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11. Finance and Business Analytics · Modeling and Optimization · 15 min

11. Solver: How to Set Up the Problem

Lesson 11 of 16
    Lesson theory

    Goal Seek changes one cell to reach one value. Solver is smarter: it changes several cells at once to maximize or minimize a result while respecting constraints. Typical problems: a production plan, cutting stock, shift schedules, an advertising budget split, an optimal purchase.

    Where to find it: enable the add-in once — File › Options › Add-ins › Manage: Excel Add-ins › Go, and check "Solver Add-in". After that the Solver button appears on the Data tab.

    Every Solver problem has three parts:

    • The objective cell — the formula you optimize: profit (maximize), cost (minimize), or an exact value;
    • The variable cells — the numbers Solver adjusts: how many of each product to make. They must hold numbers, not formulas;
    • Constraints — conditions such as "used ≤ available", "plan ≤ demand", "plan ≥ 0", "plan is an integer" (int).

    Solving methods: Simplex LP is for linear models, where the objective and constraints are sums of products (SUMPRODUCT); it is fast and finds the exact optimum. GRG Nonlinear is for smooth nonlinear problems. Evolutionary is for "jagged" models with IF, VLOOKUP and the like; it is slow and does not guarantee the best answer.

    You should almost always check "Make Unconstrained Variables Non-Negative": you cannot bake −5 croissants.

    An honest note about this trainer: it has no built-in Solver. In the next lesson you will build the model the way it is prepared for Solver (objective, constraints, "OK/Violated" checks), and find the optimal plan yourself by reasoning and testing. In real Excel the "Solve" button does that last step for you.

    Test yourself

    1. How does Solver differ from Goal Seek?
    2. What do you put in the "By Changing Variable Cells" box?
    3. The model: profit = SUMPRODUCT(prices, plan), and the constraints are sums of products of resources. Which method should you choose?
    4. How do you stop Solver from suggesting 12.7 sandwiches?