Finally, you should include a more aggressive scenario with a 10% increase in MRR so you have a plan in place if your company outperforms expectations. Then, you’ll probably want to build a second conservative scenario with flat MRR over the next year to see how your company will fare without growth. If done correctly, you’ll be able to watch the forecast over the coming weeks and match the predictions to what is actually happening and figure out which scenario is the most accurate.įor example, if your monthly recurring revenue (MRR) has been steadily rising month on month, you might make a baseline model where your MRR continues to rise by 5% over the next year. Scenario planning is a way to remove uncertainty by building multiple visions of the future and then modeling all of them. This is where scenario planning comes in handy. A seasoned manager is going to make better assumptions than most, but it is still never going to line up exactly with reality. We don’t have access to a crystal ball, which means we need to make assumptions. The problem with looking into the future is that it is uncertain.
A skilled analyst will select a financial model that matches the data available and make inferences about the future based on its projections. Financial forecasting is the art of predicting the future based on current trends.
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