Sensitivity analysis Excel Model with indifference curves
Originally published: 19/04/2019 07:17
Last version published: 20/04/2021 07:33
Publication number: ELQ-51689-5
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Sensitivity analysis Excel Model with indifference curves

An Excel utility to draw indifference curves for two inputs in a financial model

Description
Indifference curves depict sensitivity of an output to two inputs. Each curve corresponds to a fixed output amount and shows at which combination of the two inputs this output amount remains the same (or indifferent, hence the name of the chart type).

To a certain extent, this chart conveys the same information as two-dimensional data tables but provides a wider picture on the model results, a better understanding of it and looks better in clients and investors presentations.

As we go along the series lines we can, depending on the types of inputs and outputs, answer trade-off questions such as:
- if we lose a certain volume of one product, by how much shall we raise sales of another one to keep profits stable?
- if we reduce the price of a product, how much additional volume of this product do we need to sell to make this profit-neutral?
- what share of a country's market can we sacrifice if we increase our share in another country's market by x %?
- etc. etc.

We can also test our model for any weird trends or relationships against common sense and detect errors or misconceptions.

The program uses VBA, so make sure you enable macros on your computer when you open the file.

This file is fully functional but VBA code in it is locked. An unlocked version is available for a modest fee on this site as well (https://www.eloquens.com/tool/Mqx8tkqv/finance/sensitivity-analysis-excel-templates-and-methods/sensitivity-analysis-excel-model-with-indifference-curves-unlocked).

This Best Practice includes
1 Excel file, 1 PDF file

Andrei Okhlopkov offers you this Best Practice for free!

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Further information

Analyse sensitivities and cross-dependencies between inputs

Financial models with multiple inputs

None


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