Scenario planning models how a business performs under different sets of assumptions, giving a financial view of multiple possible futures so decisions can be made with their full range of consequences in sight.

The most commonrios are base case, upside, and downside. The base case reflects management’s best estimate. The upside models what happens if key assumptions, revenue growth, margin improvement, a new contract, materialize more favorably than expected. The downside models what happens if they do not. The gap between the upside and downside is the range of financial outcomes the business is actually navigating, and understanding that range changes how decisions are made.

Scenario planning is most valuable before major commitments: a new hire, a facility expansion, an acquisition, a financing arrangement. Seeing the cash and P&L consequences of each scenario, particularly the downside, surfaces the conditions under which the commitment becomes unmanageable and allows contingency to be built in while there is still time to do so.

Decisions made after modelling three scenarios are almost always better than decisions made based on one. See how Wefinx approaches Virtual CFO services.

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