What-if analysis is the process of considering and evaluating hypothetical outcomes. It is a common technique used in early stage strategy and planning, and has many specialized applications in fields such as marketing and risk management. By exploring different potential scenarios and outcomes, organizations can make more informed decisions and prepare for a wide range of potential outcomes. Examples of what-if analysis include simulating the effects of different marketing strategies, forecasting the potential risks of a new business venture, and evaluating the potential impacts of different policy decisions.
Data Analysis
What-if analysis is a common data analysis technique that involves exploring the potential impact of different hypothetical values. This can be a useful tool for making informed decisions and planning for potential outcomes. Many spreadsheet software programs have built-in features to facilitate what-if analysis, and it is good practice to capture and document the results of these analyses as an artifact. By capturing and reviewing the results of what-if analyses, organizations can gain valuable insights and better prepare for a wide range of potential scenarios.
Goal Seek
Goal seek is a feature of many spreadsheet programs that allows users to work backwards to determine what input value would produce a desired result. This can be useful for solving complex problems or making informed decisions. For example, using goal seek, you could determine what conversion rate would be needed to achieve $10,000,000 in revenue for a given number of visitors and unit cost. It should be noted, that planning backwards from your end-goal is a classic mistake of strategy and planning whereby you target numbers that fit your goals as opposed to those that are realistic.
Scenario Analysis
Scenario analysis is the process of modeling and evaluating potential future outcomes. This typically involves brainstorming and reverse brainstorming to generate a range of potential scenarios, followed by estimates of their probability and potential impact. For example, a safety risk analysis on a construction site might involve considering the likelihood and potential consequences of different types of accidents or incidents.
Business Experiments
While what-if data analysis often involves working with hypothetical numbers, a more concrete approach is to conduct experiments in the real world to generate concrete data. For example, an organization might test different marketing offers to determine which ones have the highest conversion rates. By conducting experiments and gathering real-world data, organizations can gain a more accurate understanding of the potential impacts of their decisions and actions. This can help inform future decision-making and improve overall performance.
