Introduction

What-if analysis may be defined as the technique of asking specific questions about the result of a change or of a series of changes to assumptions in a model or a business plan.

What-if analysis has been performed manually for decades before the arrival of computers. In the spreadsheet environment, however, it is a direct product of the fact that once a model or plan has been entered into the computer, it may be recalculated again and again. It allows the user to change assumptions concerning input data or input relationships, and to recalculate a model to see the impact of these changes on critical output values.

Typical what-if questions might be to ask what effect will a 2% increase in direct labour costs have on profit and return on investment? What effect will a further 30 day delay in receiving cash from the debtors have on the overdraft and/or return on investment?

What-if questions may be considered one at a time, or several at a time. If it is necessary to investigate the effect of two simultaneous changes in the assumptions, then it is usually advantageous to also consider these changes in isolation, i.e. one at a time, so that their individual effects, as well as their joint effects, will be known. Irrespective of whether single or multiple changes to...