Risk Analysis? Why Are These Features Important

¶ … Risk analysis? Why are these features important components of the Excel analysis process? If so, explain how, If not, explain why.

Base-case analysis,

Base-case analysis is very much an art of Excel since the accountant / mathematician usually starts off with a "base case" set of assumptions and inputs. These are the accountant's best estimates, and he would use these to produce a set of expected results.

Scenario testing, for instance, often involves these base-cases analyses.

In scenario testing, the mathematician sets up alternative situations, such as the ones formulated in the Table below ('inflation rate', 'earning rate', and 'salary growth'). Each situation consists of a base-case analysis of assumption and input and the whole model is then run through the Excel system.

Base case analysis is essential for business planning and risk management since one has to know one's base-case situation before structuring plans for one's business.

What-if analysis,

What-if analysis is also superbly worked out by the Excel program which can work out different cases that may occur if certain what-if options were followed. Doing this can better help the mathematician / businessman or anyone who uses this system which prediction / alternative would be the best option for him.

What-if analysis, for instance, may be used to build two budgets where each assumes a certain level of revenue. Different values can be plugged in either budget (or more) and investigated to explore results and to assess whether budget should be modified (or added to) in certain areas.

The person using Excel to operate what-if analysis can also specify a result that she wants a formula to produce, and then determine the sets of values that will produce that result.

In other words, Excel allows user to plug in a large range of different set of values in the cells in order to assess what will happen if the algorithm (or plan) used those values. The mathematician can keep on changing the values until he/she reaches desired result.

Risk analysis

Risk analysis tells you the amount of risk that your business plans or idea will accrue. This too can be calculated on an Excel template.

The template divided possible risk into a 1 to 100 scale, breaking down the magnitude of the possible risk into 5 discernible levels and the probability of the risk into six possible ranges.

The 5 discernible levels are: Insignificant Minor Moderate Major and Critical.

The six possible ranges are: