Financial Analysis and Modeling Using Excel and VBA

Chapter 5. Making Decisions and Looking Up Values

One reason Excel is so useful is that it can do an enormous number of complex calculations accurately and fast. But if it could do only straightforward calculations, then it would not be half as useful as it is. A significant part of its usefulness or power comes from the fact that in Excel you can write formulas to make various kinds of decisions equally quickly and accurately.

What do we mean by making decisions? Making decisions means choosing which path or action to take out of several possibilities depending on the results of one or more conditions or tests. If you think about it you will realize that this is very similar to what we mean by making decisions and how we make decisions in real life as well, even though we generally do not explicitly think about what conditions or tests we are considering to decide what action we would take.

In financial models, you will often need to use Excel's decision-making abilities. Although most Excel users know how to set up simple decision making in Excel, they cannot create complex decision structures, and they think that the problem is that they do not know Excel well enough or do not know all the necessary features. But most of the time the real problem is that to set up a decision-making structure you have to first lay out in clear and precise steps exactly how a decision is to be made. Since we do not make decisions in such clear and precise steps, it takes some conscious practice ...