Every business plan is built on assumptions. You assume a certain number of customers, a certain price point, a certain cost structure. But what if those assumptions are wrong? What if revenue is 20% lower? What if construction costs overrun by 15%? What if your most optimistic scenario doesn't materialise?
What-If analysis — also called sensitivity analysis or scenario analysis — is the systematic process of testing how changes in key assumptions affect your business outcomes. It's the difference between blind confidence and informed confidence. And it's arguably the most valuable component of any feasibility study.
Why What-If Analysis Matters
Your base-case financial projections are a single point estimate in a universe of possible outcomes. They represent your best guess, but they are guaranteed to be wrong — the only question is by how much and in which direction.
What-If analysis explores that universe. It reveals which assumptions your business is most sensitive to, where the danger zones lie, how much margin of safety you have, and what conditions would make the business unviable.
This information is transformative for decision-making. An entrepreneur who knows their business is viable even if revenue comes in 20% below projections has genuine confidence. An entrepreneur whose viability depends on hitting every assumption perfectly has hope, not a plan.
Three Approaches to What-If Analysis
1. Scenario Analysis
Scenario analysis defines complete alternative futures and models each one. The classic approach uses three scenarios:
Optimistic: Everything goes well. Revenue hits the high end of projections, costs come in under budget, and the ramp-up is faster than expected. Base Case: Your best estimate. Revenue, costs, and timeline match your primary projections. Pessimistic: Things go wrong. Revenue is below expectations, costs overrun, and the ramp-up is slower.For a restaurant feasibility study:
| Variable | Pessimistic | Base Case | Optimistic |
|---|---|---|---|
| Average daily covers | 75 | 100 | 130 |
| Average ticket | $38 | $45 | $50 |
| Food cost % | 36% | 32% | 28% |
| Annual revenue | $685,000 | $1,170,000 | $1,690,000 |
| NPV | -$85,000 | $210,000 | $520,000 |
| IRR | 4% | 18% | 32% |
This example reveals something important: the base case looks strong (positive NPV, 18% IRR), but the pessimistic case shows a negative NPV. If you believe there's a 30% chance of the pessimistic scenario, that risk needs to be weighed against the potential upside.
2. Sensitivity Analysis (One Variable at a Time)
Sensitivity analysis isolates individual variables and tests the impact of changing each one independently. This reveals which variables your business is most sensitive to — and therefore which assumptions deserve the most scrutiny.
For the same restaurant:
Revenue sensitivity (holding everything else constant):- Revenue -20%: NPV = -$45,000, IRR = 7%
- Revenue -10%: NPV = $82,000, IRR = 12%
- Revenue base: NPV = $210,000, IRR = 18%
- Revenue +10%: NPV = $338,000, IRR = 24%
- Revenue +20%: NPV = $466,000, IRR = 29%
- Rent +30%: NPV = $165,000, IRR = 16%
- Rent +15%: NPV = $188,000, IRR = 17%
- Rent base: NPV = $210,000, IRR = 18%
This analysis reveals that revenue is a much more sensitive variable than rent. A 20% revenue shortfall turns the NPV negative, but even a 30% rent increase barely dents the returns. This tells you where to focus your risk management: customer acquisition and retention matter far more than negotiating a slightly lower rent.
3. Interactive What-If Analysis
Traditional scenario and sensitivity analyses produce static results — a table of numbers for predefined scenarios. Interactive What-If analysis takes this further by allowing you to adjust variables in real-time and instantly see the impact on all financial metrics.
This is the approach SimpleFeasibility uses: slider controls for key variables (occupancy, pricing, costs, growth rates) with NPV, IRR, payback period, and break-even recalculating live as you move the sliders.
The advantage is exploration. Instead of testing 3 scenarios or 5 values per variable, you can explore the entire range and discover non-obvious insights. You might find that there's a specific price-volume sweet spot that maximises NPV, or that the business is resilient up to a specific cost threshold and then falls off a cliff.
Practical Applications
Finding Your Break-Even Assumptions
What-If analysis can identify the exact value of each variable at which NPV turns from positive to negative. This is your viability threshold for each assumption:
- Minimum occupancy for positive NPV: 58%
- Maximum construction cost for positive NPV: $4.2 million
- Minimum ADR for positive NPV: $165
These thresholds give you concrete targets and early warning indicators. If your hotel's occupancy is trending below 58% during ramp-up, you know you're heading into negative NPV territory and need to act.
Comparing Alternative Strategies
Should you open a 50-seat or 80-seat restaurant? Should you target the luxury or mid-market segment? Should you build 60 or 100 hotel rooms?
What-If analysis allows you to compare these alternatives across the full range of outcomes, not just a single projection. The 80-seat restaurant might have higher NPV in the base case but worse outcomes in the pessimistic case because of higher fixed costs. That's a risk-return trade-off you can only see through scenario analysis.
Stress Testing for Lenders
Banks want to know that their loan can be repaid even under adverse conditions. What-If analysis demonstrates that the debt service coverage ratio remains above 1.25x even if revenue is 15% below projections and costs are 10% above. This is the kind of analysis that gets loan applications approved.
Investor Communication
Investors appreciate founders who understand their risks. Presenting a What-If analysis that shows you've tested downside scenarios — and that the business remains viable under reasonable stress — demonstrates commercial maturity that a single set of projections cannot convey.
Goal Seek: The Reverse What-If
Standard What-If analysis changes an input and observes the output. Goal Seek reverses this — you specify the output you want and it calculates the input required.
Examples:
- "What occupancy do I need for a 15% IRR?" → 63%
- "What price point gives me a 3-year payback?" → $175/night
- "What maximum rent keeps my NPV positive?" → $9,200/month
Goal Seek transforms What-If analysis from an exploratory exercise into a target-setting tool. Instead of wondering what outcomes your assumptions produce, you start with the outcomes you need and work backwards to the targets you must hit.
Common What-If Mistakes
Testing too few scenarios: Three scenarios (optimistic/base/pessimistic) aren't enough. Test the full range of each critical variable. Only testing one variable at a time: In reality, multiple variables can move simultaneously. Test combined scenarios — revenue down AND costs up — because that's when businesses fail. Symmetric assumptions: Most people test +10% and -10% equally. In practice, downside scenarios are often more extreme than upside scenarios. Revenue can drop 30% overnight in a downturn; it rarely increases 30% overnight. Ignoring correlated variables: Some variables move together. An economic downturn might simultaneously reduce customer volume, increase price sensitivity, and tighten the labour market. Test these correlated movements together. Not acting on the results: The purpose of What-If analysis is to inform decisions. If the analysis reveals a critical sensitivity, develop a mitigation plan. If it reveals that the business only works under optimistic assumptions, reconsider the concept.The Bottom Line
What-If analysis is the most practically valuable component of any feasibility study. It transforms a single set of projections into a complete understanding of your business's risk-return profile. It tells you not just whether your plan works, but under what conditions it works and fails — which is exactly the information you need to make a confident investment decision.
SimpleFeasibility includes interactive What-If analysis with real-time slider controls that recalculate NPV, IRR, payback, and break-even instantly. Plus Goal Seek to reverse-engineer your target assumptions. All included in every report tier. Try Interactive What-If Analysis →Related Articles: