and analyzing information. FOCUSING STORY How a Spreadsheet sSaved Me (a Lot of)

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and analyzing information. FOCUSING STORY How a Spreadsheet sSaved Me (a Lot of) Money Around 2005, I was fortunate to ha during the ping houses (buying a house, making improvements, and then selling at a pr quite popular, and I was a big fan of some of the house-flipping shows on televi ve some excess money I wanted to invest. This boom years of real estate, so that was a natural possibility to explore. ip- ofit) was h y-oriented a run, I noticed a small house that looked like a good candidate for flipping. The seemed to be ideal: It was well within my budget, it was in a good, stable, family-oried neighborhood, and was close to my home. So I called the real estate agent an for a showing. Despite a number of cosmetic issues, the house was well built, and I could easily envision how to improve it. After viewing the house and researching the potental value, I created a simple spreadsheet that analyzed the investment potential of the h did a "what-if" analysis that examined a range of possible scenarios: worst case, best and expected. For example, in the best-case scenario, I estimated that I would have to the house for 6 months before I could sell it. In the worst case, I estimated it would 18 months. After "running the numbers," it became pretty not worth the risk (at least to me). The best-case outcome was that I would make around 10,000, but if the worst-case scenario came true, I would lose well over S ged case own take clear that the investment was 10,000. The scenario would only result in a profit of about $5,000. Some people would hae did not wanto invest the time, effort, and money required to improve the house. This turned out to be a good decision; the housing bubble burst at about the time I would have been trying to sel made this investment, but I decided that under this range of possibilities I the house. In fact, the house remained for sale for a very long time after I looked at it. FOCUSING QUESTIONS l. What role did information play in this decision? 2. An electronic spreadsheet was very helpful in making this decision. What wou ld have been different if spreadsheet software was not available?

Explanation / Answer

1. The information turned out to be positive for the person who was trying to invest in buying that property. The information helped the person in making a well-calculated decision. The person decided not to buy because he was not sure of making a profit out of it and it was clear from the information he had from the what if analysis he did using the spreadsheet. The information played the role of a deciding factor in this case and helped him in getting out of the housing bubble trap.

2. If the spreadsheet software was not available, the situation would have been different. The person would have to rely on the permutation and combination to calculate the probability of making a profit manually using a calculator or even a pen and paper. He would have to rely on the information available on the internet which can be biased or talk to the real estate agent who would oversell the property to him. The person wouldn't have got such accurate number by calculating manually but it would have given hints to him that it will be a disaster. The information from the software helped him in avoiding a possible loss of over $10000.

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