Aspect Sensitivity Analysis Probability Analysis

Objective Assess the impact of changes in Assess the likelihood of different

specific inputs on the output outcomes given input uncertainty
Approach Deterministic, tests specific Stochastic, uses probability
changes in input values (e.g., distributions for uncertain inputs
10% increase)
Nature Cause-and-effect analysis of Models uncertainty by considering
individual input changes variability and randomness in
inputs
Output Direct relationship between input Probability distribution of possible
changes and output outcomes, with associated
probabilities
Usefulness Identifying key variables that Estimating the likelihood of
most affect the model’s output outcomes and quantifying risk
Limitations Assumes inputs are independent Requires reliable probabilistic data
and does not consider interactions or assumptions about input
distributions
Data Focus on specific input changes, Requires probability distributions
Requirements no need for probabilistic data (e.g., normal, triangular) for inputs
Focus Evaluates sensitivity of output to Evaluates the likelihood and range
individual variables of potential outcomes considering
uncertainty
Example Impact of a 10% increase in raw Probability that project NPV will
material costs on profit exceed $5M given uncertain
revenue and costs
 Aspect What-If Analysis Sensitivity Analysis
Objective To evaluate the impact of different To assess how sensitive the output
assumptions or scenarios on is to changes in individual input
outcomes variables
Scope Broader, explores different possible Focused on understanding the
scenarios or input combinations impact of individual variables on
the output
Approach Tests various "what if" scenarios Changes one input at a time to
by changing multiple inputs at once observe its effect on the outcome
Methodology Can involve testing multiple Systematically varies one input (or
scenarios with different a set) and observes the resulting
assumptions or inputs changes in output
Type of Typically qualitative, looking at Quantitative, looking at cause-
Analysis broad outcomes or possible results and-effect relationships between
under varying assumptions variables
Outcome Different sets of output results for Measures how much the output
various scenarios or conditions changes in response to changes in
each input variable
Data Requires different sets of Requires knowledge of the range
Requirement assumptions or data points for each of potential values for each input
scenario and their effect on outputs
Usefulness Useful for understanding multiple Useful for identifying the most
possible outcomes (best, worst, sensitive variables that affect
base cases, etc.) outcomes
Complexity Can be more complex if testing Can be less complex since it
many combinations of scenarios focuses on changing one variable
at a time
Example What if sales increase by 10%, and How does a 10% increase in sales
cost of goods sold decreases by affect net income?
5%? What is the new profit?
Common Spreadsheets (e.g., Excel Scenario Spreadsheets (e.g., Excel’s Data
Tools Manager, Excel’s Goal Seek), Table), or Excel Solver
Monte Carlo simulations
What-If Analysis in Excel

What-If Analysis is a powerful feature in Excel that allows users to explore different
outcomes based on varying inputs. It is used to answer questions like "What if this value
changes?" or "How will the result change if certain variables are adjusted?"

• Types of What-If Analysis:

o Scenario Manager: Lets you create different scenarios, each with a different
set of values for multiple variables.
o Goal Seek: Helps you find the input value required to achieve a specific
output.
o Data Tables: Allows you to analyze multiple variables and how they affect a
formula or output.

Advantages of What-If Analysis:

1. Helps Decision-Making: Allows for a clearer understanding of how changes in

inputs affect the outputs, helping users make more informed decisions.
2. Forecasting: Can be used to predict future outcomes based on a range of
assumptions.
3. Explores Multiple Scenarios: It enables users to test a variety of assumptions to see
which ones yield the best outcomes.
4. Quick Simulation: Saves time by automating the testing of different input scenarios
without manually adjusting the variables.

Scenario Manager in Excel

Scenario Manager is a built-in tool in Excel that allows users to define and manage different
sets of input values (called scenarios) to observe how they impact the results of a model or
analysis.

• Role and Functionality:

o Create Scenarios: Users can define various scenarios (e.g., best case, worst
case, and base case) by changing input values in a model.
o Comparison: It provides a side-by-side comparison of how different scenarios
affect the outcome of the formula or model.
o Switching Between Scenarios: You can easily switch between scenarios to
view different potential outcomes.
o Input and Output Variables: Scenarios allow you to change multiple input
variables (e.g., sales, costs, interest rates) at once to analyze their combined
effect.
 • Advantages:
o Comprehensive Analysis: Offers an efficient way to evaluate the impact of
various assumptions.
o Quick Adjustments: Easily switch between different predefined scenarios
without manually altering data.
o Clear Overview: Summarizes results from different scenarios in a
consolidated table.
• Example Use Case: If you're evaluating the profitability of a project, you might
create scenarios for optimistic, realistic, and pessimistic sales projections, each with
different input values for cost, revenue, and growth rate.

Goal Seek in Excel

Goal Seek is a feature that allows users to determine the value of an input variable needed to
achieve a specific goal or target in a formula.

• How It Works:
o You specify a desired result for a formula, and Goal Seek adjusts the input
variable to reach that result.
o This is particularly useful when you know the outcome you want but don’t
know the exact input needed.
• Steps to Use Goal Seek:
1. Go to the "Data" tab and select "What-If Analysis," then click "Goal Seek."
2. Set the target (desired output) value and specify which input variable Excel
should adjust to reach that target.
3. Excel will automatically perform the calculation and find the input value
needed.
• Example Use Case: If you want to calculate the required sales volume to achieve a
specific profit, you can use Goal Seek to determine the sales quantity needed to reach
your target profit.
Data Tables in Excel

Data Tables are a powerful tool in Excel used for sensitivity analysis. A data table can show
how one or two input variables impact a result or outcome by displaying multiple outcomes
for different combinations of input values.

• Types of Data Tables:

o One-Variable Data Table: Analyzes how changes in one input variable affect
the output. For example, you can see how different interest rates impact the
monthly payment on a loan.
o Two-Variable Data Table: Analyzes how changes in two input variables
affect the output. For example, you can see how changes in both interest rate
and loan term impact the monthly payment.
• How It Works:
o One-Variable Data Table: Set up a row or column of input values and link
them to the formula or result.
o Two-Variable Data Table: Set up a grid with input values for two variables,
and link the result formula to the corner of the table.
o Once you enter the data, Excel will automatically fill in the table with the
output values based on the input combinations.
• Advantages:
o Efficient Sensitivity Analysis: Quickly see the impact of multiple variables
on a specific outcome.
o Streamlined Presentation: Useful for presenting ranges of possible outcomes
under different assumptions.
o Multiple Scenarios at Once: Easily test how different combinations of
variables affect results without manually changing inputs.
• Example Use Case: For a loan model, you could create a two-variable data table to
examine how monthly payments change based on different combinations of interest
rates and loan terms.
 Feature Scenario Manager Goal Seek Data Tables
Purpose Compare multiple Find the input value Analyze how changes in
scenarios by changing required to achieve a one or two input
input values specific target variables affect a result
Input Allows multiple Works with one Works with one or two
Variables variables to be input variable at a input variables at a time
changed time
simultaneously
Output Creates a summary Provides one specific Displays a table of
report of results from input value to results for various
different scenarios achieve a desired combinations of input
output values
Best Used What-if analysis with Back-calculating the Sensitivity analysis
For multiple assumptions input to meet a showing how input
and scenarios specific output variations affect output
Complexity Handles complex Solves for a single Displays results
scenarios with multiple unknown input dynamically based on
changing inputs input ranges
How It Define multiple Set a target output Automatically generates
Works scenarios with different and find the input a table showing results
inputs and compare that achieves it for varying input
results combinations
Example Comparing best-case, Determining the Analyzing how interest
Use Case worst-case, and most sales volume needed rate and loan term affect
likely scenarios to achieve a profit monthly payments
Output Scenario Summary Single output Data Table of results for
Type showing different result showing the required different input
outcomes input value combinations
Ease of Use Easy for modeling and Ideal when you know Useful for testing ranges
comparing various the target result and of inputs and their
assumptions want to find the input corresponding results
Advantages Allows easy switching Quickly finds the Provides a visual
between predefined exact input needed comparison of multiple
scenarios for a target output input/output
combinations
Limitations Best for multiple inputs Can only solve for Limited to analyzing up
with fixed one input variable to two variables at once
assumptions at a time