What Is What-If Analysis?

What-if analysis is the most intuitive form of financial modelling because it mirrors how business leaders naturally think: "What would happen if...?" By codifying this question into a financial model, FP&A teams provide quantified answers that support better decision-making.

What-if analysis overlaps with both scenario analysis and sensitivity analysis but is distinct. Scenario analysis models coherent alternative futures. Sensitivity analysis systematically tests the impact of individual variables. What-if analysis answers specific, often ad hoc, business questions that arise from operational reality.

Common what-if questions in FP&A include: What if we hire 5 more sales reps? What if we lose our largest customer? What if raw material costs increase 15%? What if we enter a new market? What if we acquire this competitor? Each question requires adjusting the financial model and assessing the full financial impact.

Effective what-if analysis requires a well-structured model where inputs are clearly separated from calculations and outputs. Driver-based models excel at what-if analysis because changing a driver (headcount, pricing, volume) automatically cascades through the entire financial model.

Modern FP&A platforms enable real-time what-if analysis, allowing users to adjust assumptions and immediately see the impact across the P&L, balance sheet, and cash flow. This interactivity transforms budget review meetings from static presentations into dynamic planning sessions.

For UK businesses, common what-if analyses include: the impact of National Insurance rate changes on total compensation costs, the effect of sterling depreciation on imported goods costs, and the consequences of interest rate changes on debt servicing.