What Is Goal Seeking?
Let me explain goal seeking to you directly: it's the straightforward process of figuring out the right input value when you already know the output. You'll find this function built into various computer software programs, such as Microsoft Excel, making it accessible for everyday technical tasks.
Key Takeaways
Here's what you need to grasp: goal seeking means finding the correct input for a known output. You can achieve this using the goal seek function in Microsoft Excel or through what-if analysis in computer programs. Remember, goal-seek software is effective only when there's a single input value involved.
Understanding Goal Seeking
Goal seeking is a broad term for the process of determining your input value from a known output value. It involves applying a specific operator in a formula, which you can compute using computer software.
This is one of the key tools in what-if analysis within software programs. What-if analysis lets you change values in cells—say, in Microsoft Excel—to observe how those changes affect the outcomes of formulas on your worksheet. When you're goal seeking, you're essentially running a what-if analysis on the output value, creating scenarios by asking, 'What if the output was this?' It's a clear cause-and-effect setup.
For more complex issues, turn to computer software. In a spreadsheet like Microsoft Excel, there's a built-in goal seeking tool that helps you find the desired input for a formula when you know the output. For instance, it can calculate the interest rate a borrower needs (the input) if they know their affordable monthly payment (the output).
But keep this in mind: goal seeking software only handles one input value. If you're dealing with two or more inputs—like figuring out both the loan amount and monthly payment—it won't work. You'd need an add-on to manage multiple variables.
How Goal Seeking Works in Microsoft Excel
As I mentioned, goal seeking in software like Excel requires you to know the output value but want to find one input value. Follow these steps to use the goal seek feature in the program.
Steps to Use Goal Seek in Excel
- Open up a new spreadsheet.
- Label your columns for clarity, such as 'Loan Amount,' 'Term in Months,' 'Interest Rate,' and 'Payment' for a loan example.
- Type in the values you already know.
- Enter the formula to calculate the goal, like the payment, ignoring the unknown like interest rate for now, which the formula will treat as 0 percent.
- Now, determine the unknown, such as the interest rate, by using the Goal Seek function in Excel and inputting the values you have.
Example of Goal Seeking
Consider a goal-seeking entrepreneur who applies this to reach their objectives. For example, they might want to know how much to earn per hour to gross $100,000 in a year. They know the desired output—$100,000—and work backward to find the optimal input. This means calculating the hours they're able or willing to work in the year, then determining the hourly rate needed to hit that goal.
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