1. Excel’s Solver
Use Excel’s Solver as a tool to assist the decision maker in identifying the optimal solution for a business decision.
Business decisions are often subject to constraints or business rules to solve business problems.
Solver can be used for decisions, such as, maximizing profit or reducing costs.

2. Setting up Excel’s Solver
Determine the changing cells. These are the variables that Excel will use to determine the optimal result.
Let’s say we want to maximize Net Profit in an sports equipment company.
We need to determine the amount of basketballs and footballs manufactured to maximize Net Profit.

3. Setting up Excel’s Solver
Excel will do a “What if” with these variables.

4. Setting up Excel’s Solver
Determine the constants or fixed variables, such as unit price, labor, hour to make a ball, ect.

5. Setting up Excel’s Solver
Determine the calculations required for the constraints as determined by the production facility and marketing research available.
Total Machine hours: Min 39,000 – Max 40,000
# of basketballs: Min 30,000 – Max 60,000
# of footballs: Min 20,000 – Max 40,000
Ratio of footballs/basketballs: 1.5 – 1.7

6. Setting up Excel’s Solver
Here are the formulas needed.

7. Setting up Excel’s Solver
Build an Income Statement

8. The IF() statement is used to eliminate taxes on income, IF() it is a loss.
IF(income <=0,then enter 0, if not enter the amount = tax_rate*income)

9. Setting up Excel’s Solver
Develop the constraint arguments

10. Run Excel Solver
Select: Tools>Solver…

11. Run Excel Solver
Enter the target cell, changing cells, and constraints into the Solver Parameters window.

12. Enter the Set Target Cell: Net Income.
Leave the Equal to: Max (default setting). Excel will calculate for the optimal Net Income value

13. Run Excel Solver Enter the By Changing Cells:
Number of basketballs & Number of footballs.

14. Run Excel Solver Enter the Subject to the Constraints:
Use the Add button

15. Run Excel Solver
Enter the constraint Cell Reference, Argument, and Constraint

16. Run Excel Solver Enter the Subject to the Constraints:
Do this for all constraints

17. Run Excel Solver
Compare Subject to the Constraints with your logic statements to verify they are correct.

18. Run Excel Solver
Click Solve and Excel will calculate the results.

19. Run Excel Solver
Below is the Solver Results window. An answer was developed satisfying all stated constraints!

20. Run Excel Solver

21. Excel Solver: Reports
Analyze the Answer Report, note the Binding and Slack values.

22. Excel Solver: Reports
Analyze the Sensitivity Report. Note the Reduced Gradient and Lagrange Multiplier.

23. Excel Solver: Reports
Analyze the Limits Report.

24. Excel Solver: Options Button
If Solver is not finding solution try the Options Button.

25. Excel Solver: Solver Options

26. Excel Solver: Options Button
Max time: How long Solver should work on the problem. Default 100 seconds, max 32,767 seconds (over nine hours!)

27. Excel Solver: Options Button
Iterations: How many iterations Solver should work.
Default = 100, Max = 32,767

28. Excel Solver: Options Button
Precision: How precise Solver should be working on a possible solution against your constraints. Default = , Variable = –

29. Excel Solver: Options Button
Tolerance: How precise Solver should be on meeting integer constraints.

30. Excel Solver: Options Button
Convergence: Lets Solver know when to quit looking for a better solution.
Variable = 0 to 1.

31. Excel Solver: Options Button
Assume Linear Model: Lets Solver know you are working with a linear model, making the solution time faster.

32. Excel Solver: Options Button
Assume Non-negative: Lets Solver know variables are >= 0
( this creates a constraint).

33. Excel Solver: Options Button
Use Automatic Scaling: Lets Solver know variables are of different magnitudes.

34. Excel Solver: Options Button
Show Iteration Results: Lets Solver know to pause between iterations. Show Trail Solutions.

35. Excel Solver: Options Button
Estimates: Choose Tangent or Quadratic extrapolations, try Quadratic for non-linear optimization models.

36. Excel Solver: Options Button
Derivatives: Choose Forward or Central. Default = Forward, try Central for highly constrained calculations.

37. Excel Solver: Options Button
Search: Choose Newton or Conjugate. Default = Newton. Lets you choose the algorithm for Solver to use to find the optimal solution.

38. Excel Solver Tutorial: END