You could use the first method of scenario analysis (manual scenario selection) outlined in the video in a couple of different ways. The simplest would be to cut and paste your input variables to Sheet 1, and then as you change them, you can see the impact changes have to the ratios.

If you prefer to keep all your assumptions on one page (which is better practice) you could use the manual selection using a drop-down box.

1. Create a table with all your scenarios and changes in inputs on Sheet 1.
2. Create a drop-down box on Sheet 7.
3. Replace your inputs on Sheet 1 with a formula such as a VLOOKUP or IF that will change according to the value in the drop-down box, and the values in your scenario table created in Step 1.
4. As you change the drop-down box on Sheet 7, the outputs will change too.

I hope this helps. We use this form of scenario analysis in the Online Financial Modelling courses http://www.plumsolutions.com.au/elearning. The participants build their own model which contain a Base, Best and Worst case scenario using the method I have outlined above.

I have attempted to answer this question here:

http://www.plumsolutions.com.au/articles/scenarios-sensitivities-what-if-analysis-%E2%80%93-what%E2%80%99s-difference

Using financial models in the budget process, as with any model, you could test the sensitivity of your budgeted P&L, cash flow etc. to fluctuations in inputs, such as interest rates, customer demand etc by tweaking a single input. If you want to see a conservative scenario, however for example, you would use one of the scenario tools outlined in the video above to create a scenario that includes changes in several inputs or calculation methods.

Many finance related roles today require the use of some sort of financial model, most commonly in the form of a spreadsheet. Financial modelling is a skill area that combines accounting, tax and business knowledge with a form of computer programming. In the past financial modelling was seen as a secondary skill of an accountant/banker/consultant (e.g. an accountant who could do a bit of programming).

However, financial modelling is beginning to be seen as a primary skill area in its own right as the level of sophistication of financial models increases. This attitude varies quite significantly in different parts of the world. There is currently no association or institute of financial modellers (at least not that I know of) that provides certification or qualifications like many accounting institutes do. There are people in the field who would like to see that happen, though.

Most people I know of who describe themselves as primarily financial modellers have an accounting or finance background and qualification and their financial modelling skills have been largely self taught and gained through on-the-job experience.

Many people gain some financial modelling experience as a stepping stone to other finance related roles, but an increasing number of people are choosing to make financial modelling their career, either as model developers or model auditors, or both.

Am looking forward to your article.

Perhaps you can also write about the typical selection of variables that are used for sensitivities testing in a project finance model?

We use them for both Scenario Analysis and Sensitivity Analysis. The power of a data-tables are fully harnessed in a Navigator Project Finance model, everything from debt sizing, automated geared versus ungeared analysis through to liquidated damages and advanced cost over run analysis. It can every be used in place of goal-seeking when there isn’t scope to buil din ‘buttons to do things’…

I will write up an article on advanced (PF) applications of Data Tables in the coming weeks.

Nick

I believe that what J is referring to is the trick covered in the financial modelling courses of Navigator Project Finance where you link up a Data Table to a Scenario manager. This allows you to change numerous assumptions at the same time using a one-dimensional Data Table. It is hard to explain but the example on Navigator Project Finance’s website gives a very good example.

http://www.navigatorpf.com/training/tutorials/tutorial-scenario-manager

There is nothing complicated about this techniques but it is extremely powerful for scenario analysis.

If you wanted to be fancy and introduce Data Tables in other sheets that where the underlying assumptions (in this case the Scenario Manager) then the following article could be of interest.

http://corality.com/training/tutorials/excel-data-tables-in-any-sheet

One of the limitations of data tables that I didn’t mention was that it’s hard to show changes in more than two input variables at a time, whereas using drop-down scenarios you do get a lot more flexibility.

I think your use of data table is more of a sensitivity analysis.

From what I have seen on the models done by NavigatorPF (and Corality?), their use of data table is more reflective of a “Scenario Manager”.

And the difference between sensitivity analysis and scenario analysis? I think you (Plum) has explained it before already (maybe worth adding here?)