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Scenario Planning
Creating multiple financial models with different assumptions to prepare for a range of possible futures.
Formula
No single formula. Build complete financial models for each scenario with different assumptions.
Key variables: growth rate, churn, CAC, hiring pace, funding
Definition
What is Scenario Planning?
Scenario planning creates multiple versions of your financial future based on different assumptions. Instead of one forecast, you model best case, base case, and worst case to understand the range of outcomes and plan responses.
Each scenario includes a complete financial model with different growth rates, costs, and external factors.
Why Scenario Planning Matters
The future is uncertain. A single forecast gives false precision. Scenario planning acknowledges uncertainty and prepares you for multiple outcomes.
Good scenarios include decision triggers: if revenue drops below X, cut Y. If growth exceeds Z, invest in A. This turns reactive decisions into proactive plans.
Building Scenarios
Start with 3 scenarios: base (most likely), upside (things go well), downside (things go poorly). Vary the key drivers: growth rate, win rate, churn, funding environment. Include specific triggers and actions for each scenario. A pro forma income statement generator makes it easy to model multiple scenarios and compare their profitability impact side by side.
Example
Your SaaS startup builds a three-scenario model:
- Base case: 15% growth, current burn, 14 months runway
- Upside: 25% growth, increased investment, 10 months runway
- Downside: 5% growth, reduced costs, 20 months runway
If upside materializes, accelerate hiring. If downside, trigger cost cuts by Month 3.
Related Terms
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