Tutorial 10:
Performing What-If Analyses
Microsoft Office Excel 2010
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Objectives
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• 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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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 XP
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Understanding Cost-Volume-Profit
Relationships
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• 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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Comparing Expenses and RevenueXP
• 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 Break-Even PointXP
• 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 Tables
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• 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 TableXP
• 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 TableXP
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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 understand the
scenario reports
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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
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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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 XP
• 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 ReportXP
• Displays results from each scenario as a pivot
field in a PivotTable
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Creating a Scenario PivotTable ReportXP
• 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 is very responsive to
changes in price
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Maximizing Net Income Through TrialXP
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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Finding an Optimal Solution Using
Solver
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• 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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Setting Up Solver to Find a Solution
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• 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 Answer Report
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• 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
• 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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Creating a Solver Answer 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 Seek
• If you don’t need to specify any constraints on your solution
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Saving and Loading Solver ModelsXP
• 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 ModelsXP
• Saved Solver model
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