One of the finest features in Microsoft Excel is sensitivity analysis using either a table (Excel 2003) or 'What-if' in Excel 2007. Suppose you want to start a cybercafe or a restaurant in a new mall. You have done a study on the footfall and the kind of people who visit the mall. You have also found out about the business atmosphere, security and rent or the outright purchase price. You also know the rates in the market that other businesses are charging, let's say, for surfing the net per hour. You then estimate your capital costs like doing up the cybercafe and the price of the computers. You also use the Excel spreadsheet to estimate and calculate the number of people you'll need to run the show and the amount of salaries you'll have to pay. You have also estimated other variable costs like electricity and phone.
From the above data in the Excel worksheet you can calculate your total monthly or yearly costs. Now based on a certain price that you will charge the customers, number of computers and working hours you can calculate your revenue per month or per year. From the data of revenue and income you can easily calculate the profit. Till now everything was easy to implement in Excel.
Now you decide to find out how your profit can vary if you vary the charge per hour or the number of people who will visit your cybercafe or establishment. Of course, you cannot charge what you want but you can get a good estimate by observing what others are charging and what quality of service and environment they are providing.
Arranging all your data properly, click on 'Data' in the ribbon in Microsoft Office 2007 or 'Data' in the menu bar in Excel 2003. In Excel 2007 select 'What-if' analysis and finally 'Data Table...'.
You can also do a single variable sensitivity analysis by selecting only one parameter.
You can use the 'Data' and 'Table' feature in Excel 2003 to implement the same analysis.
The practical implementation of the above sensitivity analysis in the form of a training video can be found in the link below.