Module – 03

Scenario and
Sensitivity Analysis
Scenario and Sensitivity Analysis

Table of Contents

1. What-If Analysis: Goal Seek.............................................................................................................. 4

2. What-If Analysis: Data Table ............................................................................................................ 7

3. What-If Analysis: Scenario Manager ............................................................................................. 11

4. Auditing Formula ............................................................................................................................ 14

Module Description

In this module, you will learn about What-If Analysis and Formula Auditing.

This module includes the following topics:

• What is Goal Seek?

• What is Data Table?
• What is Scenario Manager?
• What is Formula Auditing?

Learning Objectives

By the end of this module, you will be able to:

• Understand Goal Seek

• Understand Data Table
• Understand Scenario Manager
• Explore Formula Auditing
1. What-If Analysis: Goal Seek

Goal Seek
Goal Seek is one of the parts of the What-If Analysis.

What-If Analysis
Fig 3.1

What-If Analysis Goal Seek is a tool that helps a data analyst to recommend the business.
It helps businesses to make some quick decisions.

Fig 3.2

When you go to the data, you can see ‘What-If Analysis’ and ‘Goal Seek’ options.

Fig 3.3

Demonstrating What-If Goal Seek

Create a PivotTable that has multiple fields to choose from PivotTable. The first-row field is
Order Date, i.e., Year, and the second-row field is a sum of an Order ID, i.e., Values. Update the
count of Order ID as shown in Fig 3.4 below.

Fig 3.4

Include Cost of Product, Revenue, and OPEX from the PivotTable field as shown in Fig 3.5
below.

Fig 3.5

Create a total Net Profit field, i.e., subtraction of OPEX from Revenue as shown in fig 3.6 below.

Fig 3.6
Create an Average Net Fee by dividing the Net Profit by the Cost of Product as shown in Figure
3.7 below.

Fig 3.7

Convert the Avg Net Fee field from number to percentage as shown below in Fig 3.8.

Fig 3.8

Add one more field, Review to the PivotTable, and change the type to two decimal points, as
shown in Fig 3.9 below.

Fig 3.9

Copy the table and paste it as the values as shown below in Fig 3.10 below.

Table 1

Table 2

Fig 3.10

Create a smaller table from the second table, which includes the following fields as shown in Fig
3.11 below.

Fig 3.11
Copy the value ‘2309651’ from ‘Sum of Cost of Product’ and calculate the ‘Avg Fee’ by dividing
Revenue and Cost of Product. Change the value of ‘Avg Fee’ to percentage. The sum of Revenue
is the multiplication of ‘Sum of Cost of Product’ and ‘Avg Fee.’ Copy the value of OPEX from the
second table. Net Profit is Revenue minus OPEX, as shown in Fig 3.12 below.

Fig 3.12

Suppose you want to achieve a Net Profit of 180000. Now it is 166743.05, as shown in Fig 3.12.
The requirement is how much percentage of the average fee you need to change.
Go to the Data ribbon, click What-If Analysis, and select Goal Seek. Mention the target as
180000 in the value field by changing the average fee field and clicking OK. See the output as
shown in Fig 3.13 below.

Fig 3.13

By changing the average fee from 8.5% to 9.07%, see the target is achieved for Net Profit.

2. What-If Analysis: Data Table

Data Table
What-If Analysis Data Table is one of the options that is helping us to do the sensitivity analysis
and gives the business users quick and effective decisions.

Fig 3.14

You can find the Data Table option when you click the "What If Analysis" button in Excel. Data
tables is the third available alternative.
 Fig 3.15

Demonstrating What-If Data Table

Let’s consider the scenario in Fig 3.16 as shown below.

Fig 3.16

The loan amount taken from the bank is $1,00,000, the duration is 60 months, and the interest
rate is 6%.
The requirement is to know if you reduce the duration, how the interest rate will change, and
how much amount will have to pay extra. Understand from an example.

Use the What-If Analysis. Calculate the monthly payment for the loan amount for 60 months
and an interest rate of 6% by using the PMT command, which calculates the payment of a loan
based on the constant payments and a constant interest rate, as shown in Fig 3.17 below.

Fig 3.17

Click on the interest rate. i.e., 6% divided by 12, and the duration is 60 months, pass the loan
amount with a negative sign. $1933 is the EMI that needed to be paid for the 60 months with
6% as the interest rate.

Fig 3.18

Multiply monthly payment by 60 months; total repayment is $1,15,997. That means around
$16,000 must be paid as interest as shown in figure 3.19 below.

Fig 3.19
Let’s have the different scenarios, consider 36 months, add 12 months to it and create a table
that will have all the different months, i.e., 36,48,60,72….120, as shown in Fig 3.20 below.

Fig 3.20

These are the different months with the interest amount ($1933) you’re paying now. Select the
table and go to the data; click on What-If-Analysis and select Data Table.
In the column input cell, add monthly payment and duration and click OK to see that you will
get different interest rates or the interest amount as shown in figure 3.21 below.

Fig 3.21

If you see when your month is 60, the amount was 1933. You can see what the EMI will be
when you have a tenure of varying months in the table, as shown in Fig 3.21 above.

Changing the tenure and the interest rate as well, i.e., tenure (36,48,60…120) and interest rate
(4%,5%...10%) as shown in fig 3.22 below:

Fig 3.22

Now, select the table, go to What-If Analysis, and select Data Table. The column input will be
(36,48,60…120) columns. Update the row input cell with interest rates and the column input cell
with duration. See the output updates as zero payment as shown in Fig 3.33 below.
 Fig 3.33

Add =B7 (total repayment) to a blank cell and press ENTER. The table gets updated with
different numbers, as shown in Fig 3.34 below.

Fig 3.34

If you are at 60 months, 6% is the interest rate. The amount payable is 1,15,997, as shown in
Fig 3.35 below.

Fig 3.35

Suppose you are with 96 months of the loan and increasing the interest rate to 9%. (Fig 3.36)
Fig 3.36

Now, know how much extra you are paying for 96 months and the value for 60 months with 6%
planning. The difference amount to pay is roughly $25000 extra, as shown below in Fig 3.37.
 Fig 3.37

So, it's an excellent way of doing the analysis and giving a nice idea of how much extra you
have to pay or how much less you have to pay while repaying the loans.

3. What-If Analysis: Scenario Manager

Scenario Manager
What-If Analysis Scenario Manager gives the scenario-based analysis for the business based on
certain scenarios; the outcome comes in the sheet.

Fig 3.38

Scenario Manager is the first option you will see when selecting the data tab in Excel for What-If
Analysis.

Fig 3.39

Demonstrating What-If Scenario Manager

Go to the data, click the What-If Analysis, and select Scenario Manager. Add the scenario, with
the scenario name as ‘Base Scenario,’ and choose the cell as three numbers, i.e., Loan Amount,
Duration, Interest rate, and click OK. You see the Scenario values coming in as shown in Fig 3.40
below.

Fig 3.40

Add the second scenario. i.e., Low scenario. Update loan amount as 70000, 48 months
duration, and 0.07% interest rate, and click OK. See the Scenario values as shown in Fig 3.41
below.

Fig 3.41

Add one more scenario, i.e., High scenario. The same scale can be selected. Update 150000 as a
loan amount, increase the loan tenure to 96 months, and the interest rate is 0.05, and click OK.

Fig 3.42
These are the three scenarios created; you can add more scenarios if you need. You can delete
the scenario, edit the scenario, or merge the scenario as well as shown in Fig 3.43 below.
 Fig 3.43
Once you click on Summary, the Scenario Summary screen appears. Suppose you want to
change the two cells (monthly payment, total repayment). Select these two cells and click OK.
Now, see a new table created with the values coming in, and the current value is the same as
the base scenario shown in Fig 3.44 below.

Fig 3.44

The given number is only 60 months, a 6% interest rate, and $1,00,000 as a loan amount.
Suppose you choose 70,000 as a loan amount, 48 months as a 10-year, and 7% as an interest
rate, $80459 is what you must pay, i.e., the total repayment of $70,000, and the same for the
highest scenario.

Fig 3.45
Suppose you change the cell name by copying the three values (Loan Amount, Duration, Annual
Interest Rate), paste it to a cell in Scenario Summary, and right-align by changing the color.
Similarly, change Results Cells from Scenario Summary to Monthly Payment and Total
Repayment and right align by changing the color. See the table helping you understand the
different scenarios per the business requirement, as shown in Fig 3.45 above.
Fig 3.46

In Fig 3.46 above, you can understand who created the scenario on which date had the base,
low, high, and based scenarios. The base scenario is a certain amount with specific months and
a certain interest rate, the same way a low scenario with a certain amount, a certain month,
and a certain interest rate, and the same with the high scenario. You get to see the total
amount of EMI, which you have to pay. The total amount which you have to pay is what you're
getting as information.

4. Auditing Formula

The auditing formula helps us backtrack the formulas.

Fig 3.47

Using the Formula Auditing tool, you may identify which cells are a part of any complex
formulas that have been created.
 Fig 3.48

Demonstrating Auditing Formula

Click on the formula tab to see Formula Auditing, as shown below in Fig 3.49.

Fig 3.49

If you click on the show formulas, you can see all the formulas used in the sheet, as shown in
Figure 3.50 below.

Fig 3.50

You can see the formulas coming in the entire sheet. When you click Show Formulas again, it
will show me the original values.
Now, select the Monthly Payment for this cell to know the cells involved in calculating the
number. Click on the Trace Precedents and see the three numbers that are used to do the
calculation of this cell.

Fig 3.51
If you Trace Dependents, that will help me understand that using the Monthly Payment cell; all
cells will impact, which you can see the following changes in the table as shown in Fig 3.52
below.
 Fig 3.52

If you click the Remove arrows, it will remove them, as shown in Figure 3.53 below.

Fig 3.53

So, this helps immensely in solving or understanding the problem, or perhaps creating some
complex calculations and wanting to know which cells were involved in those calculations. It's
given you a good understanding of the situation and how this current sale will affect all cells.