What-if analysis

A forecast says what will probably happen. A what-if says what would happen if: we raised prices, lost a big customer, hired two people. It needs a model in which the result is calculated from its inputs, which is exactly what a driver tree is.

Scenarios are named sets of what-ifs: a best case, a worst case, the plan. Keeping them side by side shows the range the decision sits in.

Worked example: what if we raise prices 5%?

Profit is revenue minus costs. Today: 4,000 units at $50, unit cost $28, marketing $30,000, so profit is $58,000.

Raise the price 5% to $52.50 and suppose 3% fewer units sell, 3,880. Revenue becomes $203,700, costs $138,640, and profit $65,060: up $7,060 even with the lost sales. Push the price up 10% and lose 20% of units, and profit falls to $56,400, below today. The what-if shows where the line is.

Try it in FlowProofs: try the what-if in the live demo

Related terms

• Sensitivity analysis: Sensitivity analysis moves each input of a model by the same amount, one at a time, to find which input the result depends on most.
• Driver tree: A driver tree breaks one result, such as profit, into the inputs that produce it, joined by arithmetic, so you can see which input moved the result.
• Bridge chart (waterfall chart): A bridge chart, also called a waterfall chart, starts at one total, adds and subtracts a floating bar for each cause, and ends at the new total.

All glossary terms