Scenario Planning Basics
A practical guide to modeling uncertainty, stress-testing your financial plan, and helping leadership make better decisions in fast-changing markets.
Overview
What Is Scenario Planning?
Scenario planning allows FP&A teams to model multiple possible futures by adjusting key business drivers:
- revenue
- churn
- hiring
- pipeline
- productivity
- pricing
- unit volume
- gross margin
- cost structure
- cash runway
It helps finance leaders prepare for volatility instead of reacting to it.
Scenario planning answers the question: "What happens if _______?"
The 3 Types of Scenarios Every FP&A Team Should Build
1. Strategic Scenarios
1–3 year outlook
Used for:
- strategic planning
- capital allocation
- hiring plans
- product investment
- board-level discussions
2. Operational Scenarios
Next 12 months
Most common. Used for:
- rolling forecasts
- monthly variance analysis
- departmental planning
- cash and runway planning
3. Stress-Test Scenarios
Downside risk
Used to prepare for volatility:
- recession scenario
- revenue drop
- churn spike
- hiring freeze
- cost escalation
- supply chain disruption
Why It Matters
Why Scenario Planning Matters
Modern businesses face:
- unpredictable pipelines
- macro uncertainty
- interest rate risk
- cost inflation
- shifting demand patterns
- volatile hiring environments
- tighter cash discipline
Scenario planning enables leaders to:
- See risks early
- Make decisions proactively
- Test assumptions before executing
- Allocate resources more intelligently
- Improve forecasting accuracy
- Communicate more clearly with the board
This is now a mandatory FP&A capability — not a nice-to-have.
The Scenario Framework: Best / Base / Worst
Every FP&A team — regardless of size — should operate on this triangle:
Base Case
"What we expect to happen based on current data."
Best Case
"What happens if we outperform — more bookings, lower churn, faster hiring, better margins."
Worst Case
"What happens if we underperform — missed pipeline, delayed hiring, higher churn, lower productivity."
This gives leadership:
- confidence
- clarity
- options
- decision frameworks
And it forces the FP&A team to think beyond point-in-time estimates.
Scenario Planning Examples
SaaS Business
Drivers to flex:
- Pipeline conversion
- New logo bookings
- Expansion rate
- Churn
- Pricing
- Ramp time
- Hiring dates
- Salary changes
Resulting impacts:
- ARR
- Gross margin
- Operating expense
- EBITDA
- Cash runway
Manufacturing
Drivers to flex:
- Unit volume
- Mix
- Unit cost
- Labor productivity
- Raw material cost inflation
- Plant utilization
Impacts:
- Gross margin %
- Inventory levels
- CapEx needs
- EBITDA
- Cash flow
How It Fits Into Modern FP&A
How to Build a Scenario (Step-by-Step)
Step 1 — Identify the key drivers
Pick the 3–7 assumptions that matter most. Not 50.
Step 2 — Build the relationships (driver-based formulas)
Use a modeling approach like:
- Bookings = Pipeline × Conversion
- Revenue = Units × Price
- COGS = Units × Unit Cost
Step 3 — Define the ranges
Example:
- Conversion rate: 18% → 22%
- Churn: 6% → 12%
- Hiring: Q2 → Q3
- ASP: $10K → $12K
Step 4 — Build Best / Base / Worst cases
Small tweaks to drivers create big differences.
Step 5 — Connect to P&L, CF, BS
Finance leadership cares about:
- EBITDA
- cash runway
- profitability
- OPEX
- margins
- growth rates
Step 6 — Stress test
Hit the model hard:
- -10% revenue
- +20% churn
- hiring freeze
- +10% COGS
Step 7 — Present as a story, not a spreadsheet
Include:
- assumptions
- business rationale
- risks
- options
- decisions
Tools Built for Scenario Planning
Pigment
Real-time recalculation. Scenario trees. Parallel versions. Board-friendly visualizations.
Planful
Good for structured mid-market scenarios.
Vena
Excel-first → easier adoption but slower at scale.
Anaplan
Enterprise-grade scenario planning for large orgs.
The Most Common Scenario Planning Mistakes
- Too many scenarios
- No clear drivers
- Not linking to financials
- Using stale assumptions
- Building scenarios too late
- Building scenarios in Excel
What "Good" Scenario Planning Looks Like
- Uses 3–7 drivers per scenario
- Updates monthly or continuously
- Connects every scenario to full financials
- Includes downside stress tests
- Involves functional leaders
- Uses a modern planning tool
- Drives real decisions (not "interesting analysis")
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