Using Excel for Business Analysis. Fairhurst Danielle Stein

need to tell us? Knowing the desired outcome will assist with the model’s build, design, and inputs. If, for example, we are building a pricing model, we need to consider the desired outcome – normally, the price we need to charge in order to achieve a certain profit margin. What is an acceptable margin? What costs should we include? What cost will the market bear? Modellers should also have an understanding of economic concepts, such as efficient costs and how these are calculated, an expected return on an asset base, operating costs and working capital, or long-run versus short-run marginal costs.

      Of course the answers to these questions can be obtained from other people, but a modeller with good business sense will have an innate sense of how a model should be built, and what is the most logical design and layout to achieve the necessary results.

      EXAMPLES OF BUSINESS KNOWLEDGE

      ■ What is cost of capital and how does that affect a business case?

      ■ Which numbers are important?

      ■ What does the internal rate of return mean, and what is an acceptable rate?

       Aesthetic Design Skills

      This is an area that many modellers and analysts struggle with, as aesthetics simply do not come naturally to left-brain thinkers like us. We are mostly so concerned with accuracy and functionality that we fail to realise that the model looks – and I’m not going to mince words here – ugly! Although it’s just a simple matter of taking our time when formatting, most of us could not be bothered with such trivial details as making models pretty, and consequently most models I see use the standard gridlines, font, and black-and-white colouring that are Excel defaults. I’m certainly not suggesting that you embellish your models with garish colours, but you should take some pride in your model. See the section “Bulletproofing Your Model” in Chapter 7 for some ideas on how to remove gridlines and change some of the standard settings so that your model looks less like a clunky spreadsheet and more like a reliable, well-crafted model you’ve taken your time over. Research shows that users place greater faith on models with aesthetic formatting than those without, so one of the fastest and easiest ways to give your model credibility is to simply spend a few minutes on the colours, font, layout, and design.

      1

      Ruth McKeever, Kevin McDaid, and Brian Bishop, “An Exploratory Analysis of the Impact of Named Ranges on the Debugging Performance of Novice Users” (presented at the annual conference of the European Spreadsheet Risks Interest Group, Paris, France, July 2–3, 2009). Available at arxiv.org/abs/0908.0935.

      2

      Mel Glass, David Ford, and Sebastian Dewhurst, “Reducing the Risk of Spreadsheet Usage – A Case Study” (presented at the annual conference of the European Spreadsheet Risks Interest Group, Paris, France, July 2–3, 2009). Available at arxiv.org/abs/0908.1584.