How do you compare scenarios when budgeting?

2 How to create scenarios?

To create scenarios, you need to identify the key variables that influence your budget, and assign values to them based on different assumptions. For example, if you are budgeting for a new product launch, you might have variables such as market size, market share, price, unit cost, marketing expenses, and so on. You can then create scenarios such as best case, worst case, and base case, by changing the values of these variables according to your expectations or goals.

3 How to compare scenarios?

To compare scenarios, you need to use a tool or a method that can show you the differences and similarities between them, and how they affect your budget. One common tool is a spreadsheet, where you can create separate columns or sheets for each scenario, and use formulas and charts to calculate and visualize the impact on your income statement, cash flow, and balance sheet. Another tool is a software or an app that can create and compare scenarios automatically, and generate reports and dashboards.

4 What to look for when comparing scenarios?

When comparing scenarios, you should evaluate the main drivers and assumptions behind each one to determine their realism and reliability. Additionally, consider the key performance indicators (KPIs) and metrics that measure your budget performance, such as revenue, profit, margin, ROI, etc., and how they vary across scenarios. Additionally, assess the risks and uncertainties associated with each scenario, and how they affect your budget outcomes and goals. Lastly, consider the trade-offs and opportunities that each scenario presents, and how they align with your strategy and priorities.

5 How to use scenario comparison for decision making?

Scenario comparison can help you make better decisions by providing you with insights and information that can inform your actions and choices. For instance, you can use this technique to evaluate the feasibility and profitability of different options or alternatives, identify any gaps or weaknesses in your budget plan, anticipate and mitigate potential challenges and threats, and explore and exploit potential opportunities. All of these insights can help you optimize your results, develop contingency plans, and leverage strengths to grow your business or achieve your goals.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?