Review and update assumptions regularly as new information becomes available or conditions change.
To determine assumptions for a base-case scenario, consider the following approach:
Use current and historical data as a starting point. Look at recent performance metrics, market conditions, and trends to inform your baseline assumptions.
Incorporate the most likely future conditions based on market research, industry forecasts, and expert opinions. Avoid overly optimistic or pessimistic projections. Consider known factors that will impact the business, such as planned initiatives, expected market changes, or upcoming regulations.
Make conservative estimates for uncertain variables. The base case should represent a realistic, middle-ground scenario. Ensure internal consistency across assumptions. Different variables should align logically with each other.
Validate assumptions with stakeholders and subject matter experts to ensure they are reasonable and defensible. Document the rationale behind each key assumption for transparency and future reference.
Use sensitivity analysis to test how changes in key variables impact outcomes, helping refine base case assumptions.
Review and update assumptions regularly as new information becomes available or conditions change. Compare base case projections to actual results over time to improve future forecasting accuracy. The goal is to create a set of assumptions that represent the most likely scenario, grounded in data and reasonable expectations. This provides a solid foundation for comparing best and worst-case scenarios.
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