IN fluence charts how to easily gain a powerful overview of your excel spreadsheet model

This unique Excel book shows you howyou can quickly and easily gain an overview of an Excel model, with just afew clicks.. Wrong or Missing Connections: ACommon Error Example 1: A payrol

Books about Excel don’t tell you how togain an overview of the model in aspreadsheet They talk about how to cutand paste, how to write formulas, andhow to use special formulas But do youknow how all these formulas are

organized in a spreadsheet model?

Normally, people will have a very hardtime doing this, as they have to look atformulas one at a time

This unique Excel book shows you howyou can quickly and easily gain an

overview of an Excel model, with just afew clicks The automatically generated

overview has many great uses, as

illustrated in the book

This book is meant for all types of Excelusers It is meant for both novice andexpert users Whether you create

spreadsheets or you work with otherpeople’s spreadsheets, this book will bevery useful for you

This book is especially useful for peoplewho check other people’s spreadsheets

If you are a spreadsheet teacher, a

spreadsheet auditor or simply a managerwho gets spreadsheet reports, this book

is a must read

Even if you read only your own

spreadsheets, this book gives you better

and more efficient methods to lookthrough your own spreadsheets.

Copyright@2017 All rights preserved

H C Chan

About the author

The author has a PhD from the

University of British Columbia He hasteaching and research experience withspreadsheets He taught a course ondecision modeling with spreadsheets,for a few years, at the National

University of Singapore He also

provided specialized training aboutspreadsheet error detection to

practitioners His research about

spreadsheet users has been published atinternational journals and conferences

Introduction to Influence Charts

Example 1: Interest Calculation

Example 2: A summation of expenses.Uses of Influence Charts

An Under-utilized but Powerful ToolPrecedents and Dependents

Wrong or Missing Connections: ACommon Error

Example 1: A payroll model

Example 2: An economics model

An Enhanced Influence Chart:

Separated Components

Use of Cell Colors to find ErrorsExample 1: A payroll model

Example 2: An economics modelGaining an Overview: A Personal

Budget Example

Special Cases for Trace Precedents andTrace Dependents

Offset formula in Excel

Vlookup & Hlookup formulas

Formulas that cross worksheets

A Special Chapter for SpreadsheetTeachers

Influence Chart helps What-If AnalysisConclusion

References

Appendix A How do we add

VisualCheck to Excel?

Appendix B VisualCheck Menu

Introduction to Influence

Charts

“More often than not just one person

in a company has the knowledge of

how the financial spreadsheet models are constructed Other people are

unable to understand and therefore

check the analysis The potential for

errors is massive.”

The Telegraph[1] 2015.

This book focuses on one main topic: theinfluence chart An influence chart is avery powerful tool An influence chart

provides an overview of your Excelmodel It shows all the items (the valuesand formulas) and how these are

connected to one another

An influence chart is so important thatexperts recommend that we draw aninfluence chart before we enter the

values and formulas to develop an Excelmodel

As we all know, most people don’t dothat We simply enter the values andformulas and design the model as wetype

Furthermore, the connections amongitems are not obvious in an Excel model

In fact, the connections are very well

Even when we are handed an influencechart for an Excel model, we don’t knowwhether the Excel model really followsthe influence chart

This book shows how we can easily andquickly draw an influence chart from anExcel model The automatically

generated influence chart shows how the

Excel model is really organized.

An influence chart has many importantuses It provides an overview of theExcel model This enables us to

understand the model at a high level, toknow how various components are

connected

A good influence chart will also givevisual clues of the components in anExcel model.

In addition, an influence chart is veryuseful for identifying errors Someerrors are very obvious once the

influence chart is drawn These will beillustrated in the later chapters

Excel has some basic functions to

automatically draw an influence chartfrom an Excel model This book

illustrates how to use these functions Inaddition, this book will illustrate a freeadd-in software that gives enhancedinfluence charts, and with less effort.Let us consider a few simple examples

of influence charts.

Example 1: Interest

Calculation

This is a very simple example for

interest calculation It calculates theinterest earned after one year, given thedeposit amount and the interest rate

Figure 1 Interest Calculation Influence Chart

Note that the influence chart shows theconnections, but usually not the actualvalues.

This next figure shows how the Excelmodel looks like The model includesthe actual values, e.g., 2% for the

interest rate However, the connectionsare not show visually The connectionsare “hidden” within the formula forinterest earned

Looking at the formula for cell D2(=C4*C5/100), we know that cell D2 islinked to cell C4 and C5 (A cell is asingle rectangle in a spreadsheet table.)

Figure 2 Interest Calculation Excel Model

For a single formula and a few cells,finding the connections is not difficult.But when there are many formulas andcells, finding the connections is verytedious

However, with Excel, we have the

ability to generate a good influence chartwith only a few clicks The next figureshows the result Note that the

connections are now shown visuallywith arrows

Figure 3 Excel generated Interest Calculation Influence Model

Example 2: A summation of expenses.

This model is about monthly expenses.The total expense is the sum of rent,food, entertainment, clothing and

transport expenses The influence chart

is shown below

Figure 4 Expenses Influence Chart

The Excel model is shown below

Figure 5 Expenses Excel Model

The next figure shows the connectionsgenerated in Excel

Figure 6 Excel generated Expenses Influence

Model

Notice that Excel does not show theseparate arrows that we have drawn inthe original influence chart When theformula uses a range of cells (D2:D6), abox over the range of cells is shownwith a single arrow

Uses of Influence Charts

In general, an influence chart is verygood at showing the overall connections

in an Excel model In addition to seeing

an overview of the Excel model, userscan zoom in to look at details on anyconnection

The Excel generated influence chart hasanother very important use Potentialerrors can be easily seen

In a famous academic paper about GDPgrowth, a few rows of data were left out

of the average calculation More

information about this case can be found

here: The spreadsheet error in Reinhart andRogoff’s famous paper on debt sustainability.The spreadsheet used in the academicpaper is shown below It is not easy totell if the averages in the last row arecorrect.

Figure 7 An Excel Model about GDP Growth

The next figure shows the model with theautomatically generated influence chart.

It is now quite easy to see that the lastfew rows of data were left out of theaverage calculation The blue boxes(used for sum and average functionswhich state a range of cells) do not

cover the last few row

It is obvious that row 25 to row 29 arenot included

When all the rows are correctly included

in the average, the influence chart shouldappear as in the next figure

This example shows how an influence

chart can give clear clues about possibleerrors.

In the later chapters, we will enhance theinfluence chart with additional softwarethat can be added to Excel (add-ins

software) The enhanced influence chartsare easier to use, add more features tothe chart, and are better at indicatingpotential errors

Figure 8 Trace Precedents highlights Errors

in GDP Growth Model

Figure 9 Trace Precedents for Corrected

GDP Growth Model

An Under-utilized but

Powerful Tool

While an automatically generated

influence chart is very powerful forusers, most users do not know about this.According to this report about MBAusers (Baker, K R., Foster-Johnson, L.,Lawson, B., & Powell, S G (2006) Asurvey of MBA spreadsheet users

Retrieved April, 30, 2010.), users do notmake much use of technology in checkingtheir spreadsheets

Only 24% make use of “formula

auditing” toolbar that is used for

generating influence charts.

There are many new and easy to useadd-in software programs that can helpusers check their spreadsheet Some areincluded in Excel (formula auditing),some are free (e.g., VisualCheck), andothers cost from a few hundred to manythousand dollars

This book will explain how to useformula auditing toolbar

It will show users how to get the freeadvance formula auditing software(VisualCheck), and illustrate the resultsfrom this software, compared with theresults from the basic auditing toolbarprovided in Excel

Precedents and Dependents

These functions are essential for anyspreadsheet user If you want to

understand how your spreadsheet

formulas are connecting all the cells,tracing precedents and dependents is thebest method in Excel

A formula in a cell (X) may refer toanother cell (Y) Then, Y is called theprecedent of X, and X is called thedependent of Y

Excel provides an easy way to identifyall precedents of a cell, or all

dependents of a cell

Simply select a cell, and click the

"Trace Precedents" or "Trace

Dependents" button These buttons areorganized under the “FORMULAS”menu in Excel The set of formula

tracing buttons is called “formula

auditing”, or “auditing toolbar”

Figure 10 Precedents / Dependents Tracing

Buttons

Trace Precedents

An Excel model is shown in the next figure.

Figure 11 A Simple Excel Model

Excel will draw the precedent arrows

after a few clicks Select (click on) cellD10 Then click “trace precedents” afew times Each click traces the

precedents one level further

Figure 12 A Simple Excel Model with

Precedents Traced

Note that the beginning of an arrow has abig dot This is important to bear in mindwhen we look at many overlapping

arrows The end of an arrow has anarrow-head An arrow goes from a

precedent cell to a dependent cell

Tracing precedents is particularly usefulwhen we want to know what other cells(values and formulas) affect the selectedcell For example, if cell D6 is the profit

of a company, the precedents show theother items that have an effect on theprofit value

Looking at arrow connections is much

easier than looking at formulas in eachcell, which can also be done by showingall formulas at once (“Show Formulas”button).

Figure 13 A Simple Excel Model with

Formulas Shown

Trace Dependents

The “Trace Dependents” button produces

similar results For example, in the next figure,

we select cell A4 Clicking “Trace Dependents” will find the cells dependent on A4, i.e., the cells with formulas that refer to A4.

The first click will show the immediate

dependents (in this case, only one arrow from A4 to C3) The second click will show the dependents of the immediate dependents (in this case, another arrow from C3 to D6).

The “Trace Dependents” button is particularly useful when we want to know how the Excel model will be affected when we change the values in a cell Tracing dependents show us all the cells that will be affected.

Figure 14 An Example for Tracing

Dependents

A quick display of immediate precedents

If we are interested in only the

immediate precedents of a cell (i.e., wedon’t want to trace the precedents of theprecedents), there is a super quickmethod to visually show them

Simply double-click on a cell, its

immediate precedents will be

highlighted with colors that match theircell reference in the formula

An example is given below By clicking on cell C7, the precedents areshown Cell A4 is shaded blue to match

double-the blue color of “A4” in double-the formula.Similarly, cell B4 is shaded red to matchthe red color of “B4” in the formula.Unfortunately, there is no equivalentmethod to highlight dependents.

This technique is very fast and simplefor tracing precedents of a single cell.For some complex tracing, we need to

go back to the “Trace Precedents” and

“Trace Dependents” buttons

Figure 15 Formula Highlighting

Box arrow for a range of

Figure 16 Precedent Arrows for Individually

Specified Cells

The above figure shows a formula whereevery precedent cell is explicitly stated.Tracing precedent shows an arrow fromeach precedent cell

Figure 17 Precedent Arrow for a Range of

Cells

In the above figure, the formula indicates

a range of cells Trace precedent shows

the range of cells in a rectangle, andshows only one arrow from the range ofcells.

This box arrow will appear, e.g., inthese formulas: =sum(A1:A10),

=average(A1:10), =count(A1:B10).The box arrow can cover many rows andcolumns, as shown in the followingfigure

Figure 18 Precent Arrow for a Multi-column

Range of Cells

More examples of “Trace Precedents”pattern of arrows will be given later.For example, what happens when aformula refers to a cell in another Excel

worksheet? What happens in complexformulas that look up a table of data,such as vlookup?

If we trace the dependents of Ben’sEnglish mark, the following figure willappear First select Ben’s English mark(click on it), then click on “Trace

Dependents”

Figure 19 Trace Dependents

Since Ben’s English mark is used byonly one cell, there is only one arrowfrom there

The “box arrow” drawn by “TracePrecedents” will not appear when we

trace dependents It is a good point tobear in mind Tracing precedents over anentire worksheet may not give an

identical set of arrows, compared totracing dependents

The next figure shows the result when

we trace the dependents for every cell(click on “Trace Dependents” after

selecting each cell) Notice that the

pattern of arrows is quite different

Figure 20 Dependent Arrows do not have the

box outline

One wrong connection can have bigconsequences Here are a few cases.

$15M mistake in county books being

corrected: Treasurer says spreadsheet error had

no financial impact [Herald-Times,

spreadsheet that contained a broken data link A single entry error

compounded over the past few months tomake the apparent discrepancy larger,she said at the time, eventually leavingthe county's books showing $15 million

more than the bank said it had."

Trustee's Office mistake to cost taxpayers

$12,500

"He said the reports his office sent toKPMG didn't include one account,

which threw off his department's

financial statements The total cash onhand for June 30 that the office shouldhave reported was $128.9 million, hesaid, and not $122.7 million, which waswhat was sent to the auditor It occurredwhen one account wasn't correctly

Example 1: A payroll model

For an example of how precedent arrows can give clues to errors, consider this spreadsheet (given in this article (Ferret Out Spreadsheet Errors, Use Excel’s tools to uncover andcorrect formula problems.by Mark G.Simkin, January 31, 2004,

Irregularities in the blue dots indicatepotential errors A blue dot on a cellmeans that the cell is the beginning of

one or more precedent arrows.

Lack of a blue dot means that the cell isnot used (for the set of precedent arrowsshown) A missing blue dot may indicate

a missing connection

Can you spot all the irregularities?