In this post, I’ll show you how I like to use Conditional Formatting in my Excel models to add a disabled look to some cells based on a criteria. With this technique, you will get clear visual indications that will simplify inputs and avoid errors.

The context

As an example, you need to enter monthly sales volumes for a product that is yet to be launched. The spreadsheet is layed out with one column for each month. The goal is to have the input cells shaded for the months previous to the launch date.

Of course, you could do that manually, but that wouldn’t be fun nor very flexible. Instead I’ll show you how to setup conditional formatting to have it done automatically without resorting to macros.

Model Layout

The solution

1. Setup Data validation

To make sure the launch date inputs are valid, you need to add data validation with a drop down list of all months next to each product.

2. Setup Conditional Formatting

The next picture demonstrates how the conditional formatting is set, with L$6 being the evaluated month and $D11 being the launch date.



Conditional Formatting setup

3. Adjust formulas

Since this technique only changes formats and leaves the input in the shaded cells, you need to adjust the formulas that are connected to the inputs. This insures that your results are not affected by inputs in the shaded cells. You can see how I have adjusted the annual sums and the revenue calculation to consider the launch date by downloading the example.

Final thoughts

As it is setup in the example, you have to adjust the inputs each time you change the launch date. The conditional formatting acts only as visual help for inputs. However, it could also be interesting to have formulas that adjust with the launch date instead of the inputs.

Download:

Conditional Format Controls – Part Deux.xls (size 124Kb)

Other related post:

Conditional Formats Control – The Warm-Up

In it’s basic form, you can use it with a simple condition depending on the cell value. However, a more interesting yet underused way of working with conditional formats is with a formula condition. Let’s see how we can use both.

Conditionally format a cell based on its value

Let’s start with an example where a model user needs to input a product mix (e.g. overall sales to be broken down into the different categories). Obviously, the total mix should be 100%. The next picture shows how the model could be layed out.

I have added a conditonal format rule that will change total cells to red when the value is different than 100%. To do so, follow these steps:

1. Select the cells on which you want “Conditional Formatting”. (In this case the cells with the totals)
2. In the “Style” section of the “Home” tab, click “Conditional Formatting” then “New Rule…”. (In Excel 97-2003, you will find it in the format menu)
3. Select “Use a formula to determine which cell to format”
4. In the edit rule description, set it to cell value not equal to 1.

Conditionally format a cell based on a formula

Following on our previous example, suppose we want to highlight the input cells like in the picture below.

To add the conditional formatting, simply follow these steps:

1. Select the cells on which you want “Conditional Formatting” (I.e.: the input cells).
2. In the “Style” section of the “Home” tab, click “Conditional Formatting” then “New Rule…”. (In Excel 97-2003, you will find it in the format menu)
3. Select “Use a formula to determine which cells to format”.
4. Type the formula to be evaluated in the “Format values where this formula is true:” section. In our example, the formula looks like this: =SUM(E$23:E$26)<>1

Conditional Format gives you a quick glance to verify the inputs and might even highlight errors that would have normally been missed. As an example, look closely at the second picture, you’ll notice that the total seems to be 100% when in fact it’s not.

Note that, in some instance, you might want to add rounding to your conditions when your totals are close but not quite equal to 100%.

You can download the companion file used for the examples here: Conditional Formats - The Warm-Up

As an example, an investment might be sensitive to many variables (e.g. lauch dates, set-up costs, marginal costs, sales, etc…). These can be summarized in scenarios like in the following table.

The last column in the table is the active scenario. It includes an in-cell drop down of the different scenario names and formulas that adjust automatically with the chosen scenario. The formula in H9 looks like this

=INDEX(D9:F9,1,MATCH($H$6,$D$6:$F$6,0))

• D9:F9 is the range of possible values (same row)
• $H$6 is the cell with the active scenario name (i.e. the one with the in-cell drop-down)
• $D$6:$F$6 is the range of the different scenario names (top header row)

Now I only have to build a one-variable sensitivity table with the variables like what you see on the next picture

Sensitivity table layout

Now, follow the steps detailed in the “One Variable Sensitivity Table – Data in Rows” section of my previous post

Here’s the result you should get. Notice that the formula column has been hidden.

Sensitivity table result

You can download the file used in the example here. (file size: 232 KB)

Two options are available in using these “Data tables”:

• Evaluate the impact of one variable on one or more resulting elements (with 2 possible layouts)
• Evaluate the impact of two variable on one resulting elements

In my next post, I’ll you show how to overcome the limit on the number of variables.

Let’s first look at the following simple model that calculates the net present value (NPV) and internal rate of return (IRR) of a stream of cash flows.

One Variable Sensitivity Table

Say we want to evaluate the impact of the growth rate on NPV and IRR. We could change the assumption directly in the input cell and note the results. This would have the serious drawback of not being adjusted automatically should we change another assumption (e.g. the cash flow in period 1).

Instead, we’ll build a table with different possible values that will automatically populate those results.

Layout 1: data in columns

The previous picture shows you the layout of the table. On the left, you enter the different values from which you’ll calculate sensitivity and on the right, the resulting formulas.

Let’s build a table that will demonstrate the impact of different growth rates on the NPV and IRR.

To get the sensitivity table

1. Fill in the data as layed out on the “Table Structure” picture.
   • On the left, enter different possible values for growth
   • On top, enter a simple link to the result you want to evaluate (e.g. =D24)
2. Select the table (green and yellow portions in the previous image)
3. In Excel 2003: Click the menu “Data \ Table”
   In Excel 2007: In the “Data” tab, click “What-If Analysis”, then “Data Table…”
4. Enter the location of the input cells in the “Column Input Cell” section.
5. Leave the other section empty and click “Ok”

This is the result you should get. The bold row is not part of the table feature, but I like to highlight what’s currently in the model.

Sensitivity tables with data in columns results

Layout 2: data in rows

This one is exactly the same as the previous example except that the formula and value table positions are switched.

To get the sensitivity table

1. Fill in the data as layed out on the “Table Structure” picture.
   • On the left, enter a simple link to the result you want to evaluate (e.g. =D24)
   • On top, enter different possible values for growth
2. Select the table (green and yellow portions in the previous image)
3. In Excel 2003: Click the menu “Data \ Table”
   In Excel 2007: In the “Data” tab, click “What-If Analysis”, then “Data Table…”
4. Enter the location of the input cells in the “Row Input Cell” section.
5. Leave the other section empty and click “Ok”

Sensitivity tables with data in columns results

Two Variables Sensitivity Table

Now we might want to see the cross sensitivity of two variables (e.g. growth and discount rate) on one particular result, NPV in our example. The next picture shows the layout needed to accomplish this task.

The previous picture shows you the layout of the table. On the left, you enter the different values from which you’ll calculate sensitivity and on the right, the resulting formulas.

To get the sensitivity table

1. Fill in the data as layed out on the “Table Structure” picture.
   • On the left, enter different possible values for growth
   • On top, enter different possible values for growth
   • On the top left corner, enter a simple link to the result you want to evaluate (e.g. =D24)
2. Select the table (green and yellow portions in the previous image)
3. In Excel 2003: Click the menu “Data \ Table”
   In Excel 2007: In the “Data” tab, click “What-If Analysis”, then “Data Table…”
4. Enter the location of the input cells in the “Column Input Cell” section. (This is for the variable on the left of your table)
5. Enter the location of the input cells in the “Row Input Cell” section. (This is for the variable on top of your table)

Sensitivity tables with two variables results

The grey cell contains the formula on which you perform your sensitivity analysis, or a simply a link to that formula.

One litttle constraint to remember…

The assumption cell (i.e. the column or row input cell in the dialog) has to be in same sheet as the sensitivity table.

To circumvent this limitation, add a new assumption cell in the same sheet as the sensitivity table and have your original assumption cell linked to it.

A note on calculation modes

The presence of many tables in a workbook can significantly increase recalculation time.

You can set the calculation mode to “Automatic except for data tables” to avoid slower recalculation time and press F9 when ready to recalculate the sensitivity table.

Don’t put everything on a single worksheet. Separate your model’s components on multiple worksheets, i.e. Revenues, COGS, Other Costs, Financing, Amortization etc…

Keep Your Sheet Names As Short As Possible

It will help keep formulas legible and you’ll see more sheet tabs at once which will help browse within the workbook. If you’re using external links, keeping filenames and folders short might also be a good idea.

Note that there is a 1024 characters limit per cell. Thus, long sheet names or file names might enable you towards exceeding that limit.

Put Headings On Top Of Each Worksheet

Keep a few rows on top of each sheet to identify what’s on the sheet. I often use these titles: company name, workbook description, worksheet description.

Create Sub-Section Labels

Make the outline obvious by indenting sub sections. You can use the indent functionality or use separate columns (i.e.: column A for titles, column B for subtitles, column C for elements)

If you have many levels or if the worksheet is tall long, you might want to number your titles (i.e.: 1.2.2.b)

Standardize Cell Formats

… and minimize the number of different styles used (font, font-size, colors, borders, etc…). It will be much easier to read and visually more beautiful. You should also remove those gridlines.

Identify inputs

Use a distinct format for inputs to help users quickly identify controllable elements. This is very often a missing item in models. If you had to use only one tip, this should be the one.

Be consistent

Have a common structure throughout every worksheets. Use the same columns and rows for your labels and always keep the same period in the same column. It will be easier to follow and will also facilitate formula construction or auditing (e.g. see formula in the next picture)

http://www.contextures.com/xlDataVal01.html

Data validation is certainly one of the best tools to perform what-if analysis, along with sensitivity tables. There many types of sensitivity analysis that can be performed with data validation. These can be used alone or in combinations.

• Triggers
• Multipliers
• Delays
• Option lists
• Multiple inputs scenarios

Today, I’m going to show you the simplest one, the “On / Off” trigger. In the following example, I will use it to turn on or off certain product lines in a financial statement. As mentioned in an earlier post on best practices, I suggest you clearly identify the trigger cells with dashed borders.

The first step is to set the data validation. Select the cells where you want to locate the triggers and click “Data Validation”.

In Excel 2003 you can find it in the Data Menu.

In Excel 2007, it is located in the Data Tools section of the Data Tab.

Select List in the first drop-down menu and enter “On, Off” in the Source section.

You might also want to add indications to the user in the Input Message tab or control what happens when invalid data is entered in the Warning tab. In this case, the resulting drop-down menu is probably self-explanatory enough.

With that set, you only need to multiply the existing formula with the following:

…*IF(Switch Address="On",1,0)

Now, changing the switch on or off will automatically adjust the results

This method could also be used to show some comments or text, or in conjunctions with conditional formats, highlight some cells.

For an example, see picture below:

I used this formula in the resulting cell:

=IF(Switch Address="On","Light is On","")

The next picture shows you how I set the conditionnal format.