Documentation for the Excel Solver Add-in

Humberto Barreto
[email protected]
(765) 361-6315
Excel's Solver is a numerical optimization add-in (an additional file that extends the capabilities
of Excel). It can be fast, easy, and accurate. It is not, however, a 100% guaranteed silver bullet.
This document shows how to load and use Solver. It concludes with two important caveats
concerning Solver.
Organization:
Accessing Excels Solver
Reviewing the Solver Parameters Dialog Box
Using Excels Solver: General Description
Using Excels Solver: An Example (LifeguardSolver.xls)
Two Dangers of Numerical Optimization
Accessing Excels Solver
To use the Solver, click on the Tools heading on the menu bar and select the Solver . . . item.

Solver is not listed at left.

Execute Tools: Add-Ins as
described below in order
to install Solver.
Upon successful installation,
execute Tools: Solver as
indicated at right.

If Solver is not listed (as shown above left), you must manually include it in the algorithms that
Excel has available. To do this, select Tools from the menu bar and choose the "Add-Ins . . ."
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item. In the Add-Ins dialog box, scroll down and click on the Solver Add-In so that the box is
checked as shown by the picture below:

After selecting the Solver

Add-In and clicking on the
OK button, Excel takes a
moment to call in the
Solver file and adds it to
the Tools menu.
When you click on the
Tools menu, it should be
listed somewhere as shown
above right.

If the Solver add-in is not listed in the Add-Ins dialog box, click on the Select or Browse button
and navigate to the Solver add-in (called solver.xla in Windows and Solver on the MacOS) and
open it. It should be in the Library directory in the folders where Microsoft Office is installed.
If you cannot find the Solver Add-In, try using the Macs Find File or Find in Windows to locate
the file. Search for solver. Note the location of the file, return to the Add-Ins dialog box (by
executing Tools: Add-Ins), click on Select or Browse, and open the Solver Add-In file.
Still cant find it? Then it is likely that your installation of Excel failed to include the Solver
Add-In. Run your Excel or Office Setup again from the original CD-ROM and install the Solver
Add-In. You should now be able to use the Solver by clicking on the Tools heading on the menu
bar and selecting the Solver item.
Although Solver is proprietary, you can download a trial version from Frontline Systems, the
makers of Solver, at www.frontsys.com.
It is imperative that you successfully load and install the Solver add-in since without it, neither
Solver nor the Comparative Statics Wizard will be available.

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Reviewing the Solver Parameters Dialog Box

After executing Tools: Solver . . . , you will be presented with the Solver Parameters dialog box
below:

Let's review each part of this dialog box, one at a time.

Set Target Cell is where you indicate the objective function (or goal) that is to be optimized.
This cell must contain a formula that depends on one or more other cells (including at least one
changing cell). You can either type in the cell address or click on the desired cell.
(NOTE: If you click on the Collapse Dialog button,
to select a cell.)

, the dialog box disappears and its easier

Equal to: gives you the option of treating the Target Cell in three alternative ways. Max (the
default) tells Excel to maximize the Target Cell; Min to minimize; while Value is used if you
want to reach a certain particular value of the Target Cell by choosing a particular value of the
endogenous variable. If you choose Value, you must enter the particular value you want to attain
in the box to the immediate right unless you want the value to be zero (which is the default).
Equal to zero enables Solver to find equilibrium solutions or roots to first order conditions.
By Changing Cells is where you indicate which cells are the adjustable cells (i.e., endogenous
variables). As in the Set Target Cell box, you may either type in a cell address or click on a cell
in the spreadsheet. Excel handles multivariable optimization problems by allowing you to
include additional cells in the By Changing Cells box. Each non-contiguous choice variable is
separated by a comma. If you use the mouse technique (clicking on the cells), the comma
separation is automatic.
Guess controls the initial position of the changing cells. Excel uses the current values of the
cells as the default. Solver is sensitive to the initial values. If a solution cant be found, try
different starting values.
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Subject to the Constraints is used to impose constraints on the endogenous variables. We will
rely on this important part of Solver when we do Constrained Optimization problems.
You can also use the Constraints part of Solver to help it find a solution. For example, in a profit
maximization problem, you could tell Solver that Quantity must be greater than or equal to zero,
i.e., that negative values of Q are not allowed. If Excel has trouble finding a solution to a
problem, limiting the possible values of the choice variables will help it find a solution.
Solver allows equality (Lagrange) or inequality (Kuhn-Tucker) constraints.
Add..., Change..., Delete buttons are used to create and alter the constraints you set. These
buttons lead to dialog boxes where you indicate your choices, then hit OK.
Returning to the top right-hand side of the Solver Parameters dialog box, we have:
Solve, obviously, the button you click to get Excel's Solver to find a solution. This is the last
thing you do in the Solver Parameters dialog box.
Close is just like cancel; it closes the Solver dialog box and no changes are made.
Options...allows you to adjust the way in which Solver approaches the solution..

As you can see, a series of choices are included in the Solver Options dialog box that direct
Solvers search for the optimum solution and for how long it will search. These options may be
changed if Solver is having difficulty finding the optimal solution. Lowering the Precision,
Tolerance, and Convergence values slows down the algorithm, but may enable Solver to find a
solution.
The Load and Save Model buttons enable you to recall and keep a complicated set of constraints
or choices so that you do not have to re-enter them every time.
Clicking OK or Cancel returns you to the Solver Parameters dialog box.
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We continue our review of Solver options by going over the remaining buttons in the Solver
Parameters dialog box (which we display again below):

Reset All. This button changes everything back to the original, default choices, blanking out the
Set Cell, By Changing Cells, and Subject to the Constraints options.
It is important to understand that a saved Excel workbook will remember the information
included in the last Solver run.
If you wish to explore a different problem and want to quickly begin with a clean Solver, then
click on the Reset All button. If you wish to keep a particular Solver model, then use the
Options and Save Model . . . Buttons.
Help brings up limited documentation on Solver. Better help is available by typing solver in
the Index of Help (which can be accessed by executing Help: Contents and Index) as shown
below:

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Using Excels Solver: General Description

When you run Excels Solver, it executes a series of macros and routines that comprise the
Solver add-in. Upon completion of the various algorithms, Excel presents the user with a Solver
Results dialog box:

A message appears on the top left-hand side of the box. In this case, Excel reports that Solver
has converged to the current solution. All constraints are satisfied. This is good news!

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Bad news is a message like, Solver could not find a solution. If this happens, you must
diagnose, debug, and otherwise think about what went wrong and how it could be fixed. The
two quickest fixes are to try different initial values and to add constraints to the problem.
From the Solver Results dialog box, you elect whether to have Excel write the solution it has
found into the Changing Cells (i.e., Keep Solver Solution) or whether to leave the spreadsheet
alone and NOT write the value of the solution into the Changing Cells (i.e., Restore Original
Values). When Excel reports a successful run, you would usually want it to Keep the Solver
Solution.
On the right-hand side of the Solver Results dialog box, Excel presents a series of reports. The
Answer, Sensitivity, and Limits reports are additional sheets that are inserted into the current
workbook. They contain diagnostic and other information and should be selected if Solver is
having trouble finding a solution.
Along the bottom of the Solver Results dialog box, are four buttons:
OK, obviously, the button you click after reading and choosing various options that you want to
keep. This is the last thing you do in the Solver Results dialog box.
Cancel closes the Solver Results dialog box and no changes are made.
Save Scenario... enables the user to save particular solutions for given configurations.
Help brings up information from Excels Help application.

Using Excels Solver: An Example

You can see Solver in action by opening the file
http://www.wabash.edu/econexcel/compstatics/examples/lifeguard/LifeguardSolver.xls. The
Solver sheet has the lifeguard optimization problem set up and Solver is ready to run. Execute
Tools: Solver
in order to
access the
Solver
Parameters
dialog box.
Click the
Solve button
and Excel
converges on
the optimal
solution.

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Two Dangers of Numerical Optimization

This may be the first time you have used a numerical algorithm to solve an optimization
problem. While a full explanation of numerical methods for optimization is beyond the scope of
this simple introduction, two basic ideas deserve mention.
1) Interpretation of Solvers Results Needed
Solver determines if it has reached a solution by using a convergence criterion. Once it cannot
improve the current solution by more than 0.0001 (the default convergence value in the Options
dialog box), it announces that it has found a solution and reports its value in 16-bit precision.
The reported solution might be a number like 2.99999999999999.
An important consequence of the convergence criterion is that Solver will often not get an
obvious, integer, exact answer. Once its close enough to meet the convergence criterion, it
stops improving. Usually, thats not a problem because we do not need the absolutely exact
answer.
Unfortunately, some people seem to think that an answer to the 15th decimal place is really exact.
Thats crazy. Most of the time, Solver will stop short of the absolutely exact answer. Thus,
there is no point in using all of the digits presented by Solver.
You should always format Solver result cells so that they are easy for humans to read and
understand. If you get a Solver result like the one above, you should display it as 3. In general,
youll want to cut down on the many digits Solver displays.
2) Solver May Fail
A bigger problem concerns the ability of Solver (or any numerical algorithm) to find the correct
solution. In The Numerical Reliability of Econometric Software (Journal of Economic
Literature, June 1999, pp. 633-665), McCullough and Vinod draw a distinction between a
miserable and a disastrous result. They might sound the same, but they are quite different.
A miserable result is obtained when a numerical algorithm gives up and says that a solution
cannot be found, an error occurred, or convergence could not be achieved. The result is
miserable because the computer cant find the answer. If this happens to you, we recommend
changing the initial values from which Solver begins its work. Avoid extremely large or small
numbers and zero as initial values. Another simple strategy is to add constraints in order to
reduce the search area or to reformulate the problem (say by focusing on the first order
conditions). A large literature exists on ways to improve the performance of numerical
algorithms, especially in the realm of non-linear problems.
A disastrous result is much worse than a miserable one. Solver happily announces that a solution
has been found and offers up a 15 or 16 digit number for your inspection. The problem,
however, is that the solution is way off. Not in the millionth or even tenth decimal place, but
completely, totally wrong. How this might happen takes us too far afield, but suffice it to say
that it is good Solver practice to always check the solution by trying slightly different numbers to
test Solvers answer and by asking yourself if the answer makes sense.
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Solver really is a powerful way to solve optimization problems, but it isnt perfect. You need to
be aware of this. Remember to always format Solvers results with an eye toward ease of
understanding. Do not give up if you get a miserable result and stay alert even if Solver claims
to have hit pay dirtit may be a disastrous result!
When combined with the Comparative Statics Wizard, Solver provides a fast, easy way to do
comparative statics analysis. For more on the Comparative Statics Wizard, please visit
http://www.wabash.edu/econexcel/compstatics/.
For more on Solver, including more powerful Solver algorithms, please see www.frontsys.com.

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