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ACCOUNTING

A Decided Advantage

The president of Create-It! reviews Definitive Scenario, a model-building software package that uses spreadsheet data to develop forecasts, pricing strategies, and financial projections.
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Techniques: Off the Shelf: Software

New model-building software helps you assess your options and make decisions with confidence

The Product: Definitive Scenario Select Edition, from Definitive Software, in Broomfield, Colo. (800-732-9414; $395)
Requirements: Windows 95/98/NT, CD-ROM drive, 15MB hard-disk space, and minimum 8MB memory
Reviewer: Jordan Ayan, president of Create-It! Inc., a consulting and professional-speaking company in Naperville, Ill.

You're facing a critical decision, and the Psychic Friends Network lines are busy. What do you do?

I suggest you let Definitive Scenario Select Edition help you extract clarity from complexity. If your work in sales, marketing, finance, or general management requires you to develop forecasts, pricing strategies, or financial projections, you'll appreciate this elegant software tool that gives new life to spreadsheet data.

For instance, as consultants, we bill our customers for travel expenses that must be broken down into per diem charges. As a tool for building statistically valid models, Definitive Scenario helped us derive a daily rate.

The starting screen has a blank work space on the right side and a selection of icons on the left that represent such functions as addition, multiplication, and so forth. It was simple to create "nodes" for airfare, lodging, and local transportation, but having little background in statistics, I found the instructions to select one of the 10 data distributions decidedly perplexing.

I called the vendor's support line for help. When I described my problem, the customer representative told me I wanted a triangular distribution, which calls for high, low, and most likely values. I instructed the program to fetch those numbers from specific cells of a prepared spreadsheet. I found that our airfares run from $275 to $1,600, averaging $425. One night in a hotel costs around $120, ranging from $89 to $210, and local transportation costs (taxis, rental cars, and so forth) range from $50 to $90, usually about $75.

Moving to the left side of the screen, I selected the addition icon--it wears a plus sign--and dragged it onto the work area, making a new node. Then, clicking on each of the original nodes and dragging them to the new one, I created a node that totals air, hotel, and transportation costs each time I run the model. I can always add more actions or functions to my model. To determine the per diem for, say, a five-day trip, I could drag a multiplication node to the work space and connect it to the model.

I wanted the output to illustrate the distribution of my travel costs, so from a selection of graphic possibilities--including a histogram, an S curve, and scatter plots--I chose the pie-chart icon and added it to my model.

When I clicked on "simulate," Definitive Scenario's Monte Carlo method took random combinations of my data and computed thousands of possible outcomes. The default setting, 2,000 computations, is lightning fast--about five seconds. For an engineering model in which statistical accuracy really counts, I would have asked the model to run millions of variations, but that takes more time. My computer cranked along for about two minutes when I set my cost model to run 300,000 computations.

The results, which Definitive Scenario collates into a "notebook," appeared on the screen, complete with tabbed sections for graphics, statistics, and percentiles. Our results? A flat per diem of $979.69 will, on average, always cover travel costs for single-day engagements. Slider bars for each variable make it easy for users to test various "what-if" scenarios, and I ran a second model that showed me what would happen if, for example, airfares rose by 15% and hotel costs dropped by 10%.

In addition to its excellent tutorials, Definitive Scenario's wizardlike feature, Model Builder, provides step-by-step assistance through more than 60 sample models for such assessments as break-even analysis, sales forecasting, buy-versus-lease decisions, and quality control. With such a powerful tool, why would anyone need a Psychic Friend?

Last updated: Sep 15, 1998




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