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Sensitivity Analysis in Excel

Excel includes a powerful tool called Sensitivity Analysis to use in models which allows the user to develop forecasts and budgets. It can also be called the “What if tool”. Three main tools form part of it:

• Tornado – graphical presentation of changes in the output when a value changes in an even ratio.
• Spider – allows for making of variations.
• Tables – provides constant input variable viewing and ability to identify how changes affect the output.

Main features of Sensitivity Analysis:

• It includes a user friendly guidance system known as the wizard.
• Forms part of Excel.
• Makes the interpretation of reports a breeze.
• Provides easy access to reports.
• Quick updating features included.
• Variable headings as well as input data are detected by the system.
• Includes the “what if” ability.

The Sensitivity Analysis assesses the way that the output would be influenced by changes or fluctuations in the value of input within a model while the rest stays the same.

The easy to follow steps allow users to obtain answers or forecasts on worst case and best case scenarios. The scenario option is available under TOOLS and through the use of the Add button a new scenario can be created. A dialog box appears and the user can input names to differentiate between scenarios. Once the cells are also selected for each of the scenarios a change can be applied. This is where the tables are useful as they can be used to summarise the results for an overview.

The Sensitivity Analysis is just one of many powerful features for spreadsheet modelling. Contact us to learn how to use these and other tools more effectively.