from Corporate Planning, 1/19” Differentiate between parameters that are frequently and infrequently modified. Parameters and Equations

21. Managerial Spreadsheet Modeling -- Prof. Juran21 Never, ever embed constants in equations! –Exception: “True” constants (e.g., 5280, 24) –Possible exception: Parameters embedded in a single cell –E.g., 8*5*52 = 2,080 hours/year would be OK as long as no other cell depended on 8 hours/day, 5 days/week, or 52 weeks/year. –8*(5*(52-3) – 9) = 1,888 definitely needs a comment. –True evil: define constants and then also embed them! Minimize the number of “volatile” Excel functions you use. Volatile functions are always recalculated, even if none of their precedents have changed. Examples: Now(), Today(), Rand(), Offset(), Indirect(), Info(), Cell() Good Equations

22. Managerial Spreadsheet Modeling -- Prof. Juran22 Eliminate links to other workbooks. –Data | Connections | Edit Links Avoid “killer” over-complicated equations –Very difficult for anyone else to understand what’s going on, even with tons of commenting. –There are millions of cells in the spreadsheet; just break the equation into smaller components. –Avoid array (CSE: control-shift-enter) functions. –Use Alt-enter to put line returns into your long equations. Good Equations

23. Managerial Spreadsheet Modeling -- Prof. Juran23 Make equations easy to read. –Eliminate unnecessary parentheses. –Eliminate the name of the current worksheet from the equation. –Insert spaces after commas, and before and after equations. –Example: =(If(C3<=4,Sheet1!B10,4+Sheet1!B10)) Make a recurring calculation only once in a workbook. –Use a “stub” to copy its value into other worksheets. –Add a hyperlink to the stub in order to make it easy to trace back. –Link back to the original calculation; don’t “daisy chain” it to intermediate stubs. Good Equations

24. Managerial Spreadsheet Modeling -- Prof. Juran24 Putting your name under File | Info | Properties | Show Document Panel | Author. Widening the column, turning off the gridlines, and allowing the text to wrap. Inserting hyperlinks into both cells and pictures. Hands-on Practice