How do I set the assumptions for each scenario?

Start with your base case (the plan). Then identify the 3-5 key assumptions that have the biggest impact on outcomes -- typically revenue growth, churn, hiring pace, and a major cost item. Vary these assumptions by realistic amounts for each scenario.

Should scenarios share the same cost structure?

Not exactly. Fixed costs should be the same across scenarios, but variable costs should flex with revenue. The key insight is which costs are truly fixed, which are semi-variable, and which scale proportionally with revenue.

How do I present scenarios to the board?

Show a side-by-side comparison with the key delta highlighted. Start with the base case, then show the upside and downside as variances from base. Always include cash impact and runway implications, not just P&L differences.

When should I trigger a scenario switch?

Define leading indicators that signal a shift between scenarios. For example: "If Q1 revenue is more than 10% below base, activate the downside plan." Having pre-agreed trigger points means the team can act quickly rather than debating whether the situation has changed.

Example

Scenario Analysis Example

A 55-person logistics technology company in Reading with £4.5M revenue. The CFO is preparing for a board meeting and needs to present three scenarios: base case (the plan), upside case (if two large contracts close), and downside case (if the market softens). The scenarios share the same cost structure but vary revenue and growth assumptions.

Example data

Financial model

P&L Line

Downside

Base Case

Upside

Revenue

£3,800k

£4,500k

£5,400k

Gross Profit

£2,280k

£2,700k

£3,240k

Total OpEx

(£2,100k)

(£2,250k)

(£2,400k)

EBITDA

£180k

£450k

£840k

EBITDA Margin

4.7%

10.0%

15.6%

Cash at Year End

£620k

£980k

£1,420k

EBITDA

The range from £180k (downside) to £840k (upside) shows the business has significant operating leverage. Small changes in revenue have an outsized impact on profitability.

EBITDA Margin

Margin swings from 4.7% to 15.6% across scenarios because the cost base is largely fixed. This is typical for tech-enabled businesses with high gross margins.

Cash at Year End

Even in the downside, year-end cash of £620k gives 4+ months of runway. The board can be confident the business survives all three scenarios without additional funding.

Formulas

Key formulas

fxDownside Revenue = Base Revenue * (1 - 15.6%)

The downside scenario assumes 15.6% lower revenue than the base case, modelling the impact of slower market adoption and one lost key customer.

fxUpside Revenue = Base Revenue * (1 + 20%)

The upside scenario assumes 20% higher revenue if two large enterprise contracts close in Q2. These are in advanced pipeline stages with 60% probability.

fxOpEx scales at 50% of revenue delta

Costs are semi-variable. In the upside, additional revenue requires some extra resource (fulfilment, support) but not proportionally. OpEx increases by only £150k for £900k additional revenue.

Analysis

What makes this example good

Three scenarios give a clear range of outcomes for decision-making

Assumptions are explicit and testable, not hidden in the model

Semi-variable cost modelling reflects real-world operating leverage

Cash impact shown alongside P&L to address runway concerns

Probability-weighted scenarios can be used for expected value calculations

Customisation

How to adapt for your business

Add a "stress test" fourth scenario for extreme downside planning

Include a sensitivity table showing which assumption has the biggest impact

Weight the scenarios by probability to calculate an expected value

Add quarterly phasing within each scenario for more granular cash planning

Include trigger points that define when to shift from one scenario to another

Common variations

--Five scenarios (severe downside, downside, base, upside, severe upside)
--Revenue-focused scenarios with fixed cost base
--Scenario analysis by geography or product line
--Monte Carlo simulation with probability distributions instead of point estimates

Keep exploring

Related examples

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Board Report Example

A 90-person fintech company in Edinburgh with £6.5M ARR. The CFO presents a monthly board pack covering financial performance, key metrics, and cash position. This is the February board report, covering January performance.

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Q2 Reforecast Example

A 95-person healthcare company in Bristol with £7.5M revenue. After Q1 actuals came in 8% below budget on revenue, the CFO is conducting a Q2 reforecast. The reforecast updates the full-year outlook while preserving the original budget as a baseline for performance measurement.

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FAQ

Frequently asked questions

Three is the standard: base case (most likely), upside (things go well), and downside (things go poorly). Some companies add a fourth "stress test" scenario for extreme but plausible downside events. More than four scenarios tends to create confusion rather than clarity.

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