What Are Scenarios?

Scenarios enable what-if analysis by letting you define multiple sets of economic assumptions and switch between them. Each scenario is a complete, independent copy of the Indexes worksheet -- same structure, same indexes, same periods, but with different values.

In business terms, scenarios answer questions like:

• "What happens to our free cash flow if inflation runs 2 percentage points higher than expected?"
• "How does a currency devaluation affect our debt service?"
• "What is the best case? The worst case? The most likely case?"

By defining distinct scenarios, you can explore the range of possible outcomes without building separate models for each assumption set.

How Scenarios Work

The mechanics are straightforward:

1. You define a list of named scenarios (e.g., Base, Optimistic, Pessimistic).
2. The model engine generates one copy of the Indexes worksheet for each scenario.
3. Each scenario worksheet has the same rows (one per economic index) and the same columns (one per period), but the cell values can differ.
4. The generated model includes a Control Panel with a scenario selector. When the Excel user switches scenarios, all projected calculations throughout the model recalculate using the selected scenario's index values.

This means every financial statement, every ratio, every summary -- everything that depends on projected values -- updates automatically when you change the scenario.

Settings

Scenario List

The list of all defined scenarios. Each scenario has:

• Name -- A descriptive label (e.g., "Base", "Optimistic", "Pessimistic", "Stress Test"). This name appears on the scenario's worksheet tab and in the Control Panel dropdown.

A typical model has three to five scenarios representing a range of economic environments.

Default Scenario

The scenario that the model uses as its starting assumption set. When you first open the generated Excel model, the Control Panel is set to the default scenario. This should be your most likely or base case set of assumptions.

The default scenario is also the source for pre-populating other scenarios (see Copy Scenarios below).

Copy Scenarios

Not built yet. This setting is saved with your specification, but the model generator does not act on it yet. Each generated worksheet is currently created with neutral starting values for you to fill in.

When enabled, new scenarios are pre-populated with values copied from the default scenario. This is the recommended workflow:

1. Define and populate your base case (default scenario) with your best estimates for each index across all periods.
2. Create additional scenarios with Copy Scenarios enabled.
3. Modify only the values that differ in each scenario.

This approach is much faster than entering values from scratch for every scenario, and it reduces the risk of accidentally leaving cells empty.

Copy Inputs

An additional toggle that, when enabled alongside Copy Scenarios, also copies account input values (not just index values) from the default scenario to new scenarios. This is useful when:

• Your model has manual input cells in account worksheets that differ by scenario.
• You want each scenario to start as a complete copy of the base case, with both economic assumptions and operational inputs pre-filled.

If your model relies primarily on index-driven projections (the typical case), Copy Scenarios alone is sufficient.

The Scenario-Index Relationship

Understanding the relationship between scenarios and indexes is key:

• Indexes define what economic variables exist (inflation, interest rates, exchange rates, etc.).
• Scenarios define how much those variables are worth under different assumptions.

The index list is the same in every scenario -- you always have the same set of economic variables. What changes between scenarios is the values assigned to those variables.

| | Inflation (Idx 1) | Interest Rate (Idx 2) | Exchange Rate (Idx 3) | |---|---|---|---| | Base | 3.5% | 5.0% | 5.20 | | Optimistic | 2.5% | 4.0% | 4.80 | | Pessimistic | 5.0% | 7.0% | 5.80 |

Each row in this table is a scenario. Each column is an index. The structure is identical; only the numbers differ.

Common Scenario Configurations

Three-Point Estimate

The most common configuration for strategic planning:

| Scenario | Description | |----------|-------------| | Base | Management's best estimate of most likely conditions | | Optimistic | Favorable conditions -- lower costs, higher growth, stronger currency | | Pessimistic | Adverse conditions -- higher costs, lower growth, weaker currency |

Stress Testing

Used for risk assessment and regulatory compliance:

| Scenario | Description | |----------|-------------| | Base | Expected conditions | | Mild Stress | Moderate economic downturn | | Severe Stress | Extreme adverse conditions |

Policy Analysis

Used when evaluating the impact of specific decisions:

| Scenario | Description | |----------|-------------| | Status Quo | Current policy maintained | | Expansion | Aggressive growth investment | | Efficiency | Cost reduction focus |

The Control Panel

In the generated Excel model, the Control Panel worksheet includes a dropdown selector for scenarios. When the user changes the selected scenario:

1. All formulas that reference index values switch to the selected scenario's worksheet.
2. Projected account values recalculate automatically.
3. Financial statements, ratios, and reports update to reflect the new assumptions.

This happens instantly through Excel's formula recalculation -- no macros or manual steps required.

How Scenarios Connect to Other Sections

• Indexes -- Scenarios are built on top of indexes. Each scenario is a copy of the index structure with different values. You must define your indexes before scenarios become meaningful.
• Periods -- Scenario values span all periods. Changing the period structure affects all scenarios equally.
• Business Cases -- Cases and scenarios are independent dimensions. You can view any case under any scenario, giving you a matrix of analytical perspectives.
• Accounts -- Account projections are driven by the currently selected scenario's index values. The same account shows different projected figures under different scenarios.

Best Practices

1. Define the base case thoroughly first. The base case is your anchor. Other scenarios are typically variations of it. Get the base case right before creating alternatives.
2. Keep scenarios meaningful and distinct. Each scenario should represent a genuinely different economic environment. If two scenarios produce nearly identical results, they are not adding analytical value.
3. Use Copy Scenarios. Starting each scenario as a copy of the base case is faster and less error-prone than building from scratch.
4. Limit the number of scenarios. Three to five scenarios cover most analytical needs. Each scenario adds a complete worksheet to the model, so more scenarios mean a larger workbook.
5. Document your assumptions. In the scenario description or in a separate assumptions log, record why each scenario's values were chosen. This makes the model auditable and easier to update.
6. Update scenarios together. When new economic data becomes available, update all scenarios to maintain consistency. An outdated pessimistic scenario may be less severe than current base conditions.