Strategy Survival Guide

• Are the units correct?
Step Seven: Let Excel make your life easier
Microsoft Excel has a number of features that make analysis easier to navigate and complete:
• Sorting
• Functions
• Aggregation (SUM, AVERAGE, MIN, MAX)
• Conditional (IF, AND, OR, Nested IF)
• Lookup Values (VLOOKUP, HLOOKUP)
• SUMPRODUCT
• Table command
• Financial functions
• Manipulating data strings
• Using formulas (LEN, LEFT, RIGHT, MID, SEARCH, TRIM, CONCATENATE)
• Converting text to columns
• Formatting cells
• Pivot tables
• Conditional formatting.
Step Eight: Understand the sensitivities
Having built the model and development output, understand the sensitivities of the output to key input
variables. To do this, undertake three key steps:
• Determine the range of valid values for each variable
• Test impact by changing each variable on its own
• Test impact by changing combinations of variables.
A good first pass of the two tests is to change the values of the variables in the assumptions sheet to their
maximums and minimums.
Step Nine: Presenting the Results
Much of the impact of analysis can be lost if it is presented badly. In particular, complex modelling with many
variables and sub-analyses can easily become confusing and lose credibility unless presented logically and
sequentially. Think very carefully about the story the analysis tells. Transparency is crucial, as much
discussion will be held over assumptions in the model.
A typical presentation to explain an Excel model would cover:
• Overall objective of the model
• What the model can and can’t do
• A schematic overview of how the model works
• The key data sources
• How logic of how the variables are combined to produce the outputs
• The key inputs, the value of each and the rationale for this value
• The key assumptions, the value of each and the rationale for this value.
Econometric Modelling
This is the application of mathematical and statistical techniques to economic and social problems.
Econometric studies proceed by formulating a mathematical model, then, using the best data available,
statistical methods are used to obtain estimates of the parameters in the model. Methods of statistical
interference are then used to decide whether the hypothesis underlying the model can be rejected or not.
Econometrics is thus concerned with testing the validity of economic and social theories and providing the
means of making quantitative predictions.
Regression analysis is a major tool of econometrics. It permits different hypotheses to be tested about the
forms of the relationship and the variables that should be included in it.
Strategy Survival Guide – Strategy Skills
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