How to Use What-If Analysis: Goal Seek in Excel
Excel’s What-If Analysis is a powerful feature that allows users to experiment with data and predict outcomes without changing the actual data set. One of the most useful tools within this feature is Goal Seek. This tool helps you find the input value required to achieve a specific goal, making it ideal for scenarios where you know the desired result but need to determine the right variable to achieve it.
What Is Goal Seek?
Goal Seek works by adjusting a value in a formula to achieve a set target. Essentially, it reverses the process: instead of calculating an outcome from inputs, it calculates the required input for a desired outcome.
When to Use Goal Seek?
Goal Seek is best suited for solving problems where you know the desired output but not the correct input value to achieve it. For example:
- You want to determine what sales level is required to reach a profit target.
- You’re trying to figure out what interest rate will result in a specific future value of an investment.
- You need to adjust loan amounts or payment periods to meet specific repayment conditions.
Steps to Use Goal Seek in Excel
Here is a step-by-step guide on how to use Goal Seek in Excel:
Step 1: Set Up Your Data
Before using Goal Seek, you need to set up your data with a formula that relates your variables. For example, if you are calculating the required sales to meet a target profit, you might have:
- A cell for total revenue (dependent on sales units and price).
- A cell for expenses (e.g., fixed and variable costs).
- A cell for profit, which is the difference between revenue and expenses.
Ensure your formula is correct and the relationship between variables is clearly defined.
Step 2: Open the Goal Seek Feature
Once your formula is ready:
- Go to the "Data" tab in Excel’s ribbon.
- Click on "What-If Analysis" in the Forecast group.
- From the drop-down menu, select Goal Seek.
Step 3: Define Your Variables
The Goal Seek dialog box will ask you for three things:
- Set Cell: This is the cell that contains the formula where you want to achieve the desired outcome (e.g., the profit cell).
- To Value: Enter the value you want the formula to reach (e.g., your target profit).
- By Changing Cell: Select the cell containing the variable you want to adjust (e.g., the sales units).
Step 4: Run Goal Seek
Once you’ve defined the parameters:
- Click OK.
- Excel will automatically adjust the selected variable to meet the target value in your formula.
- If a solution exists, Excel will display it. You can either accept the result or cancel the operation if you want to try again with different values.
Practical Example
Imagine you run a business and want to know how many units of a product you need to sell to meet a profit target of $10,000. You already have:
- A formula for calculating profit: Profit = Total Revenue - Total Expenses.
- A formula for revenue, which depends on the number of units sold and price per unit.
- Your fixed and variable expenses defined.
By using Goal Seek, you can quickly adjust the number of units to meet your desired profit target without manually trial and error.
Benefits of Using Goal Seek
- Efficiency: Goal Seek helps you find solutions without manual calculation, saving time.
- Precision: It provides an exact solution based on the parameters you input.
- Simplicity: It’s easy to use and doesn’t require advanced Excel skills.
Limitations of Goal Seek
While Goal Seek is a great tool, it does have some limitations:
- It only works with one variable at a time. If your scenario involves multiple changing variables, you may need to use Solver or other tools.
- It only finds numerical solutions. If your problem doesn't have a solution within the specified parameters, Goal Seek will not be able to help.
- The solution must be continuous. Goal Seek works best with smooth functions where small changes in the input lead to small changes in the output.
Conclusion
Goal Seek is an excellent tool for quickly finding the input values needed to achieve a specific outcome in Excel. Whether you’re calculating financial metrics, budgeting, or analyzing performance, it saves time and helps you make informed decisions without manually adjusting inputs. By understanding how to set up your formulas and use Goal Seek, you can take advantage of Excel’s powerful problem-solving capabilities.