ExtremeCPA - Technology for Business

Monday, July 18, 2005

Scenarios - Providing for Clean "What-if" Analysis

Have you ever developed a spreadsheet whereby you wanted to analyze a few scenarios basically revolving around the same thing (i.e., just running different numbers)? For example, maybe you're analyzing an investment, but you're not quite sure what rate of return you'll get in the upcoming period. Or perhaps you're applying for a loan, and know that you'll get an interest rate between 5.5% and 6.5% (maybe for a new home ... which you could learn how to amortize by reading this article). Anyway, you need to see if you can afford the interest at the different rates, what your cash flow will be if the investment appreciates by 7% instead of 10%, etc. Instead of manually changing everything over and over, you should learn to use scenarios.

Instead of me writing an article, however, I'd like to point you to a great article I read some time ago (JoA): Add Muscle to What-if Analysis. If you have questions, I'd be happy to answer them - but I think the article is really well written so I won't rehash what he said here. Once you complete that article, if you found it interesting there was a follow up article here which you can also read for more information. Good luck!


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