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What-If Analysis: this article explains the What-If Analysis or Scenario Analysis in a practical way. After reading it, you will understand the basics of this powerful Decision Making tool.

We cover what a What-If Analysis is, give you an example and explain what the 5 steps are to use this tool.
What is a What-If Analysis?
All throughout the day, people make decisions; at work, at home or wherever. Some decisions are taken without thinking, but others require serious consideration, comparison and analysis.

This analysis method is a decision making method that helps to make the right decision and think about what effect it will have beforehand.

It can also prevent that no single person can make a decision, but that a number of people are responsible for that. The What-If analysis is helpful for that as well.

This method is a suitable way for both companies and individuals to come up with different scenarios. It is particularly useful if data is limited or if a company needs more information before they can make a decision. The best result can then be carefully chosen by examining the various results.

Generally, these kind of analysis are executed in data tools, such as Excel. These tools allow for features, such as the scenario manager. Adjustable cells and data tables allow for multiple variables like interest rates.
What-If Analysis example
A What-If Analysis is about looking at what happens when certain actions are taken. From the different scenarios, you then look at which results contributes most to the objective. For instance, if a company is dealing with high employee turnover, they want to find a new way to hire employees.

They come up with the following scenarios and immediately determine the advantages and disadvantages:

Offering permanent contracts to all the temporary employees. The advantage is that all employees know what is expected of them and this increases loyalty. The disadvantage is that it is expensive and it becomes more difficult to fire an employee if they do not perform well.
Implementing an individual bonus ...

Test your Knowledge (Question):

1. What is the significance of What-If analysis in business for decision making process? Write with example.
2. What are the basic steps of What-If analysis?