What is a what if analysis tool and how can it be used in business
A What if analysis tool is a software program which can be used to answer the question of “What if?”. It allows organizations to perform simulations and analyses of potential (future) situations. It is a deliberate simulation process used to assess and investigate possible scenarios and to draw conclusions about their implications. It helps decision making, preparing for unexpected changes, doing things better than we could have imagined before.
What if Analysis or What if tools use a divergence-divergence (DD) model with a novel structure to support strategy modeling. According to this DD model, the history of past performance actually matters less than what could have been possible under various alternative decisions or assumptions.
A DD model is implemented by a tree diagram. It describes the potential impact of a decision on a set of divergent branches, each branching into more future possibilities. The numbers along these branches represent possible outcomes with different probabilities.
DD uses a life cycle diagram (see figure) to model the decision-making process, which consists of four stages:
1. Set up the DD Model: An organizational chart or other visualization is created in an Excel® spreadsheet which represents the organization in its configuration at some point in time. It also includes decision nodes or “branches” as well as the key performance measures (“metrics”) for each node.
The benefits of using a what if analysis tool
The use of a what if analysis tool allows organizations to make better decisions faster. A what if analysis tool will provide insights that otherwise may not have been considered, or would have taken longer. It can be used for forecasting future performance by answering “what if” questions: What would happen if we modify the price of our product? What would happen if we don’t hold as many trade shows this year? What would happen if we increase our advertising budget by another 10%? A what if analysis tool allows managers to perform a business case exercise. I expand upon the overall benefits of using a what if analysis tool in the next section of this article.
WHAT IF ANALYSIS TOOL BENEFITS
The benefits of using a what if analysis tool include: * It allows you to test the accuracy of your assumptions. * It helps you understand the root cause of any problems or opportunities. * You can test proposed strategies for scenarios, including budgeting and forecasting. * Provides analysis beyond Excel, such as multiple scenarios and sensitivity analysis. * It can help you consider “what if” scenarios. * This tool can be used by managers and executives. * Its easy to use and quick to learn.
WHAT IF ANALYSIS TOOL BENEFITS – APPLYING TO YOUR BUSINESS
How to choose the best what if analysis tool for your needs
What if analysis tools range from simple to highly sophisticated and all have different purposes. There are a variety of business decision support systems (DSS) that can be applied for specific business needs and a number of different ways that are used in business today. If there are several different analyses being done, then the data from these analyses should be linked together using some kind of reporting or query tool. There are also major differences among the platforms used. The best what if analysis tool for you will ultimately depend on your budget, the complexity of your business, and how important this tool is to your decision making and planning.
There are many ways that these tools are used in the business world today. They should be seen as essential components to your business planning, forecasting and product launch. If you want to make the most of one or more of your business tools, then it is important to take into account how well those tools integrate or will integrate with the your organizational processes and information systems. Some what if analysis tool examples include:
This kind of DSS software supports how-to decision making capabilities to analyze assumptions and uncertainty for a variety of situations. It will provide you with a set of questions about the “what” and “if” scenarios for your business. This kind of software should be able to develop multiple alternative scenarios based on the key variables of your business plan. It should be used to look at how your business might fare if certain factors were changed. This may result in an important decision point for your business.
Examples of how a what if analysis tool can be used in business
A what if analysis tool can answer the question of “What if?” for many different situations. An organization may conduct a what if analysis to: -Assess the extent of risk to the organization. -Find out if an established budget for a product is sufficient. -Understand the implications of continuing to invest in a certain product line option. -Determine if you should extend or reduce your prices (you can test different scenarios) – Review and revise marketing/branding strategies. – Determine the value of an equipment/software option. – Consider if you should invest in a new building, or expand the number of your stores? – Decide whether to extend the life of a product or accept the fact that it is due for replacement. – Outline the consequences of a new product/service launch. – Determine the effectiveness of a training course.