Scenario Modelling and Sensitivity Analysis
Scenario analysis tests a financial model's outcome under different sets of assumptions, a base case, upside cases and downside cases, so decision-makers see the range of outcomes rather than a single projection. Sensitivity analysis identifies which individual assumptions move the outcome most.
TEST THE DECISION BEFORE YOU MAKE IT
Every financial decision of consequence carries uncertainty. The revenue growth rate you have assumed might be right. It might be wrong. The customer acquisition cost you have modelled might reflect the market you face at your current scale. It might not reflect the market you face at three times your current scale. The interest rate on the debt facility you are about to draw might hold for the life of the facility. It might not.
Scenario modelling and sensitivity analysis are the tools that translate this uncertainty into a financial picture your decision-makers can work with. They do not eliminate uncertainty, nothing does. But they bound it. They show what the financial outcome looks like if things go well, if things go as planned, and if things go meaningfully worse than planned. They show which assumptions drive the outcome most, the ones where being wrong by 10 percent matters a great deal, and the ones where being wrong by 10 percent barely changes the answer.
Wiseworth builds scenario models and sensitivity analysis frameworks for Australian businesses facing decisions where the range of outcomes matters as much as the central estimate.
WHAT A SCENARIO MODEL IS
A scenario model is a financial model that captures multiple distinct views of the future simultaneously, typically a base case reflecting the management team's central expectations, upside cases reflecting a more favourable set of outcomes, and downside cases reflecting a genuinely adverse set of conditions, with a scenario selector that switches between them with a single input and updates all financial outputs simultaneously. Every scenario uses the same model structure and the same financial statement integration. Only the assumptions differ.
WHAT SENSITIVITY ANALYSIS ADDS
Sensitivity analysis tests how a key financial output changes as a specific assumption moves above and below its base case value. A two-way sensitivity table shows the output, typically revenue, EBITDA, or closing cash, across a matrix of two assumptions simultaneously. For a SaaS business: EBITDA across a range of customer acquisition costs on one axis and monthly churn rates on the other. For a property developer: project IRR across a range of construction costs and residential sale prices.
WHAT WISEWORTH BUILDS
Driver-based models where every key assumption, pricing, volume, cost inflation, hiring pace, capital timing, can be flexed independently and flows cleanly through to the P&L, cash flow and balance sheet
Scenario managers that toggle between best case, base case and downside case, or as many named scenarios as you need, without rebuilding anything
Two-way sensitivity tables across the two assumptions most likely to be contested by an investor, lender or board
Break-even and threshold analysis. How far can revenue fall, or costs rise, before a decision stops making sense
WHERE SCENARIO MODELLING FITS
Scenario and sensitivity analysis appear in most significant financial engagements, not as a standalone deliverable but as a layer built into a larger model. Two contexts where it is especially important are valuation and transactions.
In a business valuation modelling engagement, sensitivity analysis is the tool that turns a single-point valuation into a defensible range. No valuation assumption, discount rate, terminal growth rate, exit multiple, is known with certainty. A two-way sensitivity table showing, say, enterprise value across a range of discount rates and EBITDA exit multiples gives a buyer, seller, or investor a complete picture of where value sits and how sensitive it is to the assumptions they are most likely to contest.
In an M&A financial modelling context, scenario analysis does a different job: it models the deal itself under different structures. What does the combined entity look like if synergies are realised in year two rather than year one? What does the acquisition look like if the vendor's revenue projections come in 20 percent below expectation? What is the return profile across a range of purchase price multiples? These are the questions that scenario analysis answers before a deal is executed rather than after.
WHEN CLIENTS COME TO ME
Your board wants to see downside protection before approving a plan, not just the plan itself
You are heading into an uncertain period, a new market, a cost shock, a demand shift, and want to know how much cushion you actually have
You have been given a single-scenario model by someone else and want to know what it is not showing you
A lender or investor has asked for a stressed case alongside the base case
A covenant test is approaching and you need to see the headroom under a range of outcomes
WHO WE WORK WITH
Wiseworth builds scenario models and sensitivity frameworks for Australian businesses across a wide range of sectors. Two industries where scenario analysis is especially critical are fintech and high-growth data businesses, where assumptions about customer acquisition, churn, and unit economics are genuinely uncertain at early stages and where investors will interrogate every assumption in the model, and infrastructure and energy projects, where long-run sensitivity to commodity prices, regulatory change, and construction costs can determine a project's viability across the full life of the asset.
FREQUENTLY ASKED QUESTIONS
What is scenario analysis in financial modelling?
The practice of testing a financial model's outcome under different sets of assumptions, base case, upside and downside, to show the range of outcomes rather than a single projection.
What is the difference between scenario analysis and sensitivity analysis?
Scenario analysis changes multiple assumptions together to model a coherent story, such as a downturn or a competitor entering the market. Sensitivity analysis changes one assumption at a time to show how much that single variable moves the outcome.
What is a tornado chart?
A tornado chart ranks a model's assumptions by how much each one moves a chosen output when flexed across its plausible range, drawn as horizontal bars ordered longest to shortest. It shows at a glance which two or three assumptions drive the outcome and which ones do not matter.
When is Monte Carlo simulation worth using?
When several variables are genuinely uncertain at the same time and their combinations matter. A handful of named scenarios captures a few points in that space. A Monte Carlo simulation runs thousands of combinations and returns a distribution of outcomes with probabilities attached, which is more useful when the question is how likely an outcome is rather than what it would be.
Who needs scenario modelling?
Any business facing a decision where the range of outcomes matters. Capital raising, M&A, infrastructure investment, and board-level strategic planning are the most common contexts.
Can scenario analysis be added to an existing model?
Yes, provided the model's underlying structure supports it. If not, a financial model review will identify what needs to change first.
Does the downside case need to be genuinely adverse?
Yes. A downside case that is a cosmetically adjusted base case serves no analytical purpose. The downside should reflect conditions where the business is genuinely stressed, not just slightly inconvenienced.
RELATED SERVICES
No base forecast to stress-test in the first place: start with financial forecasting and budgeting
Comparing entirely different strategic directions rather than variants of one plan: corporate and strategic financial planning
Under real financial pressure and needing weekly rather than scenario-level visibility: restructuring and turnaround modelling
Stress-testing a funding model before it goes to market: financial models for raising capital
WHAT CLIENTS SAY
"The model Mark delivered enables us to flexibly test funding, staffing, and operational scenarios, capitalise costs appropriately, and present clear, actionable insights to our board. I highly recommend Mark to any organisation seeking a strategic, collaborative, and technically excellent partner for financial modelling and business planning."
Miranda Bigmore, Finance Partner, Hester Hornbrook
"Mark's easy-to-use and dynamic tool determined the impact to the base case of different scenarios on different elements of our driver tree. He hit the ground running, learning the commercials of the business with our team, while simultaneously building out the prototype, instilling confidence early on. Mark remains a trusted business partner."
Zelma van Woerkom, CFO, Cashrewards
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