Benefits of what if analysis

CST Activity 3.1 (Forum): What-If Analysis WEEK 3.

Introduction
What-if analysis is a data analytical instrument used very often in business. The name of the concept gives a clue in how the tool is use in data analytics and decision making. Another name given to what-if analysis is sensitivity analysis and this name also hints at the concept’s practical application.

Initial Post Instructions
Your colleague, John, comes to you in a panic. He has just been asked by your manager to conduct a what-if analysis on the projected sales of a new widget product. The manager cautioned John, to take into consideration different price points for the widget, projected sales (low, average and high) the maximum number of widgets that can be manufactured in a period and fixed and variable cost. Being a good friend, you decide to help your colleague out. Write an email to John and thoroughly explain the concept of what-if analysis. Give several examples of how what-if analysis can aid in this business endeavor and decisions associated with it. Explain the benefits of using what-if analysis to analyze the data. Last, expand on how the Excel tools Goal Seek, data tables, Scenario Manager and Solver, tools associated with what-if analysis, can help John in his efforts. Recommend a course of action for John to take to conduct the what-if analysis.

Secondary Post Instructions
In your responses to your classmates, offer suggestions to help them refine their advice. Or, you might discuss variations in your recommendations, how the analysis might differ based on the type of project or recommend a resource that John could use to learn more about this topic.

Writing Requirements
Initial post 350 words
Cite 2 different sources in initial post
Secondary posts 250 words
Adhere to all common elements in the Discussion and Written Assignment Expectations.

Hillary:

I put together some information on What-If Analysis that I hope will be helpful to you. What-If Analysis is an Excel tool that shows the user how changing one or more variables will affect an outcome. This is valuable in many situations because you can see the effect of different variables in a way that doesn’t require you to create an individual model for every scenario.

What-If Analysis can help you with the project your manager has assigned. You can see what sales will look like based on optimistic inputs and compare them with the revenues from pessimistic inputs (“The Power of What-If Analysis” 2016). What-If Analysis can also be used to identify a variety of price points for the widgets that will maximize revenue. Further, What-If Analysis can allow you to explore a variety of scenarios showing the number of widgets that can be manufactured with both fixed and variable production costs.

There are many benefits to using What-If Analysis to analyze data. Overall, it can help improve both operational and financial performance by allowing you to run scenarios that combine both current and past data. What-If Analysis can allow you to account for uncertainty by displaying many possible outcomes at once, which will allow you to develop contingency plans for the most likely scenarios. For example, what if a malfunction in the manufacturing of the widget delays product for a week? Or, what additional labor costs would be incurred if we extended the work schedule to seven days instead of five?

Goal Seek, data tables, scenario manager and solver are all elements of What-If Analysis that can be helpful in your project. Goal Seek will allow you to find a scenario that will lead to a specific desired outcome. For example, you could use Goal Seek to determine what your production cost would need to be in order to manufacture a widget at five dollars per widget. Data tables are used for sensitivity analysis. When either one or two of the inputs in your scenario are changing, it shows you what the output would be based on each change (Rushabh 2018). In your situation, you could create a data table to show you the change in widget production cost based on variable production costs. Scenario manager will allow you to compare all of the scenarios you have entered at the same time. This will help you with presenting your findings to your manager. Lastly, solver is a Microsoft Excel add-in program you can also use in your What-If Analysis. Solver allows you to find an optimal value for a formula in one cell subject to certain constraints that you specify. In your situation, this could be ideal for identifying best-case and worst-case scenarios for variable production costs.

My recommendation to you would be to learn how to use the different elements of What-If Analysis described in this email. Consider using both one and two variable data tables, Goal Seek, Scenario manager and Solver to present outcomes for a variety of scenarios to your manager.

Please let me know if I can do anything else to help.

Thanks,

Hillary

REFERENCES

“The Power of What-If Analysis” (2016). Retrieved from: https://www.smytheadvisory.com/blog/the-power-of-what-if-analysis/

Shah, Rushabh. (2018). “What is What-If-Analysis in Excel and How is it Use?” Retrieved from: https://www.digitalvidya.com/blog/what-if-analysis-in-excel/

Response: