How Better What-if Analysis Helps Companies
By Greg Silverman, May 28, 2020
Uncertainty is a daunting word for businesses. It acknowledges that the world we live in is fluid and continually changing outside of our control. From shifts in consumer attitudes to changes in demand caused by unexpected events, accepting that uncertainty is a constant is the first step in developing business plans that adapt to the unexpected.
Mathematician John Allen Paulos summarized this phenomenon best when he wrote, “Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.” For businesses, what-if analysis is an important tool to help them overcome the unknown. While uncertainty will always be present, organizations can prepare accordingly and make decisions that mitigate the risks associated with the unexpected.
Where historical data lacks
Historical data has long been used to predict future behavior based on the idea that past performance is an indicator of future performance. The past being predictive for the future is ingrained in the minds of business professionals and the tools they use. While past data derived from sales reports, demographics, and other known outcomes is beneficial to find correlations inside the data, this method doesn’t account for the uncertainty of the market.
Consumers have more access to information than ever before, and it influences their behavior and purchasing decisions. Ultimately, purchase decisions are more dynamic than they’ve ever been, and historic data struggles to account for new trends and unexpected influences in consumer decision making. Unanticipated events such as new competitors, regulatory changes, and social issues also affect consumer behavior. Their behavior changes how brands need to react.
Rather than relying solely on past information, what-if analysis combines business intelligence and machine learning tools to develop deeper insights into current market trends. What-if is an agile approach that simulates how consumer behavior evolves. The analysis allows business users to forecast outcomes based on their actions
The problem with spreadsheets
Traditionally, what-if scenario analysis has been accessible to the everyday business user through MS Excel what-if analysis. With this tool, users harness the power of predictive analysis using historical data by having the system seek for goals that meet specific criteria. The what-if is not as much about what will be as it is what will be required. What-if tools like Excel need to have a sense of the constraints and the outcome upfront.
What is a scenario in Excel what-if analysis?
Other tools have come onto the market, to give users the power to test their hypothesis by modeling scenarios and sensitivity analysis. If you have one main effect, Excel Scenarios and Data Tables help businesses solve questions such as “If I change my sales to X what will my expenses need to be to achieve my profit target?” Goal Seek, which works differently, helps run scenarios to determine “How many units do I need to sell to break even?” and so forth.
Using what-if analysis in Excel: Known vs. emergence
Running a what-if Excel analysis on a spreadsheet is only a click away, but is Excel an accurate method of running scenarios in line with the current market? Unfortunately, no. Markets and consumers are changing rapidly, so a business’s what-if analysis data table is only representative of the market at one moment in time. Rather than a what-if analysis with true and false functions, businesses need a uniformed platform to store and share data while creating flexible models to test what-if-and-but scenarios even during times of uncertainty.
More than just what-if
When you invest in a what-if analysis solution that houses company data on one secure platform, the data constraints of spreadsheets are lifted. Aided by other predictive tools, scenarios operate in a simulation that closely represents current market conditions allowing business users to test complex questions like “What if a competitor launches a new product?”
By testing what-if scenarios with the model, businesses not only receive results but also gain insight into how their specific actions, such as changing marketing or a product, influence consumer decision making, and subsequent sales. Additionally, businesses leverage what-if scenario simulation to understand situations they may not have control over such as a surprise PR crisis or market fluctuations. With forecasting models that address the now and future conditions, businesses are able to make informed decisions in record time and discover risk mitigation strategies in more ways than just “what-if.”
Simulated what-if analyses are flexible enough to incorporate instances of the unknown which spreadsheets simply can’t handle in their constrained environment. With what-if simulations, businesses quickly test all possible market scenarios, make decisions based on results, tweak their model, and put plans in place if the unexpected occurs - which it often does.
When analytics teams invest in a user-friendly what-if service tool, the entire company benefits. Data scientists continue working to scrutinize historic data and search for absolute truths, but business makers receive quick insight into the market to aid their process. What-if scenarios are the best way to meet the speed of decision making business demands even during uncertain times.
Start overcoming uncertainty in your business today with the what-if analysis platform for strategic decisions today created by Concentric. Contact us today to learn more.