Tutorial 10:

Performing What-If
Analyses

Microsoft Office Excel 2010

Objectives

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Explore the principles of cost-volumeprofit 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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Objectives

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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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Visual Overview

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Data Tables and What-If

Analysis

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Understanding CostXP
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
companys net income
Sometimes called break-even
analysis
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Comparing Expenses andXP

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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Determining the BreakEven Point

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Break-even point: revenue equals

expenses
A CVP chart shows the relationship
between expenses and revenue

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Performing a What-If
Analysis with Goal Seek

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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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Performing a What-If
Analysis with Goal Seek

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Working with Data TablesXP

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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Charting a One-Variable
Data Table

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Gives a better picture of relationship

between sales volume, revenue, and
total expenses

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Creating a Two-Variable
Data Table

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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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Creating a Two-Variable
Data Table

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Charting a Two-Variable

Data Table

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Visual Overview

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What-If Scenarios

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Using the Scenario

Manager

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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

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Using the Scenario

Manager

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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 computers memory
Input cells are referred to as
changing cells
Contain values that are changed
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Using the Scenario

Manager

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Edit Scenario dialog box

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Using the Scenario

Manager

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Scenario Values dialog box

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Using the Scenario

Manager

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View the effect of each scenario by

selecting it in the Scenario Manager
dialog box

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Using the Scenario

Manager

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Editing a Scenario
Edit the assumptions to view other
possibilities
Worksheet calculations are
automatically updated to reflect
the new scenario

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Creating a Scenario
Summary Report

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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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Scenario Summary
Report

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Creating a Scenario
PivotTable Report

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Displays results from each scenario

as a pivot field in a PivotTable

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Creating a Scenario
PivotTable Report

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Results for the table can be displayed

in a PivotChart

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Visual Overview

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Using Solver

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Understanding Price
Elasticity of Demand

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Point of maximum revenue occurs

somewhere between lowest and
highest sales price
Demand and revenue as functions of
price

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Understanding Price
Elasticity of Demand

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Elasticity
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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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

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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

Relatively elastic
Price elasticity of
demand is greater than
1
Demand
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Maximizing Net Income

Through Trial and Error

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Using the trial and error process

can be very time-consuming if you
have a large range of possible values

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Finding an Optimal SolutionXP

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
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Setting Up Solver to Find a XP

Solution
Specify three Solver parameters
Objective cell
Variable (or changing) cells
Constraints

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Setting Up Solver
Constraints

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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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Setting Up Solver
Constraints

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Add Constraint dialog box

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Setting Up Solver
Constraints

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Completed Solver Parameters dialog

box

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Creating a Solver AnswerXP

Report
Solver can create three different
reports
Answer report (the most useful)
Sensitivity report
Limits report

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Sections of a Solver
Answer Report

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Titles
Information about the objective cell:
location, cell label, and cells 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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Creating a Solver AnswerXP

Report

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Choosing a What-If
Analysis Tool

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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
If you dont need to specify any constraints on
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Seek
yourExcel
solution

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Saving and Loading

Solver Models

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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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Saving and Loading

Solver Models

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Saved Solver model

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