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Management Science: The Art of Modeling with Spreadsheets, 4th Edition by Kenneth R. Baker, Stephen G. Powell

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4 Analysis Using Spreadsheets

4.1 INTRODUCTION

In the previous chapter, we pointed out that spreadsheet models often play a critical role in business planning and analysis. Because of their importance, spreadsheets should not be created haphazardly. Instead, they should be carefully engineered. We recommended a process for designing, building, and testing a spreadsheet that is both efficient and effective. Not only does this process minimize the likelihood that the spreadsheet contains errors, but it also prepares the user to investigate the business questions at hand in the analytic phase of the modeling process. In this chapter we provide a structure for this investigation and present the essential Excel tools that support analysis. Advanced methods, and the Excel tools that go with them, are elaborated in later chapters.

We have found that, over time, most analysts develop their own informal approaches to the analytic phase of modeling. Many of us have favorite tools that we tend to rely on, even when they are not really adequate to the task. But it is difficult to develop a complete set of analytic tools simply through experience. An analyst who does not know a particular tool generally does not think to ask the business question that the tool helps answer. By the same token, an analyst with a complete analytic toolkit would be more likely to ask the right questions.

Although Excel itself has thousands of features, most of the analysis done with spreadsheets falls into one ...

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