It's high time to get to the bottom of how changing variables affect your projects and gain insightful information for making strategic decisions using the sensitivity analysis feature in Excel. We have crafted this comprehensive step-by-step guide on conducting sensitivity analysis in Excel for analysts, financial professionals, and decision-makers across all industries. Furthermore, we expose you to a carefully curated list of websites that provide free Excel sensitivity analysis templates, removing uncertainty from the scenario. Let loose the potential of data-driven decisions to drive your journey to triumph.
What is Sensitivity Analysis and Why is it Important?
Sensitivity analysis is a technique applied to data models to investigate the model's responsiveness to changes in its input variables. The process involves systematically varying one or more input variables while keeping others constant, to observe the resulting changes in the output variable. The main objective of sensitivity analysis in excel is to assess how different scenarios influence the overall results of the model and to identify the key drivers that significantly impact its outcome.
In many areas, such as financial modeling, budgeting, and decision-making, sensitivity analysis is essential. With the help of this technique, users can examine how sensitive the model is to changes in important variables, giving decision-makers important new information about how these changes impact the outcome.
How to Do Sensitivity Analysis in Excel? (Easy Steps)
In this section, we will learn how to make a sensitivity analysis in Excel. To make the process easier, we will explain this technique using an example.
Example
Sensitivity Analysis is crucial for businesses, as it allows decision makers to look at all the input variables and analyze how it impacts the output. We decided to use this technique for our clothing store; Kim Jackets.
Recently, we decided to increase the price of our Jackets, but were not aware how it would impact our sales. So we decided to run a Sensitivity analysis to understand our situation better. Here’s how:
Step 1: Open Excel and pull up the data sheet.
If we look at our sales, we are selling 750 jackets at a price of $200 and generating an operating profit of $48,750.
Step 2: We will construct a table with different scenarios to run our sensitivity analysis.
In this table, we have kept different prices and jackets sold. This will allow us to understand what profits we will be generating in different scenarios. For eg. what will be our operating profit if we sold 1000 jackets at $150.
Step 3: Before running the sensitivity analysis, it is crucial to link in the result that you want your table to populate; operating profit in our example.
Step 4: To run the sensitivity analysis, go to the “Data” tab in the ribbon menu and click on “What if Analysis”.
Step 5: In the What if Analysis drop-down menu, select “Data Table.”
Step 6: This will open the Data table dialog box. Users will now have to link in the actual assumptions.
Step 7: In the row input cell, we will be selecting our original assumption of 1000 Jackets.
Step 8: In the column input cell, we will be selecting our original assumption of $200 price / jacket and press “OK”.
Our sensitivity analysis will be created, now let’s try analyzing our table. If we increase the price of our jackets to $300, it is certain that our sales will drop to 500 Jackets being sold. If we look at our table, the operating profit will increase to $67500. This suggests that even if we increase the price of our jackets and expect our sales to decrease, our overall profitability will increase.
What if we decide to decrease the price to $150? Decreasing the price will surely decrease our operating profit, but we can expect our sales to increase. However, our sales would need to increase drastically to match the same operating profit at the price point of $200.
Top 3 Websites For Sensitivity analysis Excel template
1. WPS
WPS offers a comprehensive spreadsheet software that includes a wide range of templates, including the valuable sensitivity analysis template. This feature-rich template is freely accessible and highly customizable, making it convenient for users to tailor it according to their specific needs.
By utilizing this Excel template, users can effectively study and analyze the uncertainty in a model's output when confronted with changes in input variables. The template enables users to gain valuable insights into the sensitivity of the model and its response to varying inputs.
Pros
Diverse selection of templates to cater to various needs.
Compatibility with multiple formats for enhanced usability.
Cost-effective solution for budget-conscious users.
Intuitive and user-friendly interface for easy navigation.
Covers essential tasks and functionalities to streamline your work.
Cons
Limited Collaboration Features
2. Resourceful Dev
Resourceful Dev offers an excellent template collection, featuring a comprehensive option for sensitivity analysis excel. This template proves to be a powerful tool, adept at handling various 'what if' scenarios within the dataset, thanks to its pre-programmed formulas. Its adaptability makes it a valuable asset for conducting sensitivity analysis with ease and accuracy.
Pros
Offers time and effort-saving benefits.
Available for free download.
Easy-to-use and edit to suit your specific requirements.
Cons
Limited template options.
3. 365 Financial Analyst
Technically speaking, Financial Analyst serves as a hub for finance templates, including the crucial sensitivity analysis templates. It offers a wide array of options to cater to financial analysts' needs. Their website provides valuable resources such as infographics and finance data sheets, which can be seamlessly integrated into your template for enhanced functionality and visual appeal.
Pros
Available for free download, providing added value to users.
Simple and intuitive editing features, allowing for easy customization.
Exudes a strong sense of professionalism, ensuring high-quality results.
Cons
Features a complex layout that may pose challenges for beginners to navigate.
May require some familiarity or experience to fully utilize for new users.
A Free Alternative - WPS Office
WPS offers an extensive collection of templates, providing a vast ocean of options to suit every preference. Particularly, WPS Spreadsheet stands out for simplifying your work process through its abundant template selection. From financial templates to analytical models, the diverse range ensures you have the right tools at your disposal. Notably, these templates are also customizable, allowing you to tailor them to your specific needs.
However, the advantages don't end there. WPS goes the extra mile by providing a user-friendly experience, ensuring ease of use and intuitive navigation within the software tool. The inclusion of direct PDF functions further enhances the overall convenience and efficiency of working with WPS Spreadsheet.
In essence, WPS serves as a versatile solution that caters to your individual preferences, streamlines your tasks with customizable templates, and ensures a seamless and intuitive user experience. With these valuable features at your fingertips, WPS empowers you to excel in your work effortlessly.
Steps to edit Excel in WPS Office
To edit Microsoft Excel files in WPS Office, follow these steps:
Step 1: Open WPS Office on your system.
Step 2: On the sidebar menu, select Files and browse for the .XLSX Excel file. Double click to open.
Step 3: Users can now edit the files using the WPS toolbar accordingly.
FAQs
1. What types of sensitivity analysis can be performed in Excel?
Excel offers multiple sorts of sensitivity analyses. One-way, two-way, and multi-way analyses are a few instances of these. You may utilize these strategies to see how changes in input variables impact the model's output. It gives you essential knowledge of the sensitivity and responsiveness of your data, allowing you to produce better judgments and comprehend the structure of your spreadsheet model.
2. What are the limitations of sensitivity analysis?
The feature of sensitivity analysis comes with a few drawbacks;
Sensitivity analysis relies on simplified assumptions. This may compromise accuracy in real-world scenarios and complex factors.
Sensitivity analysis relies on linear relationships between variables, but nonlinear relationships can affect accuracy and dependability, especially in complex systems.
Sensitivity analysis lacks precise uncertainty estimates since it focuses on individual variable changes without giving consideration to interactions.
Unlocking Efficiency with WPS Office: Your Sensitivity Analysis Solution
Professionals, with their line-of-work relating to business, often encounter the necessity to develop sensitivity models. However, embarking on this task can be challenging, especially for beginners. Thankfully, there are valuable resources available to make this process much smoother, with sensitivity analysis on Excel being one such solution. We have compiled a list of the top three platforms offering sensitivity analysis templates on Excel, and among them, WPS Templates stands out as a clear frontrunner. What sets WPS apart is not only its provision of a high-quality template but also its seamless integration with your existing office tools. So download WPS Office today and get free access to all the finance models and templates at your fingertips!
