Chapter 8

Applying Scenarios to Your Financial Model

IN THIS CHAPTER

check Building drop-down scenarios with data validations

check Using data tables for sensitivity analysis

check Calculating probability-weighted predicted outcomes of scenario analysis

check Applying Scenario Manager to your financial model

One of the things that makes a financial model a financial model and not a spreadsheet is that it contains hypothetical outcomes or scenarios. When your model has been built properly, using links with data only entered once (see Chapter 4), adding scenarios to your model is a fairly straightforward process, and including scenarios doesn’t require much work or redesign.

In this chapter, you take a couple of simple models that you’ve already built in previous chapters, and see how simple it is to add scenarios to improve the functionality. With a well-built model that has all inputs properly linked through to outputs, changing inputs and watching the outputs change is fairly easy. In fact, you could argue that this is pretty much the whole purpose of building a financial model in the first place!

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