1. Tutorial 10: Performing What-If Analyses

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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3. 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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4. Visual Overview
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5. Data Tables and What-If Analysis
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6. Understanding Cost-Volume-Profit Relationships
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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7. 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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8. 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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9. 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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10. Performing a What-If Analysis with Goal Seek
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11. 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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12. Charting a One-Variable Data Table
Gives a better picture of relationship between sales volume, revenue, and total expenses
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13. 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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14. Creating a Two-Variable Data Table
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15. Charting a Two-Variable Data Table
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16. Visual Overview
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17. What-If Scenarios
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18. 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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19. 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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20. Using the Scenario Manager
Edit Scenario dialog box
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21. Using the Scenario Manager
Scenario Values dialog box
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22. Using the Scenario Manager
View the effect of each scenario by selecting it in the Scenario Manager dialog box
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23. 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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24. 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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25. Scenario Summary Report
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26. Creating a Scenario PivotTable Report
Displays results from each scenario as a pivot field in a PivotTable
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27. Creating a Scenario PivotTable Report
Results for the table can be displayed in a PivotChart
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28. Visual Overview
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29. Using Solver
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30. 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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31. Understanding Price Elasticity of Demand
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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32. Price Elasticity of Demand
Relatively inelastic
Price elasticity of demand is less 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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33. 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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34. 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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35. Setting Up Solver to Find a Solution
Specify three Solver parameters
Objective cell
Variable (or changing) cells
Constraints
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36. 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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37. Setting Up Solver Constraints
Add Constraint dialog box
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38. Setting Up Solver Constraints
Completed Solver Parameters dialog box
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39. Creating a Solver Answer Report
Solver can create three different reports
Answer report (the most useful)
Sensitivity report
Limits report
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40. 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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41. Creating a Solver Answer Report
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42. Choosing a What-If Analysis Tool
Data 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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43. 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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44. Saving and Loading Solver Models
Saved Solver model
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