MICROSOFT EXCEL 2007-2010

FORECASTING AND DATA

ANALYSIS
Microsoft Excel 2007/2010 Forecasting & Data Analysis Contents

NOTE
Unless otherwise stated, screenshots in this book were taken using Excel 2007 with a
blue colour scheme and running on Windows Vista. There may, therefore, be minor
visual differences if you are using a different colour scheme, using Excel 2010, or if you
are running on a different version of Windows.

Separate screenshots and instructions are given where there is a significant difference
between the versions or the operating systems. In all other cases concepts, discussions,
procedures and functionality are the same.

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CONTENTS
NOTE ............................................................................................................................................... 3

CONTENTS...................................................................................................................................... 4

LESSON 1 - FORECASTING ........................................................................................................... 7

Concept and Terms ........................................................................................................................ 8
Linear Regression .......................................................................................................................... 9
The Forecast function................................................................................................................ 9
The Trend function .................................................................................................................. 13
The Slope and Intercept Function ............................................................................................ 17
Exponential Regression ............................................................................................................... 21
The Growth function ............................................................................................................... 22
Exponential Smoothing................................................................................................................ 26
The Data Analysis Tool Exponential Smoothing .......................................................................... 28
Nave forecasting ......................................................................................................................... 31
Moving Average .......................................................................................................................... 32
Weighted Moving Average .......................................................................................................... 33
The Data Analysis tool Moving Average ..................................................................................... 35
Seasonal Forecasting ................................................................................................................... 38
Exercises ..................................................................................................................................... 42
Exercise 1 Linear Regression .................................................................................................. 42
Exercise 2 Exponential Regression .......................................................................................... 43
Exercise 3 Exponential Smoothing forecasting ........................................................................ 44
Exercise 4 Nave forecasting and Moving Average ................................................................. 45
Exercise 5 Seasonal forecasting .............................................................................................. 46

LESSON 2 - MEASURING FORECAST ACCURACY .................................................................. 47

Concepts and terms...................................................................................................................... 48
Calculate error/deviation.............................................................................................................. 48
Calculate absolute error/deviation ................................................................................................ 49
Calculate percentage error/deviation ............................................................................................ 51
Calculate absolute percentage error/deviation .............................................................................. 52
Calculate square error .................................................................................................................. 53
Calculate standard error ............................................................................................................... 54
Calculate MAD or MAE (Mean Absolute Deviation or Mean Absolute Error) ............................. 57
Calculate MSQ (Mean Square Error) ........................................................................................... 58
Calculate MPE (Mean Percentage Error)...................................................................................... 58

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Calculate MAPE (Mean Absolute Percentage Error): ................................................................... 59

Calculate TSE (Tracking Signal Error)......................................................................................... 60
Exercises ..................................................................................................................................... 62
Exercise 1 Error/deviation ...................................................................................................... 62
Exercise 2 Mean errors/deviation ............................................................................................ 63

LESSON 3 USING THE SOLVER TO OPTIMISE FORECASTS ............................................... 64

Concept and Terms ...................................................................................................................... 65
Installing the Solver ..................................................................................................................... 66
Use the Solver to optimise exponential smoothing forecasts ......................................................... 68
Use the Solver to optimise weighted moving average forecasts .................................................... 70
Use the Solver to optimise seasonal forecasts ............................................................................... 72
Exercises ..................................................................................................................................... 75
Exercise 1 Optimising exponential smoothing forecasts using the Solver ................................ 75
Exercise 2 Optimising weighted 3 periods moving average using the Solver ........................... 76
Exercise 3 Optimising seasonal forecasts using the Solver ....................................................... 77

LESSON 4 - SHOWING TRENDS AND FORECASTS USING CHARTS ..................................... 78

Concepts and terms...................................................................................................................... 79
Choose the right chart type .......................................................................................................... 79
Create Trendlines ........................................................................................................................ 81
Choosing the best trendline for your data ..................................................................................... 84
Visualise forecasts and forecast errors in a chart .......................................................................... 86
Exercises ..................................................................................................................................... 91
Exercise 1 Adding trendlines .................................................................................................. 91
Exercise 2 Trendline types ...................................................................................................... 92
Exercise 3 Visualising forecasts and errors ............................................................................ 93

LESSON 5 COMPARING FORECASTING METHODS AND MODELS ................................... 94

Concept and Terms ...................................................................................................................... 95

LESSON 6 FORECASTING USING WHAT-IF ANALYSIS ....................................................... 97

Concepts and terms...................................................................................................................... 98
The Scenarios Manager ............................................................................................................... 98
the Goal Seek tool ..................................................................................................................... 103
the Data Table tool .................................................................................................................... 104
Exercises ................................................................................................................................... 107
Exercise 1 Forecasting using scenarios ................................................................................ 107
Exercise 2 Forecasting using goal seek ................................................................................ 108
Exercise 3 Forecasting using data tables .............................................................................. 109

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LESSON 7 - CORRELATION COEFFICIENT ............................................................................. 110

Concepts and terms.................................................................................................................... 111
the Correl function..................................................................................................................... 111
The Data Analysis Tool Correlation ........................................................................................... 113
Create a scatter chart to Display Correlation Coefficient ............................................................ 116
EXERCISE ............................................................................................................................... 119
Using Correl function and the data analysis tool Correlation ................................................ 119

LESSON 8 BREAK-EVEN ANALYSIS .................................................................................... 120

Concepts and terms.................................................................................................................... 121
Calculate Break-even ................................................................................................................. 121
Visualise break-even using scatter chart ..................................................................................... 123
Use Scenarios and the goal seek tool to calculate break-even ..................................................... 127
EXERCISE ............................................................................................................................... 128
Calculating break-even ......................................................................................................... 128

LESSON 9 DATA ANALYSIS TOOLS ..................................................................................... 129

Concepts and terms.................................................................................................................... 130
Descriptive Statistics ................................................................................................................. 130
Histogram.................................................................................................................................. 134
Regression ................................................................................................................................. 136
Sampling ................................................................................................................................... 139
Rank & Percentile ..................................................................................................................... 140

APPENDIX A INSTALLING DATA ANALYSIS TOOLPAK TO EXCEL ............................... 143

Installing Data analysis toolpak ................................................................................................. 143

APPENDIX B TEXT FUNCTIONS ........................................................................................... 145

Concept and Terms .................................................................................................................... 146
Use the Right, Left, and Mid functions....................................................................................... 146
Use the Concatenate function..................................................................................................... 151
Use the Len function.................................................................................................................. 153
Use the Find function................................................................................................................. 154
Use nested text functions ........................................................................................................... 156

INDEX .......................................................................................................................................... 160

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LESSON 1 - FORECASTING

In this lesson, you will learn how to:

Work with Linear Regression
o Use the Forecast function
o Use the Trend function
o Use the Slope and Intercept Function
Work with Exponential Regression
o Use the Growth function
Use Exponential smoothing
Use Data Analysis Tool Exponential Smoothing
Use nave forecasting
Use Moving Average to forecast
Use weighted Moving Average to forecast
Use the Data Analysis tool Moving Average
Work with Seasonal Forecasting
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CONCEPT AND TERMS

Discussion
Forecasting is required in many situations to be able to do effective and efficient
planning. A future electricity demands forecast requires to planning building new
power stations; scheduling staff in a call centre next week requires forecasts of call
volume; just imaging how much forecasting the planners behind London 2012
Olympic Games must have done. Forecasts can be required years in advance, or only a
few minutes beforehand. Whatever the circumstances or time horizons involved,
accurate forecasts are essential part of planning.

Often in forecasting, a key step is knowing when something can be forecast accurately,
and when forecasts are no better than tossing a coin. Good forecasts capture the
genuine patterns and relationships which exist in the historical data, but do not
replicate past events that will not occur again.

In all environments where numbers are collected and people make use of these
numbers the ability to forecast or extrapolate data may be required. It doesnt really
matter if you are talking about sales figures, expenses, man-hours, growth, market
shares etc. to create a budget you need to forecast. To be able to forecast in Excel you
must have historical data. In this workbook time series data is used for the forecasts.
The periods can be quarters, months, minutes, hours, and years. The predictability of
an event or a quantity depends on several factors including:

How well you understand the factors that contribute to it;

How much data are available;

Whether the forecasts can affect the thing you are trying to forecast.

It is not possible to forecast everything. It is easy to forecast the time of the sunrise
tomorrow, but it is impossible to forecast tomorrows lottery numbers and difficult to
forecast, who is going to win this years European Song Contest

Can you trust a forecast created using Excel?

In Excel you have different methods to calculate a forecast, but Excel can only base the
calculations on known data. You can use What-if analysis tools to manipulate your
forecasts based on knowledge you have about the future (you will get a new product
line, you have to close down 5 stores, you will spend money on marketing).

In forecasting you are going to look at the trends that the data have and use these
trends to help forecast future values or values outside the measured data. The trends
can also be used to infill data where data is missing in the collected data. You will also
forecast seasonal data and also look at data which are not suitable for forecasting.

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LINEAR REGRESSION
Discussion

Linear Regression analysis is a statistical technique for estimating the relationships

among variables. In other words how do the sales figures change over time?

If the goal is prediction, or forecasting, linear regression can be used to fit a predictive
model to an observed data set of y and x values or known actual data (y) over time (x)
(time series data). After developing such a model, if an additional value of x (a new
period) is then given without its accompanying value of y, the fitted model can be
used to make a prediction of the value of y.

The sales figures (y) are known for a number of periods (x) it makes it possible
forecasting sales (y) for future periods (x).

In Excel the linear regression can be calculated using the Forecast function, The Trend
function, the Fill-Handle, by calculating the equation: Y = mX + c, and by adding a
Trendline to a chart.

The Data Analysis Tool Regression is an analysis tool to return important information
working with linear regression such as the Slope, the Y-Interceptor, R-square, and
other statistical useful information. The different terms will be explained later in this
workbook.

You can also calculate the Slope and the Y Interceptor using the functions Slope and
Intercept.

THE FORECAST FUNCTION

Discussion
Microsoft Excel provides a variety of functions you can use to calculate forecasts. One
of them is the Forecast function. The Forecast function can calculate trend, a linear
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forecast, or linear regression for as many future periods needed based on known
actual data from previous periods.

The Forecast function consists of three required arguments, in the following order: X,
Known_ys, and Known_xs. X is the period for which you want to calculate the
forecast. Known_ys is the array with the known values. Known_xs is the array with
the known periods (must be a numeric range and not dates, months or years).

Procedures

1. To use a Forecast function, first create a data range containing known

factual data and responding periods.

2. Click in the cell where you want to place the function.

3. Click on the Formulas tab.

4. In the Function Library group, click on the Insert Function button.

Click fx

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5. In the Insert function dialog box, locate Statistical category in the Or

select a category: box.

6. Click on Forecast.

7. Click on the OK button.

Select statistical

Select Forecast

Click OK

8. In the Function Arguments dialog box, click in the X box.

9. Enter the cell reference for the cell with the period information.

10. In the Known_ys box, select the cells containing the known values.

11. Make the cell references absolute (Press F4 or add the $ signs).

12. In the Known_xs box, select the cells containing the known periods.

13. Make the cell references absolute (Press F4 or add the $ signs).

14. Click OK.

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Enter period
Enter known factual data
Enter known periods

Click OK

15. Copy down the Forecast function to get the forecast for known periods
and unknown periods.

The forecast function is built in the Fill handle. Select the known periods factual data
and drag down the Fill handle and the Fill handle will forecast the unknown periods.

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Drag fill handle

If you compare the result using the fill handle in the Sales column and using the
Forecast function in the Forecast column you can see that both methods will return the
same result for November and December. Exactly as the Forecast function the fill
handle can predict as many future periods needed based on known actual data.

THE TREND FUNCTION

Discussion
The Trend can calculate trend, a linear forecast, or linear regression for as many future
periods needed based on data from previous periods.

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The Trend function is an array function and the steps to use it are different from
normal functions in Excel. The whole range where you want the result to be
displayed must be selected and after the needed arguments have been entered the
function dialog box the keys Ctrl Shift Enter must be pressed instead of pressing
Enter. Then the function will return the result for the whole range in the selected
range.

The Trend function consists of one required argument and three optional arguments,
in the following order: Known_ys, Known_xs, New_xs, and Const. Known_ys is
the array with the known values. Known_xs is the array with the known periods
(must be a numeric range and not dates, months or years). New_xs is the array with
future periods if the Trend function is used for forecasting. Const is a logical value
specifying whether to force the constant c (the Y interceptor) to equal 0. In other words
by forcing the Y interceptor to equal 0 the trendline will have a start from 0,0 ( X=0 and
y=0).

Procedures

1. To use a Trend function, first create a data range containing known

factual data and responding periods.

2. Select the range where you want the result of the function.

3. Click on the Formulas tab.

4. In the Function Library group, click on the Insert Function button.

Click fx

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5. In the Insert function dialog box, locate Statistical category in the Or

select a category: box.

6. Click on Trend.

7. Click on the OK button.

Select statistical

Select Trend

Click OK

8. In the Function Arguments dialog box, click in the Known_ys box.

9. Select the cells containing the known values.

10. In the Known_xs box, select the cells containing the known periods.

11. Press Ctrl Shift Enter.

The array functions will add the result to the whole selected array and will look
different in the formula bar. Excel will display the formula enclosed in curly brackets {
}.

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If the Trend function is used for forecasting:

Procedures

1. To use a Trend function for forecasting, first create a data range

containing known factual data and responding periods and add the
periods for which you want to forecast.

Period 11 and 12

2. Select the range where you want the result of the function.

3. Click on the Formulas tab.

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4. In the Function Library group, click on the Insert Function button.

Click fx

5. In the Insert function dialog box, locate Statistical category in the Or

select a category: box.

6. Click on Trend.

7. Click on the OK button.

8. In the Function Arguments dialog box, click in the Known_ys box.

9. Select the cells containing the known values.

10. In the Known_xs box, select the cells containing the known periods.

11. In the New_xs box, select the cells containing the unknown periods.

12. Press Ctrl Shift Enter.

The Trend function will return exactly the same result as the forecast
function and as the Forecast function able to forecast as many future
periods needed.

THE SLOPE AND INTERCEPT FUNCTION

Discussion
To make it easy to calculate the trend or forecast equation Y = mX + c you need the
slope and y interceptor.

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First the equation:

Y = mX + c

Where:

Y is the unknown measure (the value you want to forecast)

X is the X value (the period in time series data) for which you want to know the value
of Y

Where:

m is the gradient of the line or the slope

Where:

c is the Y interceptor of the line (or Y value when there is no X value or X =0)

The slope equation looks like this:

=

The Slope function consists of two required arguments, in the following order:
Known_ys, and Known_xs. Known_ys is the array with the known values.
Known_xs is the array with the known responding periods (must be a numeric range
and not dates, months or years).

Procedures

1. Select the cell where the result is to be displayed.

2. Click on the Formulas tab.

3. In the Function Library group, click on the Insert

Function button.

4. In the Insert function dialog box, locate Statistical

category in the Or select a category: box.

5. Click on Slope.

6. Click on the OK button.

7. In the Known_ys box, select the cells containing the

known values.

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8. In the Known_xs box, select the cells containing the

responding known periods.

9. Click on the OK button.

The Intercept function consists of two required arguments, in the following order:
Known_ys, and Known_xs. Known_ys is the array with the known values.
Known_xs is the array with the known responding periods (must be a numeric range
and not dates, months or years).

Procedures

1. Select the cell where the result is to be displayed.

2. Click on the Formulas tab.

3. In the Function Library group, click on the Insert

Function button.

4. In the Insert function dialog box, locate Statistical

category in the Or select a category: box.

5. Click on Intercept.

6. Click on the OK button.

7. In the Known_ys box, select the cells containing the

known values.

8. In the Known_xs box, select the cells containing the

responding known periods.

9. Click on the OK button.

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The Slope and Y interceptor can now be used to calculate the trend and forecast using
the trend/forecast equation:

Procedures

1. Select the cell where the result is to be displayed.

2. Type =( click in the cell with the slope. Press F4 to lock the
cell reference.

3. Type * click in the cell with the period number (x). Type )

4. Type + click in the cell with y interceptor. Press F4 to lock

the cell reference.

5. Press enter.

6. Copy down the equation.

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The Forecast function, the Trend function and the trend/forecast equation will return
exactly the same result. It does not really matter which method used. The equation can
be used to calculate the forecast for as many future periods needed.

EXPONENTIAL REGRESSION
Discussion
Sometimes the growth in a model is not linear, but it is exponential. If the growth is
exponential Excel has forecasting tools to replace the Forecast and Trend function.

In the example below the sales has an exponential growth rate. The Forecast function
forecasts period 11 to 2005333.333. This is not a realistic forecast, because the known
sales for period 10 are already 2,200,000.00.

In this section you will see how you can forecast an exponential growth.

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THE GROWTH FUNCTION

Discussion
The Growth function can calculate exponential growth and an exponential growth
forecast. The Growth function is an array function and the steps to use it are different
from normal functions in Excel. The whole range where you want the result to be
displayed must be selected and after the needed arguments have been entered the
Growth function dialog box the keys Ctrl Shift Enter must be pressed instead of
pressing Enter. Then the function will return the result for the whole range in the
selected range.

The Growth function consists of one required argument and three optional arguments,
in the following order: Known_ys, Known_xs, New_xs, and Const. Known_ys is
the array with the known values. Known_xs is the array with the known periods
(must be a numeric range and not dates, months or years). New_xs is the array with
future periods if the Growth function is used for forecasting. Const is a logical value
specifying whether to force the constant c (the Y interceptor) to equal 0. In other words
by forcing the Y interceptor to equal 0 the trendline will have a start from 0,0 ( X=0 and
y=0).Procedures

1. To use a Growth function, first create a data range with factual known
data and responding periods.

2. Select the array where you want the result of the function.

3. Click on the Formulas tab.

4. In the Function Library group, click on the Insert Function button.

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Click fx

5. In the Insert function dialog box, locate Statistical category in the Or

select a category: box.

6. Click on Growth.

7. Click on the OK button.

Select statistical

Select Growth

Click OK

8. In the Function Arguments dialog box, click in the Known_ys box.

9. Select the cells containing the known values.

10. In the Known_xs box, select the cells containing the known periods.

11. Press Ctrl Shift Enter.

The array functions will add the result to the whole selected array and will look
different in the formula bar. Excel will display the formula enclosed in curly brackets {
}.

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The Growth function procedures if it is used for forecasting:

Procedures

1. To use a Growth function for forecasting first create a data range with
factual known data and responding periods. Add the periods for the
future you want to forecast.

Periods 11 and 12

2. Select the array where you want the result of the function.

3. Click on the Formulas tab.

4. In the Function Library group, click on the Insert Function button.

Click fx

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5. In the Insert function dialog box, locate Statistical category in the Or

select a category: box.

6. Click on Growth.

7. Click on the OK button.

8. In the Function Arguments dialog box, click in the Known_ys box.

9. Select the cells containing the known values.

10. In the Known_xs box, select the cells containing the known periods.

11. In the New_xs box, select the cells containing the unknown periods.

12. Press Ctrl Shift Enter.

If you compare the Growth function with the Forecast function in a chart it is obvious
that in this example you get a much more accurate forecast using the Growth function.

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EXPONENTIAL SMOOTHING
Discussion
Exponential smoothing is another method to forecast actual time series data. The
method uses a percentage of the previous periods actual data and a percentage of the
previous periods forecast. The model can easily be adjusted to increase the accuracy
when more actual data is known. When the model is created you need to decide a
percentage (also called Alpha). May be you decide to set Alpha to 30%. Then the
exponential smoothing forecast will use 30% of the previous period actual data and
70% of the previous forecast to forecast the next period. Because exponential
smoothing is calculated from the previous periods forecast you must guess the first
forecast or use the actual known value as forecast value. Exponential smoothing can
only predict one future period because you need the previous periods actual known
data.

Later you will see how you can use error measurement calculations and the Solver
tool to increase the accuracy when you are working with exponential smoothing.

The math:

F=forecast

t=period

D=demand or actual known data

Ft+1=alpha * Dt + (1-alpha) * Ft

Example:
Alpha = 30%

Previous forecast = 9000

Previous actual known data = 8000

Ft+1=30% * 8000 + (1-30%) * 9000 = 8700

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Procedures

1. Guess forecast for the first period or if you have data from
the previous period use them as forecast for the previous
period.

2. Select the cell where the result is to be displayed.

3. Type = select the cell with alpha. Type * select the cell
with previous known actual data.

4. Type + (1- select the cell with alpha value )* select the cell
with last forecast.

5. Press enter.

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THE DATA ANALYSIS TOOL EXPONENTIAL

SMOOTHING

Instead of doing the calculations yourself you can use the Data analysis tool
Exponential Smoothing. You can find it by selecting the Data Analysis command
from the Analysis group at the far right end of the data ribbon. Select Exponential
Smoothing from the list and click OK.

If there is no Analysis group or Data Analysis command on the Ribbon, you must
install Data Analysis TOOLPAK (please go to Appendix A in this workbook to see
how to install Data Analysis TOOLPAK).

After you have entered all necessary information into the Exponential Smoothing
dialog box, you can get the result in the output range.

You can specify the following items in the Exponential Smoothing parameters dialog
box:

Parameter Description

Input Range The array where you have the data you want to examine

Damping factor The damping factor is (1 alpha) so to get an alpha value

of 30% (30% of the last period actual data and 70% of the
last forecast) 0.7 or 70% must be entered

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Labels If labels are selected in the input range the box must be
ticked

Output Range Enter a cell reference for the output or New Worksheet
Ply to get the output in a new worksheet in the workbook
with the input data or New Workbook to get the output
in a new workbook

Chart Output Tick the box to get a chart output

Standard Errors Tick the box to get calculated standard errors

When you have finished entering the information click OK and you will get the
output.

Procedures

1. To use the Exponential Smoothing tool, first click the

Data tab.

2. In the Analysis group, click the Data Analysis button.

3. Select Exponential Smoothing from the list and click OK.

Click OK

Select EXPONENTIAL SMOOTHING

4. Select the Input Range and select the desired options.

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5. Click OK

The output

Let us have a look at the output. You got the exponential smoothing forecast not for
the first period as mentioned before you must have data from the previous period to
work with exponential smoothing. Then you got standard error calculated based on
the average from the previous 3 periods. That is why the standard error results starts
from period 5. The error calculations are very important to make sure that the forecast
is as accurate as possible and to make sure that you are using the right forecasting
model. Later in this workbook you will see examples calculating forecast errors. The
chart option was selected so you also got a chart in the output showing the factual
known data and the exponential smoothing trend.

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NAVE FORECASTING
Discussion
The Nave Forecast definition:

Estimating technique in which the last period's actuals are used as this period's
forecast, without adjusting them or attempting to establish causal factors. You are just
using the last periods figures. The nave forecast is normally not very accurate but can
be useful to understand and develop other forecasting models. Because the last period
is used it is only possible to forecast one future period.

Procedures

1. Select the cell where the result is to be displayed.

2. Type = and select the actual value from the previous

period

3. Press enter.

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MOVING AVERAGE
Discussion
The Moving Average forecast is based on the average of known values from a number
of periods. Let us first have a look at the math. If I want to forecast April using three
months moving average the formula will look like this:

"January" "February" " "

April=
More scientific way at looking at the equation

At At-1 At-2
FT+1=
Where F is the forecast T the period A the actual value divided with three because you
are using the previous three periods.

The equation will look like this if you want a two period moving average:

At At-1
FT+1=

The equation will look like this if you want a twelve period moving average:

At At-1 At-2 At-3 At-4 At-5 At-6 At-7 At-8 At-9 At-10 At-11 At-12
FT+1=
The two months Moving Average forecast is based on 2 months known values. It can
be the two previous months values or it can be based on two months the year before
whatever gives the most accurate forecast.

If you forecast one period using the average of the previous two periods you will only
be able to forecast one future period. If you use the average of two periods one period
back, you can forecast two future periods using this method etc...

In the example below (Moving Average (two periods) Previous two periods) the
forecast for March is the average of January and February. You can forecast November
but not December with this method. You need to know the November sales first. In the
example (Moving Average (two periods) one period back) the forecast for April is also
the average of January and February. Here you can forecast December because it is the
average of September and October.

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The three months Moving Average forecast is based on three months known values.
You can use moving average forecast based on as many periods you need to get the
most accurate forecast.

Procedures

1. Select the cell where the result is to be displayed.

2. Type =average(

3. Type the argument, or select the cells you want to insert in

the function (the values for the periods).

4. Type ) closing bracket.

5. Press enter.

WEIGHTED MOVING AVERAGE

Discussion
Another Excel forecasting option is the Weighted Moving Average. The Weighted
Moving Average is nearly the same as the Moving Average except that it assumes that
the most recent periods are the best predictors. Each period that is used for the forecast
is given a weighting. The largest weighting is assigned to the most recent period. Each
preceding period is successively less and less.

For example, during the calculation of a three-period Weighted Moving Average, the
most recent three periods are used. The results from the previous period might be
given the weight of three, the middle period might be assigned a weight of two, and
the 3rd most distant period might be assigned a weight of one.

The formula for the Weighted Moving Average is as follows:

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Forecast (period four) = ((weight of period three * Value of period three) + (weight of
period two * Value of period two) + (weight of period one * Value of period one) /
(weight of period three + weight of period two + weight of period one)

The example below:

Forecast April=((3*210)+(2*180)+(1*200))/(1+2+3)=(630+360+200)/6=1180/6=198.3

Procedures

1. Select the cell where the result is to be displayed.

2. Type =((weight value*period value)+(next weight

value*next period value))/sum of weight values.

3. Press enter.

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In the example above the weight for January, February, and March are typed in D5,
D6, and D7, in D8 (the forecast for April) the formula.

The weight is often a percentage. May be 10% for period 1, 30% for
period 2, and 60% for period 3. The formula will now look like this.
Forecast (period 4) = ((weight of period 3 * Value of period 3) + (weight
of period 2 * Value of period 2) + (weight of period 1 * Value of period
1).

THE DATA ANALYSIS TOOL MOVING AVERAGE

Discussion
In Excel you can also find a data analysis tool Moving Average. Select the Data
Analysis command from the Analysis group at the far right end of the data ribbon.
Select Moving Average from the list and click OK.

If there is no Analysis group or Data Analysis command on the Ribbon, you must
install Data Analysis TOOLPAK (please go to Appendix A in this workbook to see
how to install Data Analysis TOOLPAK).

The Data Analysis tool Moving Average is not a forecasting tool but a way to smooth
data to easier spot the trends.

When you calculated moving average earlier in this book you did it for forecasting by
using the equation:

"January" "February" " "

April=
or

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At At-1 At-2
FT+1=

The equation for the data analysis tool Moving Average tool is:

"January" "February" " "

March=
or

At At-1 At-2
SDT=

After you have entered all necessary information into the Moving Average dialog box,
you can get the result in the output range.

You can specify the following items in the Moving Average dialog box:

Parameter Description

Input Range The array where you have the data you want to examine

Labels If labels are selected in the input range the box must be
ticked

Interval Enter how many periods you want to use

Output Range Enter a cell reference for the output or New Worksheet
Ply to get the output in a new worksheet in the workbook
with the input data or New Workbook to get the output
in a new workbook

Chart Output Tick the box to get a chart output

Standard Errors Tick the box to get calculated standard errors

When you have finished entering the information click OK and you will get the
output.

Procedures

1. To use the Moving Average tool, first click the Data tab.

2. In the Analysis group, click the Data Analysis button.

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3. Select Moving Average from the list and click OK.

Click OK

Select MOVING AVERAGE

4. Select the Input Range and select the desired options.

5. Click OK

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The output

Let us have a look at the output. You got the Moving Average output not for the first 2
periods as mentioned before you must have data from the previous 2 periods to work
with 3 months moving average. Then you got standard error calculated based on the
average from 3 moving average periods. That is why the standard error results starts
from period 5. The error calculations are very important to see how accurate the
moving average tool is. Later in this work book you will see examples calculating
errors. The chart option was selected so you also got a chart in the output showing the
factual known data and the moving average result.

SEASONAL FORECASTING
Discussion
If you have seasonal actual data (each year you are selling more in December and June
or another seasonal pattern) you can use seasonal forecasting to forecast future data. A

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weight can be added to the periods to increase the accuracy of the forecast. If you use
the Forecast function to calculate a linear forecast you can see periods over forecast
and under forecast. In the example below you have seasonal known actual data. The
forecast for quarter 1 is above actual data, the forecast for quarter 2 is above actual
data, the forecast for quarter 3 is below actual data, and the forecast for quarter 4 is
above actual data.

Add an index value (a weight) to each quarter to get a more accurate forecast. In this
example the periods are quarters (4 periods groups). The sum of the index values must
be 4 (12 if you are working with months etc.).

The index value multiplied by the forecast value should be very close to actual data
(the index for period 1 (quarter 1 2006) must be a value multiplied by 108.84 gives a
result close to 100 (the actual known value)). Later you will see how you can use error
measurement calculations and the SOLVER tool to increase the accuracy when you
are working with seasonal historical data. In the example above the seasonal index for
quarter 1 is set to 0.9, set to 0.7 for quarter 2, set to 1.5 for quarter 3, and set to 0.9 for
quarter 4.

To get the seasonal forecast you just have to multiply the seasonal index value by the
Forecast functions forecast and if you compare the actual data with the seasonal
forecast you will see that the seasonal forecast is much more accurate than the Forecast
functions forecast.

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Procedures

1. Forecast the actual data using the Forecast function .

2. Compare actual data with the Forecast functions

calculated forecast data period by period to spot any
seasonal trends.

3. Add a seasonal index which sum should be the same as

number of periods (4 if you are working with quarters, 12
if you are working with months etc.).

Sum of seasonal index

4. Add the seasonal index values to the rest of the quarters.

5. Select the cell where you want the next index value for
quarter 1 and type = click on the cell with the quarter 1
seasonal index.

6. Drag the fill-handle down to copy and paste the seasonal

index value to the rest of the quarters.

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7. Select the cell where the result is to be displayed.

8. Multiply the Forecast functions forecast with the seasonal

index.

9. Copy down the calculation.

It can be difficult to spot a seasonal trend in actual data but even that
you cannot it is a forecasting model which in many situations is more
accurate than other models.

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Exercises
Exercise 1 Linear Regression

1. Open the file Forecasting and data analysis.

2. Open the Forecast Exercises sheet.

3. Use the Forecast function in F12 to calculate the forecast for the first quarter
2007.

4. Copy down the Forecast function to get the forecast for the rest of the
quarters.

5. Select the range G12:G35 and use the Trend function to calculate the trend
for known actual values (when entered the function arguments remember it
is an array function and you must press Ctrl Shift Enter).

6. Select the range G36:G39 and use the Trend function to forecast the 4
quarters in 2013. Remember to enter the range B36:B39 as the Trend
function argument New_xs (when entered the function arguments
remember it is an array function and you must press Ctrl Shift Enter).

7. Select G10 and use the Slope function to find the slope.

8. Select H10 and use the Intercept function to find Y-interceptor.

9. Select H12 and calculate the equation for trend and forecast using the slope
and Y-interceptor (the equation: Y = mX + c, m is the slope, c is the Y-
interceptor, and X is the period).

10. Save the file.

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Exercise 2 Exponential Regression

1. Open the file Forecasting and data analysis.

2. Open the Forecast Exercises sheet.

3. Select the range Q12:Q27 and use the Growth function to calculate the
growth for the known actual data for year 2007 to 2010 (when entered the
function arguments remember it is an array function and you must press
Ctrl Shift Enter).

4. Select the range Q28:Q31 and use the Growth function to forecast the 4
quarters in 2011. Remember to enter the range L28:L31 as the Growth
function argument New_xs (when entered the function arguments
remember it is an array function and you must press Ctrl Shift Enter).

5. Compare the difference between column P (the Forecast function) and

column Q (the Growth function).

6. Save the file.

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Exercise 3 Exponential Smoothing forecasting

1. Open the file Forecasting and data analysis.

2. Open the Forecast Exercises sheet.

3. Enter an alpha value of 50% in G41.

4. Enter 120,000 in G45 (you must guess the first periods forecast).

5. Select G46 and enter the Exponential Smoothing forecast equation

=$G$41*E45+(1-$G$41)*G45 (Ft+1=alpha * Dt + (1-alpha) * Ft).

6. Copy down the equation to forecast period 25 (quarter 1 2013).

7. Change the alpha value in G41 and observe the changes in the range
G45:G69.

8. Click the Data tab and click Data Analysis in the Analysis Group.

9. Select Exponential Smoothing.

10. Enter the input range $E$44:$E$68. Damping factor of 0.7 to get an Alpha
value of 30%. Tick labels and output range should be $H$45. Tick Chart
output and standard errors.

11. Change Alpha in G41 to 30% and compare the two outputs.

12. Save the file.

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Exercise 4 Nave forecasting and Moving Average

1. Open the file Forecasting and data analysis.

2. Open the Forecast Exercises sheet.

3. Select Q46 and type =O45.

4. Drag the fill-handle down to row 69 to copy down the cell content. This is
the Nave forecast which is based on the previous period.

5. Select R48 and use the Average function to calculate the average of the
previous 3 periods known actual figures (=average(O45:O47) and copy
down the Average function to R69. You now have the 3 periods moving
average forecast.

6. Enter 10% in S41, enter 20% in S42, and 70% in S43. The sum of the weights
must be 100%. You assume that the previous periods actual known value is
more important to the forecast than two and three periods back.

7. Select S48 and type =$S$41*O45+$S$42*O46++$S$43*O47.

8. Copy down the calculation to S69.

9. Examine the result. Change the weights in the range S41:S43, but remember
that the sum must be 100%. You now have a 3 periods weighted moving
average forecast.

10. Save the file.

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Exercise 5 Seasonal forecasting

1. Open the file Forecasting and data analysis.

2. Open the Forecast Exercises sheet.

3. Examine the values in the range E84:E107. Is there any seasonal patterns?
Yes there is. Quarter 4 has the highest sales figures and quarter 3 the
lowest.

4. Select G84 and enter the weight for the first period. You have to compare
the sale in E84 and the forecast in F84. If the forecast is higher than the
actual value the weight should be less than 1. The weight = Sales/Forecast
function or G84=E84/F84.

5. Enter the weights in G85, G86 and G87 (the sum of the weights must equals
4 the number of periods (12 if you are working with months)). Work with 2
decimals and round up or down to make sure that the sum equals number
of periods here 4.

6. Select G88 and type =G84 and copy down the cell to G111.

7. Select H84 and type =G84*F84.

8. Copy down the calculation to H111 and you now have a seasonal forecast.

9. Save the file.

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LESSON 2 - MEASURING FORECAST

ACCURACY

In this lesson, you will learn how to:

Measure forecast accuracy
Calculate error/deviation
Calculate absolute error/deviation
Calculate percentage error/deviation
Calculate absolute percentage error/deviation
Calculate square error
Calculate standard error
Calculate MAD or MAE (Mean Absolute Deviation or Error)
Calculate MSQ (Mean Square Error)
Calculate MPE (Mean Percentage Error)
Calculate MAPE (Mean Absolute Percentage Error)
Calculate TSE (Tracking Signal Error)
Microsoft Excel 2007/2010 Forecasting & Data Analysis Measuring Forecast Accuracy

CONCEPTS AND TERMS

Discussion
A key question in any forecasting is how to measure performance. Such measures are
very important when you select a forecasting method and create a forecasting model,
since you may compare alternatives and choose the method with the highest level of
accuracy.

Then, once the method is being used on a regular basis, you need similar measures to
tell you whether the forecasts are maintaining their accuracy. If not you will need to
get things back on track by putting improvements in place such as more timely data,
better statistical methods and may be change forecasting method. To keep up getting
more accuracy forecasts you should work with more than one forecasting method so
you always can compare the accuracy.

To measure how accurate the forecast is you can use different methods. To be able to
compare different forecasting methods you will look at the mean errors but first you
will calculate the errors. Later you compare the different forecast methods to find out
which one is the most accurate for your data right now, because this can change over
time so it is important to use more than one method and keeping up calculate the
errors.

CALCULATE ERROR/DEVIATION
Discussion
The error or the deviation is the difference between actual value and forecasted value.
You can calculate the error or deviation by simple subtract the forecast from the actual.
This will give a positive or negative result for each period or tell us if the forecast for
each period is over or under actual value.

Procedures

1. Select the cell where the result is to be displayed.

2. Type = select the cell with the actual value type

(subtract) select the cell with the forecast value.

3. Press enter.

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The calculation will tell us if our forecast is over or under actual value for each period.

CALCULATE ABSOLUTE ERROR/DEVIATION

Discussion
It is a good idea to calculate absolute error/deviation to get the right picture of the
errors. To compare forecast methods the average error/deviation is very important. If
you calculate the average from positive and negative errors the result will not be very
useful. To calculate the average you need to summarise all the values and then divide
the sum with the number of data. You can have negative and positive errors which
will neutralise or even out each other and the average result will not tell us anything
about the forecast accuracy.

You need to calculate the absolute error/deviation to get a useful result in an average
calculation. To calculate absolute values in Excel you can use the Abs function. The
Abs function has only one argument and it is number. If you type a number negative
or positive the function will always return is as an absolute (positive) value.

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To calculate the Absolute Error you need to type =abs(the actual value the forecast
value).

Procedures

1. Select the cell where the result is to be displayed.

2. Type =abs( select the cell with the actual value type
(subtract) select the cell with the forecast value ).

3. Press enter.

The result of the absolute error/deviation calculation will show the error as a positive
value not if the forecast is above or below factual data.

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CALCULATE PERCENTAGE ERROR/DEVIATION

Discussion
It is always useful to get something like forecast accuracy shown as percentage and the
percentage error can also help you to decide which forecasting method to use for your
data.

Procedures

1. Select the cell where the result is to be displayed.

2. Type = select the cell with the error/deviation and divide

it with actual value.

3. Press enter.

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CALCULATE ABSOLUTE PERCENTAGE

ERROR/DEVIATION

Discussion
You need the Absolute Percentage Error to be able to calculate Mean Absolute
Percentage Error, which are very useful to compare forecasting methods.

Procedures

1. Select the cell where the result is to be displayed.

2. Type = select the cell with the absolute error/deviation

and divide it with actual value

3. Press enter.

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CALCULATE SQUARE ERROR

Discussion
A popular way of looking at forecast accuracy is calculating square error. By squaring
the deviation the errors will be more obvious and easy to spot. By squaring the
deviation the result will always be absolute.

Procedures

1. Select the cell where the result is to be displayed.

2. Type =( select the cell with the actual value (subtract)

the forecast and type ) then type ^ (shift 6) and type 2.

3. Press enter.

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The SUMSQ function can also be used to calculate Square Error.

Type =sumsq(select the actual data cell the forecast cell and type ).
In the example above =sumsq(C5-D5).

CALCULATE STANDARD ERROR

Discussion
Standard error is a statistical standard for error calculations. You need to summarise
the squares of the difference between the three previous known actual periods and the
three previous periods forecast and divide the result by three (number of periods) and
calculate the square root of the result. You can use the SQRT function together with
the SUMXMY2 function to calculate the standard error.

The SQRT function:

The SQRT function returns the square root of a number.

Procedures

1. Select the cell where the result is to be displayed.

2. Type =SQRT( type a number or select a cell).

3. Press OK and the function will return the square root.

The SUMXMY2 function:

The Sumxmy2 function returns the sum of the square of the difference of two arrays.
The function has two arguments Array_x and Array_y. Enter the range for the first
array in Array_x and enter the range for the second array in Array_y.

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Procedures

1. Select the cell where the result is to be displayed.

2. Type =SUMXMY2( in Array_x enter the range of the first

array. In Array_y enter the range of the second range).

3. Press OK.

Use the SQRT function and the SUMXMY2 to calculate

standard error
Select the cell where you want the result to be displayed. Start with the SQRT
function.

Nest the SUMXMY2 function and select the two arrays (the previous three known
values in Array_x and the previous three forecast values in Array_y).

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Click OK and type /3 after the SUMXMY2 function inside the SQRT function. Press
enter.

Procedures

1. Select the cell where the result is to be displayed.

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2. Type =SQRT( SUMXMY2(select the range with the actual

values. Type, select the range with the forecast)/3)
3. Click OK.

CALCULATE MAD OR MAE (MEAN ABSOLUTE

DEVIATION OR MEAN ABSOLUTE ERROR)
Discussion
The MAD/MAE is a very important measurement to compare forecast methods. You
need an overall result to compare methods. MAD/MAE is the average of the absolute
deviation/error.

You can calculate MAD (Mean Absolute Deviation) or MAE (Mean Absolute Error) by
using the average function.

1. Select the cell where the result is to be displayed.

2. Type =average( select the range or enter the cell references

for the range containing absolute error/deviation and
type )

3. Press enter.

The average function

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CALCULATE MSQ (MEAN SQUARE ERROR)

Discussion
MSQ (Mean Square Error) is a method to calculate forecast accuracy and to compare
forecasting methods. MSQ is the average of the calculated Square Error.

Procedures

1. Select the cell where the result is to be displayed.

2. Type =average( select the range or enter the cell references

for the range containing absolute error/deviation and
type )

3. Press enter.

The average function

CALCULATE MPE (MEAN PERCENTAGE ERROR)

Discussion
The MPE (Mean Percentage Error) is the average of the Percentage Error. Use the
AVERAGE function to calculate MPE.

Procedures

1. Select the cell where the result is to be displayed.

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2. Type =average( select the range or enter the cell references

for the range containing absolute error/deviation and
type )

3. Press enter.

The average function

CALCULATE MAPE (MEAN ABSOLUTE PERCENTAGE

ERROR):
Discussion
The MAPE (Mean Absolute Percentage Error) is the average of the Absolute
Percentage Error. Use the AVERAGE function to calculate MAPE.

Procedures

1. Select the cell where the result is to be displayed.

2. Type =average( select the range or enter the cell references

for the range containing absolute error/deviation)

3. Press enter.

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The average function

CALCULATE TSE (TRACKING SIGNAL ERROR)

Discussion
Once a forecast model is developed it should indicate if the actual values following the
forecast, and indicate if any deviation in order to correct the model. TSE (Tracking
Signal Error) is used to pinpoint forecasting models that need adjustment. As long as
the tracking signal is between 4 and 4, assume the model is working correctly.

To calculate TSE you need to calculate MAD (Mean Absolute Deviation). Summarise
the error/deviation and divide it by MAD and you will have TSE.

Procedures

1. Select the cell where the result is to be displayed.

2. Type =sum( select the Error range and type ) type/select

the cell with the MAD.

3. Press enter.

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Exercises
Exercise 1 Error/deviation

1. Open the file Forecasting and data analysis.

2. Open the Error-deviation exercises sheet.

3. Select G2 and calculate the error (=E2-F2).

4. Copy down the calculation to G25.

5. Select H2 and calculate the absolute error (=abs(E2-F2)) and copy down the
calculation to H25.

6. Select I2 and calculate the percentage error (=G2/E2) and copy down the
calculation to I25. Add percentage style and 2 decimals.

7. Select J2 and calculate the absolute percentage error (=H2/E2) and copy
down the calculation to J25. Add percentage style and 2 decimals.

8. Select K2 and calculate the square error (=(E2-F2)^2) and copy down the
calculation to K25.

9. Save the file.

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Exercise 2 Mean errors/deviation

1. Open the file Forecasting and data analysis.

2. Open the Error-deviation exercises sheet.

3. Select H32 and calculate the mean absolute deviation (MAD)

(=average(H2:H25)).

4. Select I32 and calculate mean percentage error (MPE) (=average(I2:I25)).

5. Select J32 and calculate mean absolute percentage error (MAPE)

(=average(J2:J25)).

6. Select K32 and calculate mean square error (MSQ) (=average(K2:K25)).

7. Select J32 and calculate mean absolute percentage error (MAPE)

(=average(J2:J25)).

8. Select G32 and calculate tracking signal error (TSE) (=sum(G2:G25)/H32)

9. Save the file.

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LESSON 3 USING THE SOLVER TO

OPTIMISE FORECASTS

In this lesson, you will learn how to:

Install the Solver
Use the Solver to optimise exponential smoothing forecasts
Use the Solver to optimise weighted moving average forecasts
Use the Solver to optimise seasonal forecasts
Microsoft Excel 2007/2010 Forecasting & Data Analysis Using the solver to Optimise forecasts

CONCEPT AND TERMS

Discussion
The Solver is an advanced Excel tool you can use in a lot of different situations. In this
book the Solver will be used to optimise Weighted Moving Average forecasts,
Seasonal forecasts, and Exponential Smoothing forecasts.

You can specify the following items in the Solver Parameters dialog box:

Parameter Description

Set Target cell The cell containing the formula you want Solver to use

To (equal to Excel 2007) Whether to set the target cell to its maximum value, its
minimum value, or a specified value

By Changing cells The variable cells that Solver can change in order to reach
the desired target cell value

Constraints You can set constraints or limitations on the changing

cells, the target cell, or other cells in the worksheet

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(This is a screenshot of the Excel 2010 Solver. The Excel 2007 Solver looks a little different,
but the parameters and how to use it for optimising forecasts will be the same).

INSTALLING THE SOLVER

Discussion
Solver is not part of the standard Excel application as normally installed, it is an Add-
In (often referred to as a plug-in.). Add-Ins are additional Excel components that are
not commonly used and as a result, have to be installed on your computer. There are
many third party (non-Microsoft) Add-Ins that help Excel do useful and clever things
that it cannot normally do, or that enhance some of the things that it can do.

These can be found and downloaded from the Internet although it is wise to consult
with your IT department first in case they have objections on grounds of security and
computer software safety. It is unlikely that in the working environment you will be
able to install these programs yourself anyway.

There are, however, selections of Add-Ins that come with Excel and that are perfectly
safe and suitable for use; one of these is Solver.

Procedure

1. Click the Office Button (Excel 2007) or the File tab (Excel
2010).

2. Click Excel Options.

3. Click Add-Ins at the left.

4. Click Add-Ins at the left.

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5. Select Excel Add-ins from the Manage: list at the bottom

of the dialog box.

6. Click Go.

7. Click in box next to Solver Add-in.

8. Click in box next to Solver Add-in.

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USE THE SOLVER TO OPTIMISE EXPONENTIAL

SMOOTHING FORECASTS

Discussion
The Exponential Smoothing forecasting model needs an Alpha value. A percentage of
the previous known actual value and a percentage of the previous forecast. You can
analyse the data and calculate the percentage but you can also ask the Solver to find
the right percentage to get the most accurate forecast.

In the example below the Exponential Smoothing model uses an Alpha of 80%. The
forecast is based on 80% of the previous actual known sales figure and 20% of the
previous periods forecast. This percentage gives a MAD of 1146.08.

Solver parameters:
The Set Objective: $G$33 is the cell with MAD. To: Min is selected because you want
the lowest possible MAD to get the most accurate forecast. By Changing Variable
Cells: $F$2 is selected. It is Alpha the Solver must change to bring down MAD.
Subject to the Constraints: 2 constrains are entered Alpha must be less than or equal
to 1 (100%) or greater than or equal to 0 (0%).

The Solver found the best percentage to be 28% and this changed the MAD from
1146.08 to 885.58.

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Now the model can be optimised every time you get new actual known data in this
example, when you get the October figures. Just use the Solver each time new data is
entered.

Procedure

1. To use Solver, first click the Data tab.

2. In the Analysis group, click the Solver button.

3. Select the target cell.

4. Set the Equal To: option to the one you require.

5. In the By Changing Cells: box, select, or type, the range of

cells the Solver must use to compare against the target cell
value.

6. Click the Add button.

7. In the Add Constraint dialog box, specify the first cell

constraint.

8. If necessary, click on Add to specify more cell constraints.

9. Click the OK button.

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10. In the Solver Parameters dialog box, click the Solve

button. The Solver Results

The Solver Results dialog box opens with the results.

USE THE SOLVER TO OPTIMISE WEIGHTED MOVING

AVERAGE FORECASTS

Discussion
The Weighted Moving Average forecasting model needs a weight/percentage value
for previous periods. Instead analysing the data the Solver can find the right weights
to get the most accurate forecast.

In the example below the Weighted Moving Average model uses a weight for the 1st
period of 10%, 20% for the 2nd period, and 70% for the 3rd period. These percentages
return a MAD 1061.11.

Solver parameters:
The Set Objective: $G$35 is the cell with MAD. To: Min is selected because you want
the lowest possible MAD to get the most accurate forecast. By Changing Variable
Cells: the range $F$2:$F$4 is selected. It is weights the Solver must change to bring
down MAD. Subject to the Constraints: 1 constrain is entered the sum of the weights
must be equal to 1 (100%).

The Solver found the best percentage to be 71%, 14%, and 14% and this changed the
MAD from 1061.11 to 769.80.

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Procedure

11. To use Solver, first click the Data tab.

12. In the Analysis group, click the Solver button.

13. Select the target cell.

14. Set the Equal To: option to the one you require.

15. In the By Changing Cells: box, select, or type, the range of

cells the Solver must use to compare against the target cell
value.

16. Click the Add button.

17. In the Add Constraint dialog box, specify the first cell
constraint.

18. If necessary, click on Add to specify more cell constraints.

19. Click the OK button.

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20. In the Solver Parameters dialog box, click the Solve

button. The Solver Results

The Solver Results dialog box opens with the results.

USE THE SOLVER TO OPTIMISE SEASONAL FORECASTS

Discussion
The Seasonal forecasting model needs a weighted value for each period. The weights
must equal the number of periods (if you are working with quarters the sum of the
weights must equal 4, Months 12 etc.). Instead analysing the data the Solver can find
the right weights to get the most accurate forecast.

In the example below the Seasonal forecast model uses a weight for the 1st period of
0.8, 0.4 for the 2nd period, 2 for the 3rd period, and 0.8 for the 4th period. These
percentages return a MAD 34.

Solver parameters:
The Set Objective: $H$3 is the cell with MAD. To: Min is selected because you want
the lowest possible MAD to get the most accurate forecast. By Changing Variable
Cells: the range $F$7:$F$10 is selected. It is weights the Solver must change to bring
down MAD. Subject to the Constraints: 1 constrains are entered the sum of the
weights must be equal to 4 (the sum of the weights and number of periods).

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The Solver found the best suitable weights for the Seasonal forecast model and the
forecast is much more accurate now with a MAD of 5 and please look at the chart. It is
very clear that the forecast is very accurate.

Procedure

1. To use Solver, first click the Data tab.

2. In the Analysis group, click the Solver button.

3. Select the target cell.

4. Set the Equal To: option to the one you require.

5. In the By Changing Cells: box, select, or type, the range of

cells the Solver must use to compare against the target cell
value.

6. Click the Add button.

7. In the Add Constraint dialog box, specify the first cell

constraint.

8. If necessary, click on Add to specify more cell constraints.

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9. Click the OK button.

10. In the Solver Parameters dialog box, click the Solve

button. The Solver Results

The Solver Results dialog box opens with the results.

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Exercises
Exercise 1 Optimising exponential smoothing forecasts using the Solver

1. Open the file Forecasting and data analysis.

2. Open the Optimise using Solver exercises sheet.

3. Open the Solver parameters dialog box.

4. The Solver will be used to bring down the MAD (Mean Absolute
Deviation). Set Objective: $G$35 To: select Min. to get the lowest possible
value.

5. By Changing Variable Cells: the cell with the Alpha ($F$2) value is the cell
the Solver can change to bring down the error.

6. Add two constraints the Alpha value must be greater than or equal to 0 and
less than or equal to 1 (between 0% and 100%).

7. Click Solve and examine the MAD and the chart.

8. Save the file.

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Exercise 2 Optimising weighted 3 periods moving average using the Solver

1. Open the file Forecasting and data analysis.

2. Open the Optimise using Solver exercises sheet.

3. Open the Solver parameters dialog box.

4. The Solver will be used to bring down the MAD (Mean Absolute
Deviation). Set Objective: $G$71 To: select Min. to get the lowest possible
value.

5. By Changing Variable Cells: the cells with weights $F$38:$F$40 values are
the cells the Solver can change to bring down the error.

6. Add one constraint the Sum of weights ($G$38) must equals 100%.

7. Click Solve and examine the MAD and the chart.

8. Save the file.

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Exercise 3 Optimising seasonal forecasts using the Solver

1. Open the file Forecasting and data analysis.

2. Open the Optimise using Solver exercises sheet.

3. Open the Solver parameters dialog box.

4. The Solver will be used to bring down the MAD (Mean Absolute
Deviation). Set Objective: $J$106 To: select Min. to get the lowest possible
value.

5. By Changing Variable Cells: the cell with the seasonal weights or index
values ($G$77:$G$80) are the cells the Solver can change to bring down the
error.

6. Add one constraint the sum of the weights ($G$74) must equals 4.

7. Click Solve and examine the MAD and the chart.

8. Save the file.

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Microsoft Excel 2007/2010 Forecasting & Data Analysis Showing trends and forecasts in charts

LESSON 4 - SHOWING TRENDS AND

FORECASTS USING CHARTS

In this lesson, you will learn how to:

Choose the right chart type
Create trendlines
Choose the best trendline for your data
Visualise forecasts and forecast errors in a chart
Microsoft Excel 2007/2010 Forecasting & Data Analysis Showing trends and forecasts in charts

CONCEPTS AND TERMS

Discussion
Excel provides us with a wide selection of charts. Charts are very powerful tools to
visualise data and can make it much easier to understand data analysis. In this book
the primary idea is to look at the best charts for visualising forecasts and data analysis.
How trends easy can be spotted, how forecasts easily can be done in a chart, how you
can visualise forecast errors.

CHOOSE THE RIGHT CHART TYPE

Discussion
The most common charts used to visualise data analysis are Column charts, Line
charts, Scatter charts, and Pie charts, but all the charts provided by Excel can be used.

Chart type Description

Pie charts: Pie charts are superb for displaying data points as a
percentage of the whole, but as with all chart types if the
value for the data points getting to small (the gap
between the values to big) it is difficult to distinguish
each data point in the chart. If a data point is less than 5%
of the pie, it becomes hard to distinguish the slice. Pie
charts can only display one data series, which means you
can include only one column or row of values in your
selection when you create a pie chart.

Column charts: Data that is arranged in columns or rows on a worksheet

can be plotted in a column chart. Column charts are
useful for showing data changes over a period of time or
for illustrating comparisons among items.

In column charts, categories are typically organized along

the horizontal axis and values along the vertical axis.

Consider using a column chart when:

You have one or more data series that you want to

plot.

Your data contains positive, negative, and zero (0)

values.

You want to compare the data for numerous

categories side by side.

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Line charts: Line charts are great tools to track and trend data. Line
charts can display continuous data over time, set against
a common scale, and are therefore ideal for showing
trends over time. As a general rule, you may want to use
a Line chart if your data has non-numeric x-values. (For
numeric x-values, it's usually better to use a Scatter
chart).

Scatter charts: Scatter charts are commonly used for displaying and
comparing numeric values, such as scientific, statistical,
and engineering data. You should use a Scatter chart if
you want to change the scale of the x-axis, or make it a
logarithmic scale. You can use this chart type to
effectively:

Display worksheet data that includes pairs or grouped

sets of values. You can adjust the independent scales of a
Scatter chart to reveal more information about the
grouped values.

Show similarities between large sets of data. Rather than

showing the differences between data points, a Scatter
chart can point out interesting similarities.

Compare large numbers of data points without regard to

time. The more data that you include in a Scatter chart,
the better the comparisons that you can make.

Scatter charts can be displayed with or without lines to

connect the data points, and connecting lines can be
displayed with or without data markers.

Below you can see the Excel chart dialog box where you can find the entire chart types
in Excel.

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CREATE TRENDLINES
Discussion
Before you start creating charts and trendlines make sure that:

You have enough data to show a meaningful chart and enough data for Excel to be
able to calculate a reliable trend. Insufficient data might twist the results. For example,
seasonal fluctuations might be mistaken for long-term trends if the data is from only
one year. The chart must be a 2-D chart. Excel cannot create trendlines on 3-D charts.

The data is ordered from earliest to most recent.

No data is missing. If data is unavailable for a period, enter an estimate.

You can forecast with trendlines you will see how later in this book.

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So what are trendlines, really?

Trendlines are graphical representations of trends in data that you can use to analyse
problems of prediction. Such analysis is also called regression analysis. By using
regression analysis, you can extend a trendline in a chart beyond the actual data to
predict future values. For example, the preceding chart uses a simple logarithmic
trendline that is forecast ahead four quarters to clearly show a trend toward rising
revenue.

R (R-squared)

So you might be wondering: How reliable are these trendlines, anyway? The answer
has to do with something called R-squared or, more specifically, the R-squared
value of the trendline (this is where math comes in). Think of the R-squared value as a
magic number in this case, a number between 0 and 1.

You don't have to understand all about R-squared values just remember: A
trendline is most reliable when its R-squared value is at or near 1. When you fit a
trendline to your existing data, Excel automatically calculates its R-squared value
based on a formula. The more closely a trendline match your existing data, the more
accurate a forecast that uses this trendline is likely to be. If you want, you can display
this value on your chart.

First you need to create a chart.

It can be difficult to see a trend just looking at the chart. To add a trendline you need to
select the chart and select the contextual Chart Tool tab layout. Select Linear
Trendline from the trendline list.

Layout tab
Click to get the trendline
list

You just created a trendline!

Right click the trendline and click Format Trendline. Click Display R-squared value
on chart to display R2.

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The R-squared value, which tells you how closely your trendline follows your data,
appears on the chart. With a linear trendline in this example above, the value is 0.3692.
As you can see the trendline doesn't follow the data very closely because the sales goes
up and down. A linear trendline with an R-squared value of 0.3692 is not a very
reliable trendline for a forecast. The linear trendline in this example will may be not be
able to give us an accurate forecast but it is easy to see that the trend is going up so
you have increasing sales trend and that is of course nice.

You can change the trendline to another trendline type and compare the R-square
values. May be there is a trendline which is a better match to the data. In the next
chapter you will see a description of all the different trendlines and when to use the
different types.

Procedure

1. Create a chart.

2. Make sure that the chart is selected. Click Trendline on

the contextual Chart Tools tab.

3. Click on the trend line type you want to create.

4. Right click the trendline and choose Format Trendline.

5. Click Display R-squared value on chart to display R2.

Instead of right click the trendline to format the trendline you can click
More Trendline Options in the trendline type dialog list.

You can create a trendline by right click the data series and click Add
Trendline.

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CHOOSING THE BEST TRENDLINE FOR YOUR DATA

Discussion
When you want to add a trendline to a chart in Excel, you can choose between six
different trend/regression types. You should use the type which fit best to your data.

Choosing the right trendline for your data is very important. Checking the R-squared
value can help you choose the best trendline for your data. It also helps to understand
the types of trendlines that are likely to fit different scenarios.

Type Description

Linear A linear trendline is a best-fit straight line that is used with simple
linear data sets. Your data is linear if the pattern in its data points
resembles a line. A linear trendline usually shows that something is
increasing or decreasing.

Logarithmic A logarithmic trendline is a best-fit curved line that is most useful

when the rate of change in the data increases or decreases quickly and
then levels out. A logarithmic trendline can use negative and/or
positive values.

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Polynomial A polynomial trendline is a curved line that is used when data

fluctuates. It is useful, for example, for analysing gains and losses over
a large data set. The order of the polynomial can be determined by the
number of fluctuations in the data or by how many bends (hills and
valleys) appear in the curve. An Order 2 polynomial trendline
generally has only one hill or valley. Order 3 generally has one or two
hills or valleys. Order 4 generally has up to three.

Power A power trendline is a curved line that is best used with data sets that
compare measurements that increase at a specific rate for example,
the acceleration of a race car at one-second intervals. You cannot create
a power trendline if your data contains zero or negative values.

Exponential An exponential trendline is a curved line that is most useful when data
values rise or fall at increasingly higher rates. You cannot create an
exponential trendline if your data contains zero or negative values.

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Moving A moving average trendline smooth out fluctuations in data to show a

average pattern or trend more clearly. A moving average trendline uses a
specific number of data points (set by the Period option), averages
them, and uses the average value as a point in the trendline.
If Period is set to 2, for example, then the average of the first two data
points is used as the first point in the moving average trendline. The
average of the second and third data points is used as the second point
in the trendline, and so on.

VISUALISE FORECASTS AND FORECAST ERRORS IN A

CHART

Discussion
Forecast charts are exceptional to show the result in a very user friendly easy
understandable manner. Line charts, scatter chart, columns charts, or a combination of
column charts and line charts should be the charts used for forecasts.

In the scatter chart below the blue line is data over 20 quarters. The vertical axis shows
the data and the horizontal axis shows the quarters. It is easy to see that it is seasonal
data.

By adding a 4 periods forecast trendline it is obvious that the values increase over time
but also that the data is not linear data (the R2=0.1065). It tells us that the trendlines
prediction for period 21 to 24 is not reliable.

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For seasonal data a seasonal forecast should be better to predict the future. In the chart
below the result of a seasonal forecast is added and you can see that it is much better
to find the ups and downs in the data.

By adding the absolute error for the two forecast methods the forecast accuracy can be
shown in the chart period by period, but it is not obvious which one is the most
accurate.

By adding the MAD (Mean Absolute Deviation) to the chart you can now see that the
seasonal forecast is the most accurate forecast, but it is not because it is much more
accurate than the trendline forecast.

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In the example below the Solver has been used to optimise the seasonal forecast and it
is easy to see that now the seasonal forecast is much more accurate than the trendline
forecast. The Solver decreased MAD from 26.93 to 5.28.

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Procedures

1. Create the data you want to visualise in a chart.

2. Select the data, click Insert tab and on the charts group
select the chart type you want to create.
Insert tab
Select chart type

3. Move and resize the chart.

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Exercises
Exercise 1 Adding trendlines

1. Open the file Forecasting and data analysis.

2. Open the Visualise forecasts exercise sheet.

3. Right click the data series Sales on the chart in Exercise 1.

4. Click Add Trendline.

5. Create a linear trendline and tick Display Equation on chart and Display
R-squared value on chart.

6. Click Line Color top left in the Format Trendline dialog box.

7. Select Solid line and the colour red.

8. Examine the R2 value. Do you think this is the right trendline for this chart?

9. Right click the trendline and click Format Trendline.

10. Type 4 in the Forward: box under Forecast.

11. Click Close.

12. Save the file.

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Exercise 2 Trendline types

1. Open the file Forecasting and data analysis.

2. Open the Visualise forecasts exercise sheet.

3. Right click the data series Sales on the chart in Exercise 2.

4. Click Add Trendline.

5. Create a linear trendline and tick Display Equation on chart and Display
R-squared value on chart.

6. Examine the R2 value. Do you think this is the right trendline for this chart?
The R-squared value is relatively high but the trendline does not reflect the
data series very well.

7. Write down the R-squared value. Right click the trendline and click Format
Trendline.

8. Try the other trendline types and compare the R-squared value.

9. Use the trendline with the highest R-squared value

10. Save the file.

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Exercise 3 Visualising forecasts and errors

In the exercise 3 area (starting from row 40) two different methods have been
used to forecast the sales the Forecast function and seasonal forecasting. Use
the chart to compare the two methods and to decide which one you should use
to get the most accurate forecast.

1. Open the file Forecasting and data analysis.

2. Open the Error-deviation exercises sheet.

3. Add the Forecast function data to the chart (copy the range F40:F68 click on
the chart area and paste the data).

4. Do the same with the seasonal forecast data (copy the range O40:O68 click
on the chart area and paste the data).

5. Add the forecast functions Absolute error (column H) and the seasonal
forecasts Absolute error (column Q) to the second chart (the blank chart).

6. Right click the two error series and change chart type to column (If they are
not in columns already).

7. Add the forecast functions MAD (range L40:L68) and the seasonal
forecasts MAD (U40:U68) to the second chart.

8. Right click the two MAD series and change chart type to line.

9. Use the Solver to optimise the seasonal forecast. The right parameters are
already added to the Solver parameter dialog box.

10. Compare the two methods which one is the best and most accurate?

11. Save the file.

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LESSON 5 COMPARING FORECASTING

METHODS AND MODELS

In this lesson, you will learn how to:

Compare different forecasting models
Understand which forecasting model to use
Microsoft Excel 2007/2010 Forecasting & Data Analysis Comparing forecast Methods

CONCEPT AND TERMS

Discussion
To keep your forecast on track it is important to continuously developing your forecast
model. You have seen different forecasting models and how to calculate the errors.
You should use more than one method and every time you add more data calculate
the errors and optimise your model. It can change over time which forecast method
generates the most accurate forecasts. If you by comparison of the different method
can see a change in accuracy between the methods you can keep your forecasts on
track by always knowing which forecast method generates the best result for your
data.

Create a column chart displaying all MAD results from all the forecasting method can
be a nice tool. Keep an eye on the chart when you are adding new data to you
forecasting model and you will very easy visualise which model is the most reliable.

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You can also after trying the different methods decide which one to use in the future
and then use TSE (Tracking Signal Error) to make sure that the model is on track. The
TSE value must be between -4 to 4.

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LESSON 6 FORECASTING USING WHAT-IF

ANALYSIS

In this lesson, you will learn how to:

Use the Scenarios Manager
Use the Goal Seek tool
Use the Data Table tool
Microsoft Excel 2007/2010 Forecasting & Data Analysis Forecasting using What-If Analysis

CONCEPTS AND TERMS

Discussion
The What-If analysis tools are very powerful tools when you need to forecast and you
have some knowledge which Excel cannot calculate from the historical data. Your
company will add 5 new products to the product line. The costs will be reduced
because of an investment in new manufacturing equipment. You expect a marketing
investment to pay off. You can manipulate your forecasts using What-If analysis.

THE SCENARIOS MANAGER

Discussion
The Scenarios tool can be a very nice supply to forecasting. You may need to forecast
December. You have the data for each month from January 2011 to September 2012.
You have the units you have sold, the unit price, the variable costs, the fixed costs, the
sales, the profit, the total market units, and your companys market shares. The
Forecast function has been used to calculate the forecast for Market shares and total
market units for December. You know that the forecast will not be accurate.

First of all you know that the sales for December will be very good. You also know
that your company will spend a lot of money getting a bigger market share. Your
company is also working on reducing the fixed and variable costs and you also have
plans changing the price policy for your products.

You want now to work with the forecast to see what will happen with all these
changes. You do not know if all the changes will happen so you want to create
different scenarios to be able to compare the different situations.

You can create a scenario summary report, which lists all the scenarios you have
created in a side-by-side format so that you can compare them. When you create a
scenario summary report, the Scenario Manager automatically inserts a Scenario
Summary sheet in the workbook and places the report on it. This sheet allows you to
easily view and print the scenario summary report. A scenario summary report
appears in an outline format.

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Open up the scenarios tool by clicking the Data tab and click the What-if Analysis
button in the Data Tools group. Click Scenarios Manager and the Edit Scenario
dialog box will open. You first want to see how the forecast will change if the total
market will increase because of Christmas and if your companys investment will
pay off by giving you more shares of the market.

In the Edit Scenario dialog box first enter a name for the scenario. In the Changing
cells: box you must select the changeable cells. Click OK.

Based on Christmas forecast from previous years your best guess for Total Market for
December will be 200.000 units. Your hope that the investment will increase the
Market share to 2%. Enter the values in the Scenario Values dialog box and click OK.

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If you click Show you can see the result of your scenario in the worksheet. If the
increase of market shares and total market units will be as predicted the sales increase
from 10,680.00 to 40.000,00. To add more scenarios click add and just go through
the steps again.

Procedures

Creating scenarios

1. Click the Data tab.

2. Click the What-If Analysis button in the Data Tools

group.

3. Click the Scenario Manager command.

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4. Click the Add button.

5. In the Scenario name: box, type a name that identifies the

scenario.

6. In the Changing cells: box, select or type the cells you

want to modify in the scenario.

7. In the Comments: box, type an explanatory note

regarding that particular scenario.

8. Click the OK button.

9. In the Scenario Values box, type values for each of the

displayed changing cells.

10. Click the OK button.

11. The Scenario Manager box now displays the scenario.

12. . Click the Close button.

Showing a scenario

1. To display a scenario, first click the Data tab.

2. Click the What-If Analysis button.

3. Click the Scenario Manager button.

4. Select the scenario you want to display.

5. Click the Show button.

6. The chosen scenario data is now displayed.

7. Click the Close button.

Deleting a scenario

1. To delete a scenario, first click the Data tab.

2. Click the What-If Analysis button.

3. Click the Scenario Manager button.

4. Select the scenario you want to delete.

5. Click the Delete button.

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6. The chosen scenario data is deleted.

7. Click the Close button.

Edit values in a scenario

1. To edit values in a scenario, first click the Data tab.

2. In the Data Tools group, click the What-If analysis arrow.

3. Click the Scenario Manager button.

4. Select the name of the scenario you want to edit in the

Scenarios list box.

5. Click the Edit button.

6. In the Edit Scenario dialog box, reselect the Changing cells

that you want to edit, if necessary.

7. Click the OK button.

8. In the Scenario Values dialog box, type a new value for

the cell you want to change.

9. Click the OK button.

10. To display the effect, click the Show button.

11. Click the Close button.

12. The effect for that scenario is now displayed.

Creating a scenario summary report

1. To create a scenario summary report, first click the Data

tab.

2. Click the What-If Analysis button.

3. Click the Scenario Manager button.

4. In the Scenario Manager dialog box, click the scenario you

want to view.

5. Click the Summary button.

6. In the Scenario Summary dialog box, click the OK button.

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7. A Scenario Summary worksheet is displayed with the

report.

8. The effect for that scenario is now displayed.

THE GOAL SEEK TOOL

Discussion
The Goal Seek tool can be very useful in a forecasting situation. Your forecast predicts
that you in December will reach sales of 9,000.00 but you really need the sales to be
10,000.00.

The Goal Seek tool can now tell you what to do to get what you want. Open up the
Goal Seek tool by clicking the Data tab and click the What-if Analysis button in the
Data Tools group. Click Goal Seek and the Goal Seek dialog box will open. Click in
the Set Cell: box and select the cell with the value you want to change. Click in the To
Value: box and type the value you want the Set cell: cell to have. Click in By
Changing Cell: box and click the cell you want Excel to change to get the result you
want in the Set Cell: cell.

Click OK and you will get the result.

Procedures

1. To create a scenario summary report, first click the Data

tab.

2. Click the What-If Analysis button.

3. Click the Scenario Manager button.

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4. In the Scenario Manager dialog box, click the scenario you

want to view.

5. Click the Summary button.

6. In the Scenario Summary dialog box, click the OK button.

7. A Scenario Summary worksheet is displayed with the

report.

8. The effect for that scenario is now displayed.

THE DATA T ABLE TOOL

Discussion
The Data Table tool is another What-if Analysis tool which is working very well with
forecasts. A lot of forecasters must have asked themselves what if this or this happens.
What will happen to my forecast? The Data Table tool can work with one or two
variables. The Data Table tool can return a lot of results very fast.

You have a forecast for December but you want to see what will happen to the forecast
if you change the price for the product and reduce the costs.

If you want to work with two variables you must have the variables in the same
column and row as the formula.

Select the formula, the variable rows and columns and click Data tab, click What-If
Analysis in the Data Tools group. Click Data Table and in the Data Table dialog box
Row input cell: box enter the cell reference for the cell the formula use to calculate the
variable in the row of the selection. In the Column input cell: box the Data Table tool
need the same for the column input.

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Click OK.

Procedures

One-variable

1. To create a one-variable (column) data table, first select

the cell immediately above the output column.

2. Enter the formula you want to use.

3. Press the [Enter] key to confirm the entry.

4. Select the range containing the formula, the input column,

and the output column.

5. Click the Data tab.

6. In the Data Tools group, click the What-If Analysis button.

7. Click the Data Table button.

8. In the Data Table dialog box, click in the Column input

cell: text box.

9. Enter, or select, the input cell.

10. Click the OK button.

11. The results are displayed in your one column data table.

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Two-variable

1. To create a two-variable data table, first select the cell

above the column input values and to the left of the row
input values.

2. Enter the formula you want to use.

3. Select the complete data table.

4. Click the Data tab.

5. In the Data Tools group, click the What-If Analysis button.

6. Click the Data Table button.

7. In the Data Table dialog box, click in the Row input cell:
text box.

8. Enter, or select, the input cell.

9. In the Data Table dialog box, click in the Column input

cell: text box.

10. Enter, or select, the input cell.

11. Enter, or select, the input cell.

12. The results are displayed in your two-variable data table.

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Exercises
Exercise 1 Forecasting using scenarios

You have the data for each quarter from 2007 to 2011. You have the units you have
sold, the unit price, the variable costs, the fixed costs, the sales, the profit, the total
market units, and your companys market shares. The Forecast function has been used
to calculate the forecast for Market shares and a seasonal forecast has been used to
forecast Total Market (units) for 2012.

What will happen with the forecast for quarter 4 2012 if you can increase your market
shares with 2%, decrease fixed and variable costs and if the total market units will
increase?

1. Open the file Forecasting and data analysis.

2. Open the What-If analysis sheet.

3. Open up the Scenarios tools parameters dialog (Data tab, Data Tools
group, What-If Analysis).

4. Click Add and call the scenario Best case forecast.

5. In Changing cells: type F32:I32 or click in the box and select the range
F32:I32.

6. In Comment: type Decrease variable and fixed costs. Increase market

shares and total market.

7. Click OK button.

8. Change $F$32 (variable costs) to 1.6, change $G$32 (fixed costs) to 16000,
change $H$32 (total market units forecast) to 180000, and $I$32 (market
shares forecast) to 0.22.

9. Click OK button.

10. Click Add and call the scenario Worst case forecast do not change
Changing cells:.

11. In Comment: type Decrease market shares and total market units.

12. Click OK button.

13. Change $H$32 (total market units forecast) to 140000, and $I$32 (market
shares forecast) to 0.18.

14. Click OK button.

15. Select Best case forecast and click Show button. Examine the result.

16. Select Worst case forecast and click Show button. Examine the result.

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Exercise 2 Forecasting using goal seek

You have the data for each quarter from 2007 to 2011. You have the units you have
sold, the unit price, the variable costs, the fixed costs, the sales, the profit, the total
market units, and your companys market shares. The Forecast function has been used
to calculate the forecast for Market shares and a seasonal forecast has been used to
forecast Total Market (units) for 2012.

In the best case scenario from the previous exercise you reached a profit of
376,040.00, but you will like to find out how you can get a profit of 400,000.00.

1. Open the file Forecasting and data analysis.

2. Open the What-If analysis sheet.

3. Open up the Goal Seek tools parameters dialog (Data tab, Data Tools
group, What-If Analysis).

4. In Set cell: type $K$37 or click in the box and select K37.

5. In To value: type 400000.

6. In By changing cell: type $I$37 or click in the box and select I37.

7. Click OK button and examine the result (you need market shares of 26.67%
to get 400,000.00 in profit).

8. Click Cancel button to reset the values and to close down the Goal Seek
dialog box.

9. Go through step 3 to 8 again but this time please find out how much you
need to increase the unit price to get 400,000.00 in profit.

10. Go through step 3 to 8 again but this time please find out how much you
need to decrease the variable costs to get 400,000.00 in profit. You will
find out that it is not possible to get a profit of 400,000.00 by only
reducing the variable costs.

11. Save the file.

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Exercise 3 Forecasting using data tables

You have the data for each quarter from 2007 to 2011. You have the units you have
sold, the unit price, the variable costs, the fixed costs, the sales, the profit, the total
market units, and your companys market shares. The Forecast function has been used
to calculate the forecast for Market shares and a seasonal forecast has been used to
forecast Total Market (units) for 2012.

You want to find out what will happen to the forecast if you can bring down the
variable and fixed cost.

1. Open the file Forecasting and data analysis.

2. Open the What-If analysis sheet.

3. For the first variable fixed costs use column K. Select K43 and type 10000.
Type 12000 in K44, 14000 in K45, 16000 in K46, 18000 in K47, 20000 in K48,
and 22000 in K49.

4. For the second variable Variable costs use row 42. Select L42 and type 1.
Type 1.2 in M42, 1.4 in N42, 1.6 in O42, 1.8 in P42, 2 in Q42, and 2,2 in R42.

5. Select the range K42:R49.

6. Open up the Data Table tools parameters dialog (Data tab, Data Tools
group, What-If Analysis).

7. In Row input cell: type F42 or click in the box and select the range F42. The
row variable is Variable Costs.

8. In Column input cell: type G42 or click in the box and select the range G42.
The column variable is Fixed Costs.

9. Click OK button.

10. Please do step 3 to 9 again. This time use the profit formula in K55 and Unit
Price (use the range 8 to 20 pounds increased by 2 each time) in column K
and Market Shares Forecast (use the range 16% to 30% increased by 2 each
time) in row 55 as the two variables.

11. Compare the two tables. To increase the profit is it best to increase the costs
or to try to get a bigger part of the market shares?

12. Save the file

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LESSON 7 - CORRELATION COEFFICIENT

In this lesson, you will learn how to:

Use the Correl function
Use the Data Analysis Tool Correlation
Create a scatter chart to visualise Correlation Coefficient
Microsoft Excel 2007/2010 Forecasting & Data Analysis Correlation Coefficient

CONCEPTS AND TERMS

Discussion
The Correl function determines the relationship (the correlation coefficient) between
two arrays of data.

You may need to find out if your companys increased advertising costs also increase
your companys sales figures or if higher temperatures in summer increase sales of ice
cream. Or if you increase the price for your products will it affect the quantity you are
selling.

The Correl function will return a result between -1 and 1.

Between 1 and 0:

If the result is close to 1 then it is because there is a close positive relationship between
the two arrays (If the temperature rises the ice cream sales increase). Close to 0 then
there is not a close relationship between the two arrays (the sales do not increase
because of increased advertising costs).

Between 0 and -1:

If the result is close to -1 then there is a close negative relationship between the two
arrays (if the price goes up the sales goes down). Close to 0 but a negative value then
there is not a close relationship between the two arrays (the sales does not decrease if
the price goes up).

THE CORREL FUNCTION

Discussion
The Correl function consists of two required arguments, in the following order:
Array1, Array2. Array1 and Array2 are the arrays of data you want to examine to see if
there is any relationship. In the Array1 box enter the first range of data. In the Array2
box enter the second range of data.

Array1 and array2 must have the same number of data points. If not the Correl
function returns the #N/A error value.

If either array1 or array2 is empty the Correl function returns the #DIV/0! Error.

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Procedures

1. To use a Correl function, first create a data range with two columns of values.

2. Click in the cell where you want to place the function.

3. Click on the Formulas tab.

4. In the Function Library group, click on the Insert Function button.

Click fx

5. In the Insert function dialog box, locate Statistical category in the Or select a
category: box.

6. Click on Correl.

7. Click on the OK button.

Select statistical

Select Correl

Click OK

8. In the Function Arguments dialog box, click in the Array1 box.

9. Select the cells containing the value from the first column in the data range.

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10. In the Array2 box, select the cells containing the value from the second column
in the data range.

11. Click on the OK button.

Enter data range

Click OK

The COVARIANCE.P function is another useful function to compare

data from two different arrays. The COVARIANCE.P function has
two arguments Array1 and Array2. Enter the ranges for the two data
sets and the function will return a positive or negative number. If it is
positive close to zero there is a close positive relationship between the 2
arrays. Negative and close to zero there is a close negative relationship.
If the value increases the two arrays are less related.

THE DATA ANALYSIS TOOL CORRELATION

Discussion
The Data Analysis Tool Correlation is working the same way as the Correl function.

The difference between the two tools is with the Correl function you can find the
relationship between two arrays of data, with the Data Analysis Tool Correlation you
can find the relationship between any numbers of arrays.

As the Correl function the Data Analysis Tool Correlation will return a result between
-1 and 1.

Between 1 and 0:
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If the result is close to 1 then it is because there is a close positive relationship between
the two arrays (If the temperature rise the ice cream sales increase). Close to 0 then
there is not a close relationship between the two arrays (the sales do not raise because
of increased advertising costs).

Between 0 and -1:

If the result is close to -1 then there is a close negative relationship between the two
arrays (if the price goes up the sales goes down). Close to 0 but a negative value then
there is not a close relationship between the two arrays (the sales does not decrease if
the price goes up).

Using the Correlation tool

You can use Correlation tool by selecting the Data Analysis command from the
Analysis group at the far right end of the data ribbon. Select Correlation from the list
and click OK.

If there is no Analysis group or Data Analysis command on the Ribbon, you must
install Data Analysis TOOLPAK (please go to Appendix A in this workbook to see
how to install Data Analysis TOOLPAK).

After you have entered all necessary information into the Correlation dialog box, you
can get the result in the output range.

You can specify the following items in the Correlation parameters dialog box:

Parameter Description

Input The array where you have the data you want to examine

Grouped By input data grouped by columns or rows

Labels If labels are selected in the input range the box must be
ticked

Output Range Enter a cell reference for the output or New Worksheet
Ply to get the output in a new worksheet in the workbook
with the input data or New Workbook to get the output
in a new workbook

When you have finished entering the information click OK and you will get the
output.

Procedures

1. To use the Correlation tool, first click the Data tab.

2. In the Analysis group, click the Data Analysis button.

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3. Select Correlation from the list and click OK.

Click OK

Select Correlation

4. Select the Input Range.

5. Select the desired options for Grouped By, Labels, and

Output.

6. Click OK

The output

Let us have a look at the output. You got a table with the column labels from the input
array, because you selected the column labels when you selected the Input Range. In
the output table you have the labels both as row and columns labels.

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You can see that the relationship between Aircon sales and Average temperature is
close, because the result is close to 1. It means that if the average temperature rises you
are selling more air-condition units.

If you look at the relationship between Aircon sales and Advertising costs you got a
negative result close to 0. It means that it is not a good idea spending money on
advertising. The sales of air-condition units do not increase if you spend more money
on advertising. In this example the sales actually decrease a little bit if you increase the
advertising budget.

You got a result close to minus 1 for the relationship between Aircon sales and Price
per unit. It means that you have a close negative relationship between the two
columns. If the price goes up the sales go down. If the price goes down the sales go up.

CREATE A SCATTER CHART TO DISPLAY

CORRELATION COEFFICIENT
Discussion
Charts are very useful to visualise data analysis. The Scatter chart is the most
beneficial when working with data analysis.

In the example below it is easy to spot the trend in the chart. There is a close
relationship between average temperature and aircon sales. Of course you can also see
that the Correl function returns 93% wich also emphasise that there is a close
relationship between the two arrays.

To make it even easier to spot the trend you can add a linear Trendline to the chart
and if you add the R2 (R square error) to the Trendline you can see how accurate your
Trendline is. A value close to 1 shows that the Trendline is very accurate. Close to 0
there is not really any trend.

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In the example below there is a close negative relationship between the Price per unit
and Aircon sales. Again it is easy to see in a scatter chart.

In the example below there is no close relationship between Advertising costs and
Sales. The Correl function returns 21% and the R2 value is 0.0421 which tells you that
there is not really a trend in the data.

In the example below the Data Analysis tool Correlation has returned the correlation
for three arrays and again a chart is very useful to examine the outcome.

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Procedures

1. To create a chart to visualise correlation select the arrays

with the data you want to examine.

2. Click Insert tab.

3. Click the scatter chart option you want to use.

Select insert tab

Select scatter option

4. Click Layout tab (the chart most be selected to have access

to the Layout tab).

5. In the Analysis group click Trendline and Linear

Trendline.

6. Right click the Trendline and click Format Trendline.

7. Select the option Display R Squared Value on Chart

Select R2 value

8. Click Close.

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EXERCISE
Using Correl function and the data analysis tool Correlation

1. Open the file Forecasting and data analysis.

2. Open the Correlation Coefficient sheet.

3. Use the Correl function in D60 to get the correlation coefficient for the two arrays
C47:C58 and D47:D58 (Average temperature and Ice sales).

4. The result should be 0.9566537. What does this tell us about the relationship between
the two arrays?

5. Create a scatter chart showing the Correlation Coefficient between the average
temperature and the ice sales.

6. Click the Data tab. Click Data analysis in the Analysis group. Open the Correlation
tool.

7. Use the Data Analysis Tool Correlation to find the Correlation Coefficient between
the average temperature, the ice sales, and advertising costs (the input should be
O46:Q58).

8. The result should be:

9. What does this tell us about the relationships between the two arrays?

10. Create a scatter chart showing the Correlation Coefficient between the average
temperatures, the ice sales, and advertising costs.

11. Save and close the file

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LESSON 8 BREAK-EVEN ANALYSIS

In this lesson, you will learn how to:

Calculate Break-even
Visualise break-even using scatter chart
Use the goal seek tool to calculate break-even
Use the Solver tool to calculate break-even
Exercise

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CONCEPTS AND TERMS

Discussion
When you are considering an investment or launching a new product you
want to know at what point you will break-even. When will you start earning
money? How many units do I need to sell to Break-even if you invest 100.000
on television commercials? How should the products be prised to break-even
this year?

For forecasting break-even analysis is very important to forecast new products

financial success.

In this workbook you will see the math behind break-even and the break-even
will be manually calculated. The Goal Seek tool in Excel can do these
calculations and is a very valuable tool for break-even analysis.

CALCULATE BREAK-EVEN

The formula for break-even looks like this:

0 (profit) =Units *(Sales Price Variable Costs) Fixed Costs

Example:

100 Units

Sales Price = 10

Variable Costs = 4

Fixed Costs = 600

With above values the formula will be true a profit of 0. You need to sell 100
units for a price of 10 if the variable costs are 4 and fixed costs are 600

If you want to find out how many units you need to sell to break-even you
must change the formula using the math rules for equations.

0 (profit) =Units *(Sales Price Variable Costs) Fixed Costs

First add Fixed Costs on both sides of the equal sign:

Fixed Costs=Units *(Sales Price Variable Costs)

This equation can now be used to calculate the Fixed Costs to break-even.

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By using the values from the example: 600=100*(10-4)

Divide with (Sales Price Variable Costs) on both sides of the equal sign:

Units = Fixed Costs/(Sales Price Variable Costs)

This equation can calculate how many units you need to break-even.

By using the values from the example: 100=600/(10-4)

The equation to find the sales price is:

Sales Price = Fixed Costs/Units + Variable Costs

To get this equation start from the break-even equation again:

0 (profit) =Units *(Sales Price Variable Costs) Fixed Costs

First add Fixed Costs and both sides of the equal sign:

Fixed Costs=Units *(Sales Price Variable Costs)

Then divide Units on both sides of the equal sign:

Fixed Costs/Units=Sales Price Variable Costs

Then add Variable Costs on both sides of the equal sign:

Sales Price = Fixed Costs/Units + Variable Costs

This equation can calculate sales price you need to break-even.

By using the values from the example: 10=600/100 + 4

Procedures (calculate units to break-even)

Units = Fixed Costs/(Sales Price Variable Costs)

100 Units

Sales Price = 10

Variable Costs = 4

Fixed Costs = 600

1. Type =600/(10-4).

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2. Press enter.

Procedures (calculate sales price to break-even)

Sales Price = Fixed Costs/Units + Variable Costs

100 Units

Sales Price = 10

Variable Costs = 4

Fixed Costs = 600

1. Type =600/100+4

2. Press enter.

Procedures (calculate fixed costs to break-even)

Fixed Costs=Units *(Sales Price Variable Costs)

100 Units

Sales Price = 10

Variable Costs = 4

Fixed Costs = 600

1. Type =100*(10-4)

2. Press enter.

VISUALISE BREAK-EVEN USING SCATTER CHART

Discussion
Charts can be very useful to understand and visualise data analysis. Scatter
charts is the chart type, which should be used to visualise break-even analysis.

In the example below in column A there are units going from 0 to 4000 with an
increment of 400. In column B the sales (units times unit price), in column C
variable cost (units times unit variable cost), in column D the fixed cost, in

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column E total costs (variable cost + fixed cost), and in column F the net income
(sales total costs).

If you look at the table it is not easy to see the break-even. It is somewhere
between 1200 and 1600 units.

To visualise break-even in a scatter chart select the units (A5:A16), the sales
(B5:B16), and total costs (E5:E16), and create the straight line scatter chart.

The break-even point is where the sales line cross the total costs line.

To make it easier to see the break-even in the scatter chart you can calculate the
break-even using the break-even equation you have seen earlier in this chapter;

Units = Fixed Costs/(Sales Price Variable Costs)

In this example the calculation is; =f3/(d3-e3) and the result is 1250. You will
also need to calculate the Y value to plot it on the chart. The Y value is break-
even units multiplied by unit price. In this example; =B19*D3 (the break-even
equation is calculated in B19). The result is calculated in C19 and is 50000. To
make the exact break-even point very clear in the chart you can add the exact
value to the legend label in the chart. In cell D19; ="BEU "&B19 has been
entered. This will return BEU 1250 on the legend label.

To add the break-even point and the legend label you need to select the chart
and click the contextual Design tab. Click Select Data in the Data group. Click
Add in Series Name click D19 in Series X values click B19 and in Series Y
values click C19.

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The break-even point is still not visible on the chart. Well the label is visible in
the legend. To make it visible you must change the data series formatting.
Select the data series and right click. Choose Format Data Series click Marker
Options select Build-in and select a type and a size. Click Close.

Now it is very easy to see the break-even point.

If you have created the table as the one in this example you can change the
variables in row three and everything will be updated immediately.

Procedures

1. To create a scatter chart to visualise Break-Even for units

sold select the arrays with the data you want to visualise.

2. Click Insert tab.

3. Click the scatter chart option you want to use and create
the chart.

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Select insert tab

Select scatter option

4. Calculate Break-Even using the break-even equation.

Units = Fixed Costs/(Sales Price Variable Costs)

5. Calculate the Y value for break-even (break-even

multiplied by unit price).

6. Select the chart and click the contextual Design tab and
click Select Data in the Data group.

7. Click Add and in the Edit Series parameters dialog box in

the Series Name box type a name for the data series.

8. In the Series X values box enter the cell reference for the
cell with the break-even equation/calculation.

9. In the Series Y values box enter the cell reference for the
cell with Y value calculation.

10. Click the OK button.

11. To make the break-even data series visible in the chart

right click the series and choose Format Data Series or
click Layout tab and select the data series from the chart
object list in the Current Selection group and then in the
same group click Format Selection.

Select series & click

Format selection

12. Click Marker Options to the left, click Build-in, select a

marker type and size. Click the Close button.

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USE SCENARIOS AND THE GOAL SEEK TOOL TO

CALCULATE BREAK-EVEN

Discussion
The What-if analysis tools in Excel are very useful also when you are working
with Break-Even analysis. How can I change the break-even point? Which
parameters will affect my break-even analysis most if I change them?

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EXERCISE
Calculating break-even

1. Open the file Forecasting and data analysis.

2. Open the Break-even Analysis 1 sheet.

3. Select C68 and calculate break-even. How many units must be sold to get 0
in profit (use the equation Units=FixedCosts/(SalesPrice-VariableCosts)).

4. Select F68 and calculate the selling price to break-even selling 10000 units
(use the equation SalesPrice = FixedCosts/Units + VariableCosts).

5. Select H68 and calculate the Fixed Costs to break-even selling 10000 units
(use the equation FixedCosts= Units*(SalesPrice - VariableCosts)).

6. Select K68 and calculate the Variable Costs to break-even selling 10000 units
(use the equation VariableCosts=SalesPrice-FixedCosts/Units).

8. Use the Goal Seek tool to Break-even Units, Sales Price, Fixed Costs, and
Variable Cost in the same 4 tables.

7. Save and close the file.

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LESSON 9 DATA ANALYSIS TOOLS

In this lesson, you will learn how to:

Use Descriptive Statistics
Use Histogram
Use Regression
Use Sampling

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CONCEPTS AND TERMS

Discussion
You have already seen some of the tools from the Data Analysis TOOLPAK
add-in. In this chapter some of the other tools will be briefly demonstrated. All
the statically terms will not be explained.

DESCRIPTIVE STATISTICS
Discussion
The Descriptive Statistics tool can return statistical information from data in
Excel.

Usually when you analyse data it is important examine the distribution and to
discover information such as the minimum and maximum values and to
determine if there are outliers. This is an important step in any analysis since it
helps you understand if your data meet rules required by other analyses such
as t-tests and regression and if the data are needed for forecasting.

The Descriptive Statistics tool can provide you with these information and
much more.

Information you should notice includes:

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1. Search for outliers: Look at the Minimum and Maximum values to see if
these values fall within your expected range for these data. If a value is
unexpectedly small or large, you should examine your data to see if they were
wrong. If there are corrections that need to be made, make them before
continuing. If you have values that are unexpectedly large or small, but are
actual values, it may indicate that your data are not normally distributed. This
knowledge will help you to decide forecasting method. It may also indicate
that the average is not the best value to report to describe the trend of this data
set.

2. Symmetry: Another measure that helps you decide normality is Skewness

and Kurtosis. The Skewness measure indicates the level of non-symmetry. If
the distribution of the data is symmetric then skewness will be close to 0
(zero). The further from 0, the more skewed the data are.

How do you tell if the skewness is large enough to cause concern? Excel
doesnt give you this value, but a measure of the standard error of skewness
can be calculated as =SQRT(6/N) where N is the sample size. If the skewness is
more than twice this amount, then it indicates that the distribution of the data
is non-symmetric.

3. Kurtosis characterizes the relative peakedness or flatness of a distribution

compared with the normal distribution. Positive kurtosis indicates a relatively
peaked distribution. Negative kurtosis indicates a relatively flat distribution.
Again, for normally distributed data the kurtosis is 0 (zero). As with skewness,
if the value of kurtosis is too big or too small, there is concern about the
normality of the distribution. In this case, a rough formula for the standard
error for kurtosis is =SQRT(24/N) where N is the sample size. If the kurtosis is
more than twice this amount the data may be considered not to meet the
criteria for normality by this measure.

4. Evaluation of central trend: For normally distributed data the average is

the typical value to measure. However, the average is not interesting without
some evaluation of the inconsistency of the data. Therefore you should at least
report three values the average, the standard error of the average, and the
sample size.

The median is another measure of central tendency and is usually reported

when the data are not normally distributed. The mode, or the most frequent
value, is a third measure of central tendency.

5. Measures of inconsistency: The measures of inconsistency reported in

Excels descriptive statistics include the standard error, the standard deviation,
the variance and the range.

Standard Deviation = SQRT(Variance)

Standard Error = Standard Deviation / SQRT(N)

You can find The Descriptive Statistics tool by selecting the Data Analysis
command from the Analysis group at the far right end of the data ribbon.
Select Descriptive Statistics from the list and click OK.

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If there is no Analysis group or Data Analysis command on the Ribbon, you

must install Data Analysis TOOLPAK (please go to Appendix A in this
workbook to see how to install Data Analysis TOOLPAK).

After you have entered all necessary information into the Descriptive Statistics
dialog box, you can get the result in the output range.

You can specify the following items in the Descriptive Statistics parameters
dialog box:

Parameter Description

Input Range The range where you have the data you want to examine

Grouped By Do you have the data grouped by columns or rows

Labels If labels are selected in the input range the box must be
ticked

Output Range Enter a cell reference for the output or New Worksheet
Ply to get the output in a new worksheet in the workbook
with the input data or New Workbook to get the output
in a new workbook

Summary statistics Tick the box if you want the output statistics summarised

Confidence Level for Tick the box if you want the confidence calculated for the
Mean average

Kth Largest Tick the box if you want not only the largest value in the
data range shown in the output. By typing 3 in the box
the third largest value will be shown in the output

Kth Smallest Tick the box if you want not only the smallest value in the
data range shown in the output. By typing 3 in the box
the third smallest value will be shown in the output

When you have finished entering the information click OK and you will get the
output.

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The output:

Procedures

1. To use a Forecast function, first create a data range with data values you
know

2. Click in the cell where you want to place the function.

3. Click on the Formulas tab.

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4. In the Function Library group, click on the Insert Function button.

HISTOGRAM
Discussion
The Histogram tool can return statistical information from data in Excel and
group the output data. You must first create a bin to tell the Histogram tool
how you want the output data grouped.

In the example above the bind starts with 2000 and goes to 18000 with an
increment of 2000.

You can find the Histogram tool by selecting the Data Analysis command from
the Analysis group at the far right end of the data ribbon. Select Histogram
from the list and click OK.

If there is no Analysis group or Data Analysis command on the Ribbon, you

must install Data Analysis TOOLPAK (please go to Appendix A in this
workbook to see how to install Data Analysis TOOLPAK).

After you have entered all necessary information into the Histogram dialog
box, you can get the result in the output range.

You can specify the following items in the Histogram parameters dialog box:

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Parameter Description

Input Range The range where you have the data you want to examine

Bin Range Select the range where the bin range has been defined

Labels If labels are selected in the input range the box must be
ticked

Output Range Enter a cell reference for the output or New Worksheet
Ply to get the output in a new worksheet in the workbook
with the input data or New Workbook to get the output
in a new workbook

Pareto (sorted Tick the box if you want the output statistics sorted
histogram)

Cumulative Percentage Tick the box if you want cumulative percentage to be a

part of the output

Chart output Tick the box if you want to create a chart to visualise the
output

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The output.

REGRESSION
Discussion
The Regression tool can return statistical information from data in Excel. The
tool can make a linear regression forecast returning the slope and Y-
interceptor. It can also return the error or deviation and much more statistical
informations.

Simple linear regression analysis can be easily completed using Excel.

You can find the Regression tool by selecting the Data Analysis command
from the Analysis group at the far right end of the data ribbon. Select
Regression from the list and click OK.

If there is no Analysis group or Data Analysis command on the Ribbon, you

must install Data Analysis TOOLPAK (please go to Appendix A in this
workbook to see how to install Data Analysis TOOLPAK).

After you have entered all necessary information into the Regression dialog
box, you can get the result in the output range.

You can specify the following items in the Regression parameters dialog box:

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Parameter Description

Input Y Range The range where you have the Y data you want to
examine (values)

Input X Range The range where you have the X data you want to
examine (periods)

Labels If labels are selected in the input range the box must be
ticked

Constant is Zero Tick the box if you want to work with a constant of zero.

Confidence Level Enter a percentage from 0 to 100 per cent if you want to
work with confidence level

Output Range Enter a cell reference for the output or New Worksheet
Ply to get the output in a new worksheet in the workbook
with the input data or New Workbook to get the output
in a new workbook

Residuals Tick the box if you want the residuals (errors, deviation)
as a part of the output

Standardized Residuals Tick the box if you want the standardized residuals
(standard errors, standard deviation) as a part of the
output

Residuals Plots Tick the box if you want the residuals (errors, deviation)
visualised in a chart as a part of the output

Line Fit Plots Tick the box if you want a chart showing the trends as a
part of the output

Normal Probability Tick the box if you want a chart showing the probability
as a part of the output

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The output:

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SAMPLING
Discussion
The Sampling analysis tool creates a sample from a population by treating the
input range as a population. When the population is too large to process or
visualise in a chart, you can use a representative sample. You can also create a
sample that contains only values from a particular part of a cycle if you believe
that the input data is periodic.

You can find the Sampling tool by selecting the Data Analysis command from
the Analysis group at the far right end of the data ribbon. Select Sampling
from the list and click OK.

If there is no Analysis group or Data Analysis command on the Ribbon, you

must install Data Analysis TOOLPAK (please go to Appendix A in this
workbook to see how to install Data Analysis TOOLPAK).

After you have entered all necessary information into the Sampling dialog box,
you can get the result in the output range.

You can specify the following items in the Sampling parameters dialog box:

Parameter Description

Input Range The array where you have the data you want to examine

Labels If labels are selected in the input range the box must be
ticked

Sampling Method If there is a periodic trend in the data select this option.
Enter a period number.
Period

Sampling Method If you want the tool to select randomly select this option.
Enter a number of samples you need.
Random

Output Range Enter a cell reference for the output or New Worksheet
Ply to get the output in a new worksheet in the workbook
with the input data or New Workbook to get the output
in a new workbook

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The output:

RANK & PERCENTILE

Discussion
The Rank and Percentile tool ranks data. For each rank the tool return a
percentage for data below the specific ranking.

Finding and displaying the percentile of specific results can be valuable to your
audience. Sometimes stand alone numbers do not tell the story, but, if I know
that 80% of the other results are lower than me, that tells a more complete
story.

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The percentile is defined as the value of a variable below which a certain

percent of observations fall. For example, if you score in the 80th percentile on
a test, 80% of the other test takers did worse than you.

You can find the Rank and Percentile tool by selecting the Data Analysis
command from the Analysis group at the far right end of the data ribbon.
Select Rank and Percentile from the list and click OK.

If there is no Analysis group or Data Analysis command on the Ribbon, you

must install Data Analysis TOOLPAK (please go to Appendix A in this
workbook to see how to install Data Analysis TOOLPAK).

After you have entered all necessary information into the Rank and Percentile
dialog box, you can get the result in the output range.

You can specify the following items in the Rank and Percentile parameters
dialog box:

Parameter Description

Input Range The array where you have the data you want to examine

Grouped By Do you have the data grouped by columns or rows

Labels If labels are selected in the input range the box must be
ticked

Output Range Enter a cell reference for the output or New Worksheet
Ply to get the output in a new worksheet in the workbook
with the input data or New Workbook to get the output
in a new workbook

The output:

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APPENDIX A INSTALLING DATA

ANALYSIS TOOLPAK TO EXCEL

INSTALLING DATA ANALYSIS TOOLPAK

Discussion
The Data Analysis Toolpak is not part of the standard Excel application as
normally installed, it is an Add-In (often referred to as a plug-in.). Add-Ins
are additional Excel components that are not commonly used and as a result,
have to be installed on your computer. There are many third party (non-
Microsoft) Add-Ins that help Excel do useful and clever things that it cannot
normally do, or that enhance some of the things that it can do.

These can be found and downloaded from the Internet although it is wise to
consult with your IT department first in case they have objections on grounds
of security and computer software safety. It is unlikely that in the working
environment you will be able to install these programs yourself anyway.

There are, however, selections of Add-Ins that come with Excel and that are
perfectly safe and suitable for use; one of these is ANALYSIS TOOLPAK. This
Add-in will add 19 analysis tools to Excel. After installation you will be able to
find the ANALYSIS TOOLPAK tools in the data ribbon.

Procedure

1. Click the Office Button (Excel 2007) or the File tab (Excel 2010).

2. Click Excel Options.

Click Add-Ins

Click Go

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3. Click Add-Ins at the left.

4. Select Excel Add-ins from the Manage: list at the bottom of the
dialog box.

5. Click Go.

6. Click in box next to ANALYSIS TOOLPAK Add-in.

Click in the box Click OK

7. Click OK.

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APPENDIX B TEXT FUNCTIONS

In this appendix, you will learn how to:

Use the Right, Left, and Mid functions
Use the Concatenate function
Use the Len function
Use the Find function
Use nested text functions

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CONCEPT AND TERMS

Discussion
Text functions are very useful if you need to clean up text strings, concatenate
text, or split a text string to many cells. Specially if you import data from a
database for analysing in Excel it is a advantage to know the text functions in
Excel.

USE THE RIGHT, LEFT, AND MID FUNCTIONS

Discussion
If you want to extract characters from a text string you can use the Left, Right,
and Mid function. The Left function can extract characters from the left of the
text string, the Right function can extract characters from the right of a text
string, and the Mid function can extract characters from the midle of a text
string.

The first five characters of the text string A37A221regionnorthare the

imployment number for a staff member, the next two characters are
department number and the last five characters are region information. To
extract the employment number you need the Left function.

The Left function consists of one required argument and one optional, in the
following order: Text, Num_chars. Text is the box in which the cell reference
for the cell with the text string must be entered. In the Num_chars box enter
the number of characters you want to extract from left.

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The Mid function consists of three required arguments, in the following order:
Text, Start_num, and Num_chars. Text is the box in which the cell reference
for the cell with the text string must be entered. In the Start_num box enter the
start number of the first character you want to extract from the middle of the
text string. Num_chars is the number of characters you want to extract.

The Right function consists of one required argument and one optional, in the
following order: Text, Num_chars. Text is the box in which the cell reference
for the cell with the text string must be entered. In the Num_chars box enter
the number of characters you want to extract from right.

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Procedures

1. To use a Left function, select a cell where you want the function to
extract characters from the left of a text string.

2. Click on the Formulas tab.

3. In the Function Library group, click on the Insert Function button.

Click fx

4. In the Insert function dialog box, locate Text category in the Or select a
category: box.

5. Click on Left.

6. Click on the OK button.

Select text

Select Left

Click OK

7. In the Function Arguments dialog box, click in the Text box.

8. Click the cell containing the text string from which you want to extract
the characters.

9. In the Num_chars box, type the number of characters you want to

extract.

10. Click on the OK button.

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Procedures

1. To use a Mid function, select a cell where you want the function to
extract characters from the middle of a text string.

2. Click on the Formulas tab.

3. In the Function Library group, click on the Insert Function button.

Click fx

Enter data range

4. In the Insert function dialog box, locate Text category in the Or select a
category: box.

5. Click on Mid. Click OK

6. Click on the OK button.

Select text

Select Mid

Click OK

7. In the Function Arguments dialog box, click in the Text box.

8. Click the cell containing the text string from which you want to extract
the characters.

9. In the Start_num box, type the number of the first character you want to
extract from the middle of you text string.

10. In the Num_chars box, type the number of characters you want to
extract.

11. Click on the OK button.

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Procedures

1. To use a Right function, select a cell where you want the function to
extract characters from the right of a text string.

2. Click on the Formulas tab.

3. In the Function Library group, click on the Insert Function button.

Click fx

4. In the Insert function dialog box, locate Text category in the Or select a
category: box.

5. Click on Right.

6. Click on the OK button.

Select text

Select Right

Click OK

7. In the Function Arguments dialog box, click in the Text box.

8. Click the cell containing the text string from which you want to extract
the characters.

9. In the Num_chars box, type the number of characters you want to

extract.

10. Click on the OK button.

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USE THE CONCATENATE FUNCTION

Discussion
The Concatenate function joins up to 255 text strings into one text string. The
joined items can be text, numbers, cell references, or a combination of those
items. For example, if your worksheet contains a person's first name in cell A1
and the person's previous name in cell B1, you can combine the two values in
another cell by using the following formula:

=concatenate(A1," ",B1)

The Concatenate function consists of one required argument and as many

optional arguments you need up to 254, in the following order: Text1, Text2,
Text3, Text4 .to Text255. Text1 is the box in which the cell reference for the
first cell with the text string must be entered. In the Text2 box enter the cell
reference of the cell containing the second text string you want to join. In the
Text3 box enter the cell reference of the cell containing the third text string you
want to join etc... If you want to have a space between the text strings you can
enter (space) in every second argument.

Procedures

1. To use a Concatenate function, select a cell where you want the function
to join text strings.

2. Click on the Formulas tab.

3. In the Function Library group, click on the Insert Function button.

Click fx

4. In the Insert function dialog box, locate Text category in the Or select a
category: box.

5. Click on Concatenate.

6. Click on the OK button.

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Select text

Select Concatenate

Click OK

7. In the Function Arguments dialog box, click in the Text1 box.

8. Click the cell containing the first text string you want to join.

9. In the Text2 box type to get a space between the first and second text
string.

10. In the Text2 box click the cell containing the second text string you want
to join.

11. Click on the OK button.

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USE THE LEN FUNCTION

Discussion
The Len function returns the number of characters in a text string. A space will
also be counted as a character.

The Len function consists of one required argument: Text1. In Text1 enter the
cell reference for the cell with the text string and the function will return how
many characters there is in text string.

Procedures

1. To use a Len function, select a cell where you want the function to
display the result.

2. Click on the Formulas tab.

3. In the Function Library group, click on the Insert Function button.

Click fx

4. In the Insert function dialog box, locate Text category in the Or select a
category: box.

5. Click on Len.

6. Click on the OK button.

Select text

Select Len

Click OK

7. In the Function Arguments dialog box, click in the Text box.

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8. Click the cell containing the text string you want to examine.

9. Click on the OK button.

USE THE FIND FUNCTION

Discussion
The Find function can find a character or a text string within a text string and
return the position of the character or text string. The Find function is very
often used together with other text function such as the Mid function.

The Find function consists of two required arguments and one optional
argument, in following order: Find_text, Within_text, Start_num. In Find_text
you must enter the text string or character you want the function to find (the
argument is case sensitive). In Within_text enter the cell reference for the cell
with the text string where you want to find the character or text string. In
Start_num you can enter the character number you want the function to start
the search from. If you in a text string want to find the character A and there
is two characters A then the function will return the position number for the
first A.

Procedures

1. To use a Find function, select a cell where you want the function to
display the result.

2. Click on the Formulas tab.

3. In the Function Library group, click on the Insert Function button.

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Click fx

4. In the Insert function dialog box, locate Text category in the Or select a
category: box.

5. Click on Find.

6. Click on the OK button.

Select text

Select Find

Click OK

7. In the Function Arguments dialog box, click in the Find_text box.

8. Type the character or text string you want the function to find.

9. Enter the cell reference for the cell you want to examine in the
Within_text box.

10. In the Start_num box enter a number you want the function to start the
search from.

11. Click on the OK button.

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USE NESTED TEXT FUNCTIONS

Discussion
You can nest the text functions to get more dynamic options to extract text
strings. May be you have imported text strings from a database and you want
to extract different part of the text string to different cells in Excel but you do
not know how many characters you want in each cell. You can use a
combination of the Right, Left, Mid, Len, and Find functions to solve the
problem. There is many solutions in Excel to deal with this but you will see
some examples here.

Example 1

You have imported a number of text strings A4337A221north,

C2A541south,A445A785westh, and C5A654north. You know that the
first part of the text string is the employment number but you do not know
how many characters. You know that the second part of the text string is
department number and the department number is 2 characters. The last 5
characters of the text string is the region.

You need the employment number in column C, department number in

column D, and region in column E. The employment number is a mix of letters
and digits but always there is the letter A and one digit at the end of the
employment number. With this knowledge you can extract the employment
number from the text string by using the Left and Find function.

Select the cell where you want the characters extracted. Start with the Left
function. In the Text box enter the cell reference for the cell with the text string.

Click in the Num_char box and nest the Find function. The Find function must
find the letter A the second last character in the employment number. In the

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Find_text box enter the character you want to find. In the Within_text box
enter the cell reference for the cell with the text string. In the Start_num box
enter the start number for the search. You dont want to find A if it is the first
character in the text string as it is in this example that is why 2 is entered in the
box. You want to start the search from character 2.

This will find the character number for A in the text string but the digit after
A is also a part of the employment number. What you need to do is to click
after the Find function in the Left function dialog box and type +1. Click OK
button and you have extracted the employment number.

To extract the department number you need the Mid function. In the Text box
enter the cell reference for the cell with the text string. In Start_num you need
to nest the Find function. Again the Find function must find the character A.
This time you need to type +2 after the Find function in the Mid function
dialog box because the department number starts 2 characters from A. In
Number_char box type 2 and click OK.

To extract the region you do not need any nested function just use the Right
function.

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Example 2

You have imported a number of text strings A4337A221northwest,

C2A545east,A445A785southwesth, and C5A654north. You know that
the first part of the text string is the employment number but you do not know
how many characters. You know that the second part of the text string is
department number and the department number is 2 characters. The last part
of the text string is the region but you do not know how many characters.

You need the employment number in column C, department number in

column D, and region in column E. The employment number is a mix of letters
and digits but always there is the letter A and one digit at the end of the
employment number. With this knowledge you can extract the employment
number from the text string by using the Left and Find function.

Select the cell where you want the characters extracted. Start with the Left
function. In the Text box enter the cell reference for the cell with the text string.

Click in the Num_char box and nest the Find function. The Find function must
find the letter A the second last character in the employment number. In the
Find_text box enter the character you want to find. In the Within_text box
enter the cell reference for the cell with the text string. In the Start_num box
enter the start number for the search. You dont want to find A if it is the first
character in the text string as it is in this example that is why 2 is entered in the
box.

This will find the character number for A in the text string but the digit after
A is also a part of the employment number. What you need to do is to click
after the Find function in the Left function dialog box and type +1. Click OK
button and you have extracted the employment number.

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To extract the department number you need the Mid function. In the Text box
enter the cell reference for the cell with the text string. In Start_num you need
to nest the Find function. The Find function must find the character A. This
time you need to type +2 after the Find function in the Mid function dialog
box because the department number starts 2 characters from A. In
Number_char box type 2 and click OK.

To extract the region without knowing the number of characters you can not
use the Right function. you must use a combination of the Mid, Find and Len
functions. Start with the Mid function. You need to nest the Find function in
Start_num again to find the character A. This time you need to type +4
after the Find function in the Mid function dialog box to find the position of
the first character in the region information. Nest the Len function in
Num_char this will reurn the number of characters for the whole text string.
Click OK and the Mid function will return the region information.

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INDEX
Forecast function 7, 9, 10, 13, 21, 25, 38, 39, 41,
A 42, 45, 94, 95, 98, 107, 108, 109
Forecasting tools
Absolute Error 48, 55 Exponential smoothing 7, 26
Analysis Toolpak 142 Forecast function 7, 9, 10, 13, 21, 25, 38, 39,
41, 42, 45, 94, 95, 98, 107, 108, 109
Growth function 7, 22, 24, 25, 42
B Intercept function 19, 41
Moving average 86
Nave forecasting 30, 44
Break-even 121, 122, 129
Seasonal forecasting 45, 72
Visualise break-even 124, 125
Slope function 18, 41
Trend function 7, 9, 14, 16, 17, 21, 41

C
G
Column charts 79
Concatenate function 144, 150, 151
goal seek 108, 121, 128
Correl function 98, 110, 111, 112, 113, 116, 117,
Growth function 7, 22, 24, 25, 42
120
Correlation 110, 113, 114, 116, 117, 120
Correlation Coefficient 110, 116, 120
H

D Histogram 130, 133, 134

Data Analysis Tool Exponential Smoothing 7, 28

Data analysis tools
I
Descriptive statistics 131
Exponential smooth 7, 28 Intercept function 19, 41
Histogram 130, 133, 134
Regression 136
Sampling 130, 138, 139 L
Left function 145, 147, 156, 158
E Len function 144, 152, 159
Line charts 79, 80, 87
Excel Add-ins 67, 142, 143 linear trendline 83, 84, 92, 93
Exponential smoothing 7, 26 logarithmic trendline 82, 85

F M

Find function 144, 154, 155, 156, 157, 158, 159 MAD 46, 55, 59, 62, 68, 70, 72, 73, 75, 76, 77, 88,
Forecast accuracy 94
Absolute error/deviation 48, 55 MAPE 46, 58, 62
Error/deviation 61 Mid function 144, 145, 146, 148, 154, 157, 158,
MAD (Mean Absolute Deviation) 46, 55, 59, 62, 159
68, 70, 72, 73, 75, 76, 77, 88, 94 Moving average 86
MAPE (Mean Absolute Percentage Error) 46, MPE 46, 57, 62
58, 62 MSQ 46, 56, 62
MPE (Mean Percentage Error) 46, 57, 62
MSQ (Mean Square error) 46, 56, 62
Percentage error/deviation 46, 50, 51 N
R-Square 87, 92, 93, 117
Standard error 53 Nave forecasting 30, 44
TSE (Tracking Signal Error) 46, 59, 62

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Concatenate function 144, 150, 151

P Find function 144, 154, 155, 156, 157, 158, 159
Left function 145, 147, 156, 158
Pie charts 79 Len function 144, 152, 159
polynomial trendline 85 Mid function 144, 145, 146, 148, 154, 157, 158,
159
Right function 145, 146, 149, 157, 159
R Tracking Signal 46, 59
Trend function 7, 9, 14, 16, 17, 21, 41
Regression 9 Trendline 9, 82, 83, 84, 92, 93, 117, 118
Right function 145, 146, 149, 157, 159 TSE 46, 59, 62

S V
Sampling 130, 138, 139 Visualise forecasts
Scenarios 97, 98, 99, 102, 107, 128 Column charts 79
Creating a scenario summary report 102 Line charts 79, 80, 87
Creating scenarios 100 Linear trendline 83, 84, 92, 93
Deleting a scenario 101 Logarithmic trendline 82, 85
Edit values in a scenario 102 Pie charts 79
Showing a scenario 101 Polynomial trendline 85
Seasonal forecasting 45, 72 Trend lines 9, 82, 83, 84, 92, 93, 117, 118
Slope function 18, 41
Solver 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75,
76, 77, 88, 94, 121, 128 W
SQRT function 53, 54, 55
Standard error 53 What-if analysis
Sumxmy2 function 53 Goal seek tool 97, 103, 108, 122, 129
Scenarios tool 97, 98, 99, 102, 107, 128
Table tool 97, 104, 105, 109
T
Table tool 97, 104, 105, 109
Text functions

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