What-if analysis is the practice of exploring hypothetical outcomes. This is a standard approach to early stage strategy and planning and has a wide range of special applications in areas such as marketing and risk management. The following are illustrative examples of what-if analysis.
Data Analysis
What-if is a common type of data analysis that simply explores the impact of different hypothetical numbers. Spreadsheet software often has built-in features to facilitate this process. It is a good practice to capture a what-if analysis, including all values analyzed, as an artifact. For example, if you consider the revenue for different conversion rates, this can be captured as a chart.
Goal Seek
Goal seek is a feature of spreadsheets that allows you to work in reverse to determine what value will create some desired result. This can also be done manually if you are comfortable with math. For example, you can calculate what conversion rate would be required to achieve $10,000,000 in revenue for fixed unit cost and visitors.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 practice of modeling possible future outcomes. This is a high level process that typically involves brainstorming and reverse brainstorming. This is typically followed by estimates of probability and impact. For example, a safety risk analysis that looks at the probability and impact of different types of risk on a construction site.
Business Experiments
What-if data analysis is often based on hypothetical numbers that may or may not be realistic. A more concrete type of what-if analysis is to try things in the real world to develop concrete data. For example, experimenting with hundreds of marketing offers to optimize conversion rate.
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