Use Excel to handle flaw of average (FOA) – Data Table

 What is flaw of average (FOA)? Before I discussed FOA, let’s make sure we understand what average is. Some people call it expected value, mean, median or mode. It has many definitions but generally, it is a single value that corresponds to the "middle" of the dataset. In the following diagram, the middle line is the average (mean) of the dataset which has a normal distribution.

http://betterandfasterdecisions.com/2010/12/30/use-excel-to-handle-flaw-of-average-foa-%E2%80%93-data-table/

Flaw of average (FOA) – Excel Scenario Manager

In my previous blog Use Excel to handle flaw of average (FOA) – Data Table, I discussed what flaw of average was and how Excel Data Table could provide us a more comprehensive view about our business decisions.  However, Data Table has a limit, it only supports up to 2 variables.  Our world is quite complicated and quiet often, we need more than 2 variables.  This is why we have to use Excel Scenario Manager; it can support up to 32 variables.  Scenario Manager is a great tool to handle our demanding what-if models.

http://betterandfasterdecisions.com/2011/01/25/flaw-of-average-foa-excel-scenario-manager/

Flaw of average (FOA) – Stochastic Model in Excel

So far, we used deterministic approach in my previous blogs, e.g. we specify the age that we want to retire, how many years of survival or the annual incremental rates.  These values are all predetermined; we can add more scenarios but all the scenarios are still determined by us.  These values may be our best estimate and most probable to happen.  However, there may be situations that are very rate but the consequence can be huge, e.g. 2008 financial market meltdown.  This is why we should consider stochastic model.

http://betterandfasterdecisions.com/2011/02/03/flaw-of-average-foa-stochastic-model-in-excel/