Introduction to Crystal Ball (Part I) Brad McMinn, Piyush Parikh, Brice Wu Brett Robertson, Adam Yoxtheimer ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Outline Part I (9/8 & 9/9) Part II (~10/10) Basic Crystal Ball Model / Crystal Ball Setup Running Crystal Ball Interpreting the Output Tornado Charts Basic Excel Logical Statements Min / Max Part II (~10/10) Advanced Excel Data Tables Regression Advanced Crystal Ball Decision Variables Decision Tables

Background for Today For today’s introduction, we will be using the following example: High Level Summary: $500,000 in Fixed Costs, $5 in Variable Costs Units can be sold in bulk (major purchase), or individually (general sales), at different prices Variable Demand : Want to know what profits look like… Solution: Monte Carlo Simulation (aka Crystal Ball)

Basic Modeling Methodology First create a model that works for one specific case (this will help you better understand what’s going on) Then add in all of the moving parts (assumptions and forecasts) In general, a majority of your models will be in the form of Revenue – Cost = Profit

Entering Assumption Variables Assumption Variables are the variables in the model that will change when the model is run Simply click on the cell, and then hit the “define assumption” menu button For this example, “General Sales” has a triangular distribution of (50,000 – 75,000 – 115,000) “Major Purchases” has a Yes/No distribution with a 60% chance of being 50,000 and a 40% chance of being 0

Defining Forecast Cells Forecast cells are the cells that will “record” the outcome of your model Simply click on the cell, and then hit the “define forecast” menu button

Setting Up The Run Critical Choices: Number of Trials to Run: (how many times to change the variables) Speed / Drawing Store Assumptions (for sensitivity analysis) In all cases, this is nominally a tradeoff between speed / time and memory used

Interpreting the Results… Probability – Total Percent of times that the outcome was between X and Y (e.g. 3.4% of all runs were between $100k and $110k) Frequency – Absolute number of total outcomes of value X (e.g. 3.4% (or 680of the 20,000 runs) were between $100k and $110k)

Confidence Intervals Lower Bound Upper Bound Enter % Here 60% of all values fall between $(112,251) and $116,701 Question: What is the probability of at least breaking even?

Use “View” -> “Split View” Copy/Paste the information View Options Use “View” -> “Split View” Showing the mean Copy/Paste the information

Tornado Charts… Are available under “Tools” -> “Tornado Chart” Tornado Charts are sensitivity analyses Variables in the model can be changed +/- 10% or based on their uncertainty to see how the “forecast” variable changes Generally speaking, the variables that result in the highest change to the forecast variable are the variables that the model is the most sensitive to.

Tornado Charts… How to Setup Step 1: Select Forecast Variable to watch (you can only watch one forecast variable at a time in Tornado Chart Analyses) Step 2: Select Variables to Change. (You can select as many as you want – these are the variables that Crystal Ball will move to see how the Forecast Variable changes) Use “Add Precedents” or “Add Assumptions” Step 3: Set number of runs, and percent the numbers will move (or the percentiles to be moved for the assumption variables)

Tornado Charts…Results (+/- a percent change in variable) Blue: Impact on profit with a positive change in the variable; Red: Impact on profit with a negative change in the variable Variables at the top are the ones that impact profit the most Total range is given at the top of the graph

Adjusting Crystal Ball Options Starting CB every time Excel Starts Application Manager (under Programs > Crystal Ball) – Automatically Launch CB when Excel Starts Adjusting cell colors and preferences: Click on Cell Prefs Copying and Pasting CB cells:

Helpful Basic Excel Formulas If / Then / Else Excel Formula is: =IF(A21 > 10, 0,1) (Statement to Evaluate, Value if True, Value if False) And Statement Excel Formula is: =AND(A21>10, A22>10) (Returns “TRUE” if all statements are true) Or Statement Excel Formula is: =OR(A21>10, A22>10), (Returns “TRUE” if any of the statements are true) Min / Max Excel Formula is: = MIN(A21,A22,A23) Tying it all together… IF(AND(MIN(A21,A22,A23)>10, A24>5),1,0)