What-If-Analysis

Goal Seek

1 of 19
Goal Seek allows us to find the value of
a cell that makes a particular formula
hit a desired value
Set Cell:
• The formula which we use to
assume a desired value.

To Value:
• The value or "goal" that we
want our Set Cell to assume.
By Changing Cell:
• The cell that can be changed to enable our Set Cell
to hit the desired goal.

Example: Goal Seek

For a given price, how many glasses of
lemonade does a lemonade store need to sell
per year to break even?

2 of 19
Example: Goal Seek
We want to pay off our mortgage in 15 years.
• The annual interest rate is 6 percent.
• The bank told us we can afford monthly
payments of $2,000.
– How much can we borrow?

3 of 19
Data Tables

4 of 19
Data Tables are used to determine how some
outputs vary in response to changes in input
Data Tables refer to cells which may contain
formulas or functions for some output and input
of some problem
Two types
• one-way data tables:
– determine how changing one input will change any
number of outputs
• two-way data tables:
– determine how changing two inputs would change a
single output

Steps for Data Table creation

Create a list of problem inputs and outputs
For a one-way data table,
• column input cell will be the only reference we give

For a two-way data table,

• we will reference both a row and column input
since two inputs are varying

10
5 of 19
One Input Data Table
Allows us to determine how a change in a
single input or decision variable changes one or
more spreadsheet outputs or calculations.

One Input Data Table

6 of 19
Example: One Input Data Table
I’m thinking of starting a store in the local mall
to sell lemonade. Before opening the store, I’m
curious about how my profit, revenue, and
variable costs will depend on the price I charge
and the unit cost.
• Suppose that I want to know how changes in price
affect annual profit, revenue, and variable cost
– from $1.00 through $4.00 in $0.25 increments

7 of 19
Input:
• The selling price
• The variable cost
• Demand
• The fixed cost

Output:
• Annual profit
• Annual revenue
• Annual variable cost

8 of 19
Two Input Data Table
With a two-way data table, we can vary two
inputs or decision variables and see how the
changes in these quantities change a single
output.

Two Input Data Table

9 of 19
Example: Two Input Data Table
I’m thinking of starting a store in the local mall
to sell lemonade. Before opening the store, I’m
curious about how my profit, revenue, and
variable costs will depend on the price I charge
and the unit cost.
• I want to determine how annual profit varies as
– price varies from $1.50 through $5.00
» in $0.25 increments, and
– unit variable cost varies from $0.30 through $0.60
» in $0.05 increments

10 of 19
Widgets Inc.
What happens to Operating
Income (the bottom line) if
Widgets sells 2000, 2500, or
3000 units per month instead of
1,200?
If the company sells 2000 units
how do expenses change?
What's the impact on expenses
if 3000 units are sold? 4000?
What happens if Widget's
leasing costs go up by 20%?
By 25% By 30%?
What happens if the
manufacturing cost per unit
goes down by an eighth? By a
quarter? By a third?

11 of 19
Example
Given a list of inputs and outputs for ticket sales
• The Total Profit is calculated by finding the unit
profit (price minus cost per ticket) and multiplying
this value by the number of salespersons and the
average number of tickets sold per person

23

One-way Data Table

shows different profit values as we vary the
price per ticket

24
12 of 19
Two-way Data Table
To see how the combination of price per ticket and
number of salespersons affects our total profit;

25

Example: Two Input Data Table

I am going to build a new house.
• The amount of money I need to borrow (with a
15-year repayment period) depends on the price I
sell my current house for.
• I’m also unsure about the annual interest rate I’ll
receive when I close.
– Can I determine how my monthly payments will
depend on the amount borrowed and the annual
interest rate?

13 of 19
Limitations of Data Tables
Can vary only one or two input cells at a time.
The process of setting up a data table is not all
that intuitive.
A two-input table shows the results of only one
formula cell
In many situations, we’re interested in a few
select combinations, not an entire table that
shows all possible combinations of two input
cells.

14 of 19
 Scenario Manager

Scenario Manager allows us to vary up to 32

input cells for various values, or scenarios,
and observe the results of several output cells
Creates a Scenario Report
• shows the resulting output values for each scenario
of input values

Preparation
• Needs an initial list of inputs or outputs
• Fill appropriate values and formulas in these cells

30
15 of 19
Example: To find company’s after tax profits for
each of the five years as well as their total NPV
Considering three different scenarios for
• year 1 sales,
• sales growth,
• year 1 price.

31

Steps
Add a new scenario
• Cell references should be to the list of inputs
• Specify the values these inputs should take for the scenario we are
creating

32
16 of 19
Steps (contd.)
Repeat the same steps to create the other scenarios.
Scenario manager dialog box illustrates the list of
scenarios that are created

33

Steps (contd.)
Click Summary to create the Scenario Report
The Scenario Summary dialog box prompts us
to select the outputs we want to observe for the
various scenarios of inputs.

34
17 of 19
Scenario Report exhibits the result
cells, for each scenario as well as the
current values from the initial tables

35

Scenario Examples…
Build a model where a company's profit
depends on the state of the economy and the
price of some commodity
• each built-in scenario will show particular values for
– the state of the economy and
– the price of the commodity,
• along with the corresponding profit

18 of 19
Creating a scenario…
Click the Scenario Manager button, and in the
Scenario Manager dialog box to the right, click Add
• This opens the Edit Scenario dialog box, where you
can name the scenario and choose the cells that
contain your inputs.
• When you click OK, you see the Scenario Values
dialog box to the right, where you can enter the
values of the inputs for this particular scenario.
• Once you have named scenarios, you can go back
into the Scenario Manager and choose the
scenario you want to see

Example Model….
Calculates a company's profit based on two external
inputs,
• the state of the economy
– Recession, Flat, or Booming, and
• the price of a commodity
– Low or High

Profit is also affected by two company decisions,

• the number of units to produce and
• the price to charge for each unit
A two-way data table of profit for various company
decisions is shown next to the profit model.
Use the Scenario Manager to name six scenarios,
• one for each combination of the two external inputs.
Then switch back and forth between them
19 of 19