‘What if’ analysis

NotesQuizObjective Test

What If Analysis

Ask questions using “what if …”.

For example:

  • What if the Sales decrease by 20%

  • What if the Cost of sales increase by 10%

Steps of What-If analysis:

  1. Defining areas of interest (e.g. Profit)

  2. Generating questions (if) - e.g. what if cost of sales increase by 1%

  3. Generating answers (e.g. profit will decrease by 1%)

Illustration

Revenues               100%
Variable costs        (50%)
Fixed costs             (20%)
Profit                       30%

What If the sales volume turns to be only 70%?

Solution

Revenues                              70%
Variable costs 50 x 0.70 = (35%)
Fixed costs                          (20%)
Profit 70 - 35 - 20 =              15%

NotesQuizObjective Test