What-if Scenario Analysis

Let me start with a typical real-life example:

Your wife is asking you to take her out.

You are planning to go to the latest movie in a nearby movie theater.

First thing that come in your mind would be – “What do I do if all tickets are sold out before we reach the theater?”

Oh, no! It is going to be a big fight in the night then.

Now, jump into preparing mitigation plan.

In case tickets are not available, shall I take her to a park or mall? will that make her happy?

Like the one mentioned above, every day, for every activity which we perform, we have this proactive question – “What if the situation represented by scenario ‘X’ happens?” This What-If Scenario Analysis(shortly WISA) becomes our part of life and we ask this question till the end of life. Businesses use what-if scenarios to determine the effect different costs or investments have on profit and other financial indicators.

In businesses and projects, unanticipated adversities makes the business or project unstable and proactive handling of these uncertainties is required. With what-if scenario analysis, Project Manager & Project management team

* can evaluate the feasibility of completing the project under unfavorable conditions,

* prepare contingency and response plans to avoid or overcome the worst scenario,

* mitigate the impact of uncertain or unexpected situations

WISA (sometimes referred as deterministic simulation) used mainly in project analysis and schedule development. A schedule network analysis is performed using the schedule model to compute the different scenarios like delayed delivery of a major deliverable, impact of external factors such as a strike or change in the shipping procedures & processes, extending duration of certain specific activity under certain circumstances.

With different sets of activity assumptions, dozens of project schedule can be prepared through simulation.The most common simulation technique is Monte Carlo Analysis, in which a distribution of possible activity durations is defined for each schedule activity and used to calculate a distribution of possible outcomes for the total project. Early start/early finish, late start/late finish dates can be simulated.

To simulate what-if scenario analysis, number of tools are available in Excel. Following are the few links to them

1. Markham, I. S. and S.W. Palocsay (2006), “Scenario Analysis in Spreadsheets with Excel’s Scenario Tool,” INFORMS Transactions on Education, Vol. 6, No 2, http://ite.pubs.informs.org/Vol6No2/MarkhamPalocsay/

2. Using scenario manager to evaluate what-if questions- http://office.microsoft.com/en-us/excel/HA011117761033.aspx

3. Add Muscle to “What-If” Analyses BY JAMES A. WEISEL – http://www.aicpa.org/pubs/jofa/sep2004/weisel.htm

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