Financial Modeling: Regression Tornado Graph Without @Risk

Regression tornado graph below is a useful tool that shows the most important variables impacting a model. Now, this tool is only found in @Risk, but using standard Excel functions I replicated this analysis in this Blog.

What is the difference between a normal regression and a regression tornado? The coefficients of the regression tornado are standardized or adjusted to make them comparable and to easily extract conclusions from them. The standarized coefficients give us how many standard deviations the main output is going to change when the independent variable change by one standard deviation.

For example, in this model: NPV=f(Sales, Growt Rate, ...)

At first glance, Unit Sales Y1 has more impact on the NPV than the Growth Rate. A standard deviation  (sigma) increase in Unit Sales Y1 results in an increase of 0.8 standard deviation in the NPV, while one sigma increase in growth rate is only 0.2 increase in NPV.

Why is it important? It tells us that we need to start very strong in our first year sales because it will make a huge difference in the NPV outcome.

All my calculations are in this Excel file (link).
Here is a useful manual of how to use tornado regression charts in @Risk (link).
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