Overview

A traditional sensitivity analysis involves testing a limited number of scenarios (e.g. base, upside and downside). Each scenario is a set of predefined inputs. This approach shows the outcomes of the model at various perspectives, but does not give a precise likelihood of a particular result to happen.

In contrast, the Monte Carlo method tests a large number (several hundreds or thousands) of ‘scenarios’ in which the inputs are drawn as random numbers. The results of the model (gross profit, IRR etc.) are also represented by ranges of numbers. Analyzing statistical patterns of those ranges the analyst can determine mathematically the chances of an output being within a specific range or being higher or lower than a certain threshold.

In this publication I am sharing a technique of Monte Carlo analysis in Excel. My approach is based on standard Excel functions and data tables without macros. The accompanying model performs essential Monte Carlo simulation: drawing random numbers of certain distribution types, making correlations, interpreting the outcomes.

Reviews Add a review
No reviews yet

More From Andrei Okhlopkov

Browse our top rated business templates. See All
Marketing Budget
346
0
Marketing and promotion are instrumental in boosting sales and maintaining high revenues. This template built on the highest professional financial…
Loan Schedule
678
4
This template will help you calculate loan and interest balances, accrued interest at any point in time on loans granted or issued.…
Capex Budget
836
2
 Any company which uses fixed assets in its operations needs to know:   Investment cash flow related to new fixed…
Payroll Budget
1,060
2
Payroll expenses and employee costs in general form an important and material part of a company’s budget. This template built on the highest…
Travel Budget
1,047
0
Travel expenses make up an important and material part of a company’s budget. This template built on the highest professional financial modeling…
HR Analytics and Dashboard
1,675
0
This publication contains a set of tools to perform employee analysis and communicate key statistics in a concise, efficient and…
See All