Spreadsheet Models for Managers

Session 3
Cushioning, Crowding and Quantization

ince modeling is inherently inexact, we sometimes build into our models a safety margin. We call this cushioning. The contrary practice of planning to overtax resources is called crowding. In business modeling, there are occasions when both cushioning and crowding are valuable techniques. Quantization is the effect we observe in models when the values of some of the model parameters are restricted to lie in bands, or when they must adhere to specific values. For example, the practice of "staircasing" price schedules produces quantization effects in expense or revenue models.

Excel provides some facilities that are useful in all these situations, and we'll explain them and illustrate their use. Cushioning, crowding and quantization can lead to complex and confusing models, but if you're systematic about how you handle these effects, your models will be simpler and easier to maintain.

One effect that appears in complex models is usually an error — the circular reference. We'll talk about circular references, and how to unwind them.

Below is a summary of the materials for Session 3.

• Class notes
  • As PowerPoint: 2000-4 or 2007+
  • As Web pages
• Demonstration
  • Narrative
  • Excel Example: 2000-4 or 2007+
• Homework assignment
• Solution to Problem Set 2
  • Narrative
  • Excel Solution: 2000-4 or 2007+