What-if Analysis Modeling and why it is important

What-if Analysis Modeling and why it is important

June 11, 2021

Mitigation of risk is among the most important parameters in running a business. Of course, there are several aspects that define the success of a business, but risk mitigation takes a special place in the grand scheme of things. Since the start of the ‘new-age economy’, there has been an upward trend in projections of different sorts.  

Whether it is financial projections, sales projections, marketing campaign planning, budgeting, and Roi analysis, projections play a key part in planning. It is indeed wise to deploy What-if formulae to model projections that can project multiple scenarios in such cases.  

In the simplest sense, a what-of scenario can be built for a specific parameter with two or more values for comparing. The easiest of illustrations can be found in E-commerce marketplaces. For instance, if someone is looking at purchasing a laptop, then he or she would look to compare several devices to see which one closes the gap on what one is looking for.  

Like data analysis guru Avinash Kaushik stated in one of his blog posts, “…. if you create exploratory environments it can be exceedingly accretive to decision-making if we build in what-if type models. Rather than stopping at an end-point, provide an option of doing some type of sensitivity analysis with the goal of prodding the audience to take action.” 

Where a What-if Model can be used 

However, in a business sense, there are several decisions that need to be made across several departments of an organization. Operations, Marketing, Finance, and HR all would find a use-case in What-if modeling to gain projections and forecasts on what they would need to accomplish in terms of KRAs and KPIs.  

For instance, you are a financial controller or a CFO of an organization. While being a pretty important role within the organization, a CFO is responsible for the management of the books, the balance sheets, the Profit & Loss (P&L) statement apart from the allocation of funds for future projects and campaigns of the organization.  

A CFO will also be integral to building a robust financial model, something that would analyze the historical performance of the company and make financial forecasts based on the same. In such a situation, a financial analyst would feed in the existing data and the assumption parameters to analyze future performance.  

Using a what-if analysis model, a company can forecast different circumstances using any two assumptions and have a look at how these assumptions affect the overall financial model. Different perspectives and scenarios go to great lengths in building a robust financial model and projections.  

How to use a What-if Analysis model 

As mentioned earlier, a What-if Analysis has several use cases. HR managers can use a What-if Model to take a call on hiring requirements, a sales manager can use a similar projection to forecast the number of units sold each month. Even entrepreneurs and businesses can use a similar model to foresee market conditions in a specific period of time and perform market trend analysis.  

Typically, a What-if model is used for mitigating risks. Risks come in different shapes and forms. In fact, several organizations have used a What-if model to navigate through the current Covid crisis. While several of their use-cases have come on the financial front, it is clear that there have been several other applications as well. Essentially, as Kaushik says, What-If adds that “extra” factor; there’s no need to make data visualizations with dead-ends. Therefore, an effective What-if analysis is key  

How to build a What-if Analysis using Infoveave 

Running a successful business is about keeping customers happy. One of the biggest brand names in the automotive industry in India used a What-if Analysis to build a robust pricing model.  

By employing Infoveave, the client was able to measure the factors impacting pricing. Infoveave also provided an end-to-end solution to the problem at hand and much more. Infoveave’s module allowed to connect to sources of data. This helped to fetch all the information on prices, models, and dealers. This also includes competitor data to compare against their prices. The What-If Analysis module configured the pricing algorithms within. This includes over 40+ variables that determine the price. 

Are you looking at building a robust and effective What-if analysis for your organization? Well, look no further than Infoveave.

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