Lesson 5 – Learning Topics:

In this lesson, we shall learn about:

Scenario Manager • constructing scenarios on Excel;
• performing “what-if” analysis; and
• using Scenario Manager to summarise
what-if analyses.

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 The situation about Sales Reps hired and the resulting
Scenarios and ”What-if” Total Salary Expense is our Scenario.

Analyses Trialing the impact on Total Salary Expense by testing

different number of Sales Reps hired are “What-if”
In Excel, we can construct calculations (scenarios) Analyses.
that represent reality to predict likely outcomes, then Multiple what-if analyses can be facilitated and
make changes to such scenarios to see how the summarised by using the Scenario Manager on
outcomes may be impacted. Here is a very simple Excel.
example.
If I want to check “what-if” two, three, four, or five
If a company pays each sales representative a salary Sales Reps are hired, here is the report from Excel:
of $60,000, the total salary expense based on the
number of representatives hired can be calculated by
this spreadsheet:

If I hire two, three, four, and five Sales Reps, the Total
Salary Expense will be $120k, $180k, $240k, and
Check the formula for Total Salary Expense (Cell C2).
$300k.
It is based on A2*B2. With the use of cell references,
you can modify the scenario to ”what-if” three, four, This is of course a case that is too simple for the need
five, etc. Sales Reps were hired (Cell A2), and of Scenario Manager, but it should give you a good
compute the resulting Total Salary Expense! idea about what this lesson is about .

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Let’s look at a more complex situation. Based on the circumstances, we should construct a
A factory has a regular production run of 100 units per Spreadsheet to represent the scenario and predict the
day. All outputs are expected to be sold (for likely daily profit/loss as a result of the machine
$800/unit), except for the defective outputs (for which chosen, out of the three options.
$300 compensation to the customers has to be made You may use the following Spreadsheet template as a
per unit). start. It has all the relevant parameter values listed at
3 machines are currently being considered to replace the top, with a structure for calculations below:
the existing old machine. Their properties are as
follows:
Machines Defect Setup Production
Rate Cost/day Cost/unit

1 1% $10,000 $600

2 5% $5,000 $400 We shall set up this Spreadsheet by defining suitable

cell references and formulae for the bordered cells so
that the likely profit can be estimated based on the
3 10% $2,000 $200 machine chosen.

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Step 1 – Set up the part for the properties of the Step 2 – Set up the part for the Daily Profit
machine chosen Notice the part in Cells G8:I19.
Notice the part in Cells B8:D17. Based on the properties of the machine chosen on the
When the user enters a machine number (1, 2, or 3) left, the resulting costs and revenue information should
into Cell D10, all the relevant properties should be appear as follows (for Machine 1):
revealed in the following cells. For example, if “1” is
entered, these numbers should appear, according to
the specifications:

• Again, use the blank template from the previous

• Using the blank template from the previous page,
page, try to formulate the blank cells. Make sure
try to formulate Cells D12, D13, D14, D16 and D17.
that you use appropriate cell references.
Use the object above as an answer guide .
• Once done, enter “2” and “3” into Cell D10 to make
• Once done, enter “2” and “3” into Cell D10 to make
sure that the correct figures appear accordingly .
sure that the correct properties appear accordingly.
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Step 2 - Continued Step 3 – What-if Analysis (Scenario Manager)
We have now a robust Spreadsheet with calculations Instead of doing it manually, we can use Scenario
based on cell references where applicable. Manager in Excel.
The ultimate output (Daily Profit Cell I19) is based on To generate a report that shows the different Daily
the machine chosen (Cell D10) through all the linked Profits from the use of different machines, start the
calculation. Scenario Manager.
This is very important for what-if analyses and the use Under the Data tab, in the Forecast group, select
of Scenario Manager. What-if Analysis, then select Scenario Manager…
Step 2 – What-if Analysis (Manual) In the pop-up window, click Add… to create a new
To test the three scenarios where each of the three scenario.
machines are used, we can manually change the
machine number in Cell D10. The resulting Daily
Profits are as follows:
Machine Used Daily Profit
1 $9,700
2 $33,500
3 $55,000
Which machine should be purchased to replace the
old one?
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Step 3 - Continued For “Machine1”, the value in cell D10 should be “1”. So
We shall create one scenario for each of the 3 enter “1” in the box. Click Add to add another scenario.
machines. In the new window, name the new scenario
Therefore, we shall name our first scenario “Machine2”, keep the
“Machine1”, and specify the cell to be changed as Changing cell as $D$10 (or D10). Once you click OK,
D10, which is the one where we enter the machine enter “2” as the value. Click Add to create the third
number to generate the resulting profit. scenario. Follow the same process with the name
“Machine3” and the value “3” for cell D10.
Click OK instead of Add this time.
All 3 scenarios are set
up. To generate a
summary report of
them, click on
Summary…
Once you click on OK, a new window appears, asking
for a value in cell D10 for the scenario “Machine1”:

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Step 3 - Continued Referring back to the row headings, the labels are not
In the Result cells field, we should specify what result self-explanatory. I’d recommend that they be manually
information we want to display in the report as a result changed to:
of the different machines chosen.
In this case, we’re interested in the Profits. So enter
I19, which is the cell that contains the profit value.
Click OK.

Note that the column titled “Current Values:” is based

on the values when Scenario Manager is run. When I
prepared this material, I have set the machine number
as “3”.

A familiar looking report is generated as a new

Worksheet, summarising the outcomes from the three
scenarios.

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Learning Topics Review:
In this lesson, we have learnt about:
• constructing scenarios on Excel;
• performing “what-if” analysis; and
• using Scenario Manager to summarise
what-if analyses.

Click here to share your thoughts about

this lesson with your lecturer.

Don’t forget to complete XLQuiz05 on Canvas, which

is based on this Lesson .