Scenario analysis.
In plain English
Scenario analysis builds a handful of coherent stories about the future, assigns consistent values to every variable within each one, and works out the result for each story. A typical set includes a base case, a downside, and an upside, with each version internally consistent rather than mixing best-case revenue with worst-case costs. It differs from sensitivity analysis, which changes one variable at a time to see what matters most. Scenarios can carry rough probabilities to produce a weighted expectation, though those probabilities are judgment calls. The value is less in any single answer than in seeing which choices hold up across all of the stories.
01Why it matters
A plan that only works in the base case is fragile, and laying the cases side by side is what makes that fragility visible before money is committed.
02The math, step by step
A plan projects 60,000 of income and breaks even. The downside case cuts income to 45,000 and raises costs, leaving a 5,000 shortfall. The upside case shows a 12,000 surplus. Weighting them 25, 50, and 25 percent gives an expected result of about 1,750 of surplus, with a real chance of a shortfall.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
Scenario analysis is not sensitivity analysis. Sensitivity moves one input while holding everything else still, to find which lever matters most. A scenario moves everything together in a way that could actually happen, because in the real world revenue, costs, and rates do not move one at a time.
04Receipts
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