spreadsheet modeling

McGraw-Hill/Irwin

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 2
Modified
Version

Introduction to Spreadsheet Modeling

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BDM using Spreadsheets

• Introduction to Modeling

Why model?

Necessity

Better Decisions - a model has helped you if you make or get a better decision

Insight - Explore balances and tradeoffs among factors

Aid to Presentations

Intuition - complex systems behave non-intuitively

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Spreadsheet Modeling Basics

• Simplicity

Models should be kept simple

Models should be reliable

• Communication

interface with the computer itself

with your client

• Manager’s Role in modeling

model builder/analyst, user, and client

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Spreadsheet Modeling Basics

• Builders use blueprints or plans

Without plans structures will fail to be effective

• Advanced planning in any sort of design can speed up implementation
• Spreadsheets are no different from other arenas of design

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Spreadsheet Design

• An efficient process minimizes time spent
• An effective process yields results that meet users’ requirements
• Good design helps analysts spend the majority of their effort improving decisions, rather than building and fixing models

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Spreadsheet Modeling Process

• Designing

Plan

Modularize

Start small

Parameterize

Keep it simple

Design for communication

Document important data and formulas

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Spreadsheet Modeling Process

• Building

Use separate sheets to group similar kinds of information

Design workbooks for ease of navigation

Protect workbooks from unwanted changes during use

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Spreadsheet Modeling Process

• Testing-Validation/Verification

Check that numerical results look plausible

Check that formulas are correct

Test that model performance is plausible

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Spreadsheet Modeling Summary

• Spreadsheets deserve careful design, validation, and verification

Most spreadsheets contain errors

Users are over confident about their models

• Rules for spreadsheet modeling

Designing a spreadsheet

Designing a workbook

Building a spreadsheet

Testing a spreadsheet