The What If capabilities built into Excel are one its best features. These tools allow you to run several iterations of the same model to identify ‘what’ will happen when your inputs change. They help you understand the sensitivities of your models and point you in the direction of your priorities.
In order to run proper What If analysis using these tools you will need to make sure you follow some basic rules.
These are as follows:
- There must be a link between the result cell and the input cell you are wanting to change
- You must avoid putting your input cells within a formula. No hardcoding
- Try and have a input sheet and an output sheet and avoid having key inputs and outputs all over the place
- Build in as many error checks as you can. When you run your sensitivity you also need to know if your model has an error it through the process
Despite all your best efforts, a financial model is highly unlikely to correctly guess all the changes in future drivers of the business. As a result, all the work in putting the financial model together comes down to the ability of the model to handle changes to it and ability to run sensitivities.
Once you have all this in place it is possible to use the tools and tricks we will now show you.