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Lecture8 - Building Good Spreadsheet Models

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34 views34 pages

Lecture8 - Building Good Spreadsheet Models

Uploaded by

rishishah105
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Lecture 8

Building Good
Spreadsheet Models

Dr Fui-Theng Leow (FT)


[email protected]
Class activities

2.00 – 2.15 pm – Reminder: Templates, strength (lecture 7)


2.15 - 2.50 pm – Lecture 8: Building Good Spreadsheet Models
• The importance of a well-structured model
• Design Principles for Spreadsheet Models
10-minute break
3.10 – 3.30 pm – Lecture 8: Building Good Spreadsheet Models
• Creating dashboard in Excel
• Error Prevention and Detection in Spreadsheet Models
• Scenario Analysis in Spreadsheet Models
3.30 – 3.50 pm – Live Q&A session
2
The importance of a well-structured model

Creating a spreadsheet model is


like building a foundation for
decision-making, analysis, and
visualisation.
Just like constructing a building,
the structure is crucial.

Further reading (references)


• Excel Models - Everything you need t
o know
• Documenting Excel Models Best Pract
ices
• How to craft the best Excel spreadshe
et models
• Principles for good Excel use
3
The importance of a well-structured model

Key Components of a Well-Structured Spreadsheet Model


1. Logical Organisation
• Similar data types and categories are grouped logically.
• Sequential flow - Information progresses in a logical sequence from inputs to outputs.
• Navigation - users can easily find the information they need.

2. Clear Labelling and Documentation


• Descriptive - clearly labelled columns, rows, and sections.
• Include notes or comments explaining complex formulas or assumptions.

4
The importance of a well-structured model

Key Components of a Well-Structured Spreadsheet Model


3. Consistent Formatting and Style
• Consistent fonts, colours, and cell styles aid visual clarity.
• Conditional Formatting: Utilise cell colouring to highlight specific conditions.

4. Optimisation of Formulas
• Formulas should be as simple as necessary to reduce error likelihood.
• Proper structure and clear formula view prevent errors that can lead to inaccurate
conclusions.

5
The importance of a well-structured model

Key Components of a Well-Structured Spreadsheet Model


5. Data Validation and Protection
• Input Validation: Restrict data input types to prevent errors.
• Protection: Protect certain cells or sheets to prevent accidental data modification.

6. Aids Decision-Making Process


• Scenario Analysis: Well-structured models facilitate "what-if" analyses with ease.

7. Ensures Scalability and Adaptability


• Can be expanded or modified, worth the investment of time and resources.

6
The importance of a well-structured model

7
The importance of a well-structured model

Net Price = Price x Quantity - total discount


(Quantity * Discount for each quantity).

8
The importance of a well-structured model

9
Think & Apply: Individual Assignment

Which of the components of a well-structured spreadsheet


model can be seen in your spreadsheet model?

10
Design Principles for Spreadsheet Models

1. Logical Structure and Layout


Input-Process-Output Framework
• Inputs: Clearly delineate areas for data input.
• Process: Separate areas where calculations and transformations occur.
• Outputs: Define sections for final results and visualisations.

Sequential and Hierarchical Flow


• Ensure a top-to-bottom and left-to-right flow, mimicking natural reading patterns.

Grouping and Categorisation


• Group related data and use ample white space for clear separation.

11
Design Principles for Spreadsheet Models

12
Design Principles for Spreadsheet Models

2. Consistency and Standardisation


Consistent Formatting
• Maintain uniform fonts, cell styles, and colors.
Standardised and naming Conventions
• Use common terminologies, date formats, and currency symbols consistently.
• Use descriptive names for sheets, ranges, and variables.

3. Clarity and Simplicity


Minimalist Design
• Avoid unnecessary decorations and complexity, ensure each element serves a purpose.
Clear Labeling and Tooltips
• Use descriptive headers, labels, and legends.
• Provide sand comments for complex sections. 13
Design Principles for Spreadsheet Models

14
Design Principles for Spreadsheet Models

4. Robustness and Error-Proofing


Data Validation
• Set constraints on input cells to ensure data accuracy.
Error Handling
• Use functions like IFERROR to manage potential errors gracefully.

5. Scalability and Flexibility


Dynamic Ranges
• Use dynamic ranges and tables that can accommodate data growth.
Modular Formulas
• Break down complex formulas into simpler, modular components.

Learn more #1: Dynamic Range in Excel


15
Design Principles for Spreadsheet Models

16
Design Principles for Spreadsheet Models

17
Design Principles for Spreadsheet Models

6. Accessibility and Collaboration


User-Friendly Interface
• Ensure ease of navigation for users with varying expertise.
Collaborative Features
• Allow for shared editing and add comments for collaborative work.

7. Visualisation and Reporting


Meaningful Visuals
• Use charts and graphs that accurately represent the data.
• Ensure visualisations are clear, concise, and well-labelled.

18
Creating Dashboard in Excel

19
Creating Dashboard in Excel

20
Creating Dashboard in Excel

21
Error Prevention and Detection in Spreadsheet Models

In the spreadsheet models, errors can have significant consequences, i.e., inaccurate
business decisions, financial losses. Thus, it's imperative to prevent and detect errors.

1. Error Prevention: Proactive Measures


Input Validation
• Set Constraints: Utilise data validation tools to restrict data types, ranges, and
permissible values in input cells.
• Drop-down Menus: Use lists to ensure consistency and prevent invalid entries.

Consistent Formatting and Structuring


• Colour Coding: Differentiate input cells, calculation cells, and output cells using distinct
colours or styles.

22
Error Prevention and Detection in Spreadsheet Models

Protection and Locking


• Protect Cells: Lock cells containing formulas to prevent unintended modifications.
• Sheet Protection: Protect entire sheets or workbooks to maintain data integrity.

Automation and Macros


• Automate Repetitive Tasks: Use macros to reduce manual data entry, minimising human
error.

23
Error Prevention and Detection in Spreadsheet Models

2. Error Detection: Identifying Issues Post Factum


Error Checking Functions
• Use functions like IFERROR, to identify and manage errors in calculations.
• Use conditional formatting to highlight cells that may contain errors or outliers.

Auditing Tools
• Use Excel's tracing tools to visualise the relationships between cells and spot errors
• Use built-in error-checking tools to identify issues like division by zero or inconsistent
formulas.

Sensitivity Analysis
• What-If Analysis: Perform sensitivity analyses to check if outputs respond reasonably to
changes in inputs.
24
Error Prevention and Detection in Spreadsheet Models

Learn more #2: Auditing Tools in Excel

25
Scenario Analysis in Spreadsheet Models

• Scenario Analysis is a powerful tool in spreadsheet modelling that enables businesses


to anticipate, prepare, and strategise for the future.
• By systematically assessing different possibilities and their impacts, organisations
can make informed, resilient, and dynamic decisions.

• It is useful for:
• Risk Mitigation: Helps identify potential
risks and opportunities.
• Strategic Planning: Facilitates informed
decision-making and proactive planning.
• Enhanced Flexibility: Allows
organisations to adapt quickly to
changing circumstances.
26
Scenario Analysis in Spreadsheet Models

Implementing Scenario Analysis in Spreadsheets


1. Identifying Variables
• Determine the variables that can change across different scenarios (e.g., sales volume,
costs, growth rates).

2. Defining Scenarios
• Best Case, Worst Case, and Base Case: Create scenarios that reflect optimistic,
pessimistic, and most likely outcomes.
• Custom Scenarios: Craft scenarios based on specific conditions or external factors
(e.g., market changes, regulatory changes).

27
Scenario Analysis in Spreadsheet Models

Practical Examples of Scenario Analysis

Interest Rate Changes


• Increase in Interest Rates: Evaluating the impact on loan repayments and investments.
• Decrease in Interest Rates: Analysing potential gains in bond prices and real estate investments.

Product Launch
• Successful Launch: Projecting sales, revenue, and market share in case of high consumer acceptance.
• Unfavorable Launch: Gauging the potential losses and backlash from an unsuccessful product launch.
• Neutral Reception: Assessing outcomes if the product neither excels nor fails in the market.

Advertising Campaigns
• High Impact Campaign: Forecasting sales boost and brand recognition from a successful campaign.
• Low Impact Campaign: Estimating minimal changes in sales and market perception.

Shipping Costs Fluctuations


• Increase in Shipping Costs: Evaluating the effect on product pricing and profitability.
• Decrease in Shipping Costs: Analysing potential savings and competitive pricing opportunities.
28
Scenario Analysis in Spreadsheet Models

3. Building the Model


• Dynamic Formulas: Design spreadsheet models that can dynamically adjust outputs
based on changes in input variables.
• Employ functions like DATA TABLE, SCENARIO MANAGER, and GOAL SEEK for
creating multiple scenarios.

4. Visual Representation
• Charts and Graphs: Use visuals to compare and contrast different scenarios.
• Dashboards: Create interactive dashboards for easy comparison and analysis.

29
Scenario Analysis in Spreadsheet Models

30
Scenario Analysis in Spreadsheet Models

31
Scenario Analysis in Spreadsheet Models

Further reading (reference)


• How to Conduct Scenario Analysis in Excel
• Scenario Modeling in Excel: 6 Essential Functions You Need to Know
32
Think & Apply: Individual Assignment

Before building your spreadsheet model

1. What is/are the variable(s) that can change across different scenarios?
List them down.

2. What conditions/factors/options your scenarios reflect? List them down.

3. Describe each of the scenarios (refer to the practical example)

33
The End

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