Importance of what-if scenarios
Every global business or organization decision entails a certain degree of risk. This implies that effective or appropriate management of the risk can help a business to maintain its competitive advantage as well as recognize a significant growth. By analysing the what-if scenarios, a business will be prepared to understand the impacts of likely risks and adjust the risks related to budgeting (Tessun, 1997). A business will also be able to manage the budget risks either through making operational changes or handling the situation through the internal systems. Additionally, what-if scenarios analysis helps a business to identify its key drivers allowing the business to make effective financial decisions associated with the key drivers in order to maximize its performance. Moreover, it helps a business to understand the effect of various financial decisions.
Benefits and cost of what-if analysis
What-if analysis is a brainstorming technique that helps a business to determine how the projected performance is most likely to be affected with any adjustments or changes made of various project performance assumptions. What-if analysis helps a business to better and informed decisions based on any changes made on the project performance assumptions. It also helps a business to predict the outcome of its decisions (Bird & Zimmermann, 2012). The concept of what-if analysis basically gives a business a glimpse into the future and enables it to make faster decisions at a low cost.
How to determine range and timeline of what-if scenarios
To determine the range and timeline of what if scenarios, a business can use spreadsheet-based modelling. Due to the complex calculations involved, spreadsheet-based modelling helps a business to track and compare multiple scenarios in a short period. However, the spreadsheet model may be prone to manual error that can decrease the accuracy of the what-if scenarios analysis.
Bird, C., & Zimmermann, T. (2012, November). Assessing the Value of Branches with What-If Analysis. In Proceedings of the ACM SIGSOFT 20th International Symposium on the Foundations of Software Engineering (p. 45). ACM. Retrieved from https://www.microsoft.com/en-us/research/wp-content/uploads/2016/02/bird-fse-2012.pdf
Tessun, F. (1997). Scenario Analysis and Early Warning Systems at Daimler‐Benz Aerospace. Competitive Intelligence Review, 8(4), 30-40. Retrieved from https://onlinelibrary.wiley.com/doi/abs/10.1002/(SICI)1520-6386(199724)8:4%3C30::AID-CIR6%3E3.0.CO;2-E