Sensitivity analysis and scenarios turn the budget into a decision-making tool, not a static document. Its objective is to anticipate how your result behaves if key variables change and, from there, define realistic contingency plans that protect margin and treasury. In an SME, with limited resources, the priority is to identify a few levers that explain most of the variation in profit and cash flow.
Sensitivity answers a simple question: if this variable changes, how much does the result move. You work variable by variable, keeping the rest constant, to estimate the slope of the impact. The most frequent are average price, volume, unit cost, collection term, payment term, interest rate and exchange rates if there are international operations. The key is to define a reasonable range for each variable, using historical data and market references, for example, price plus or minus 3 percent, volume plus or minus 10 percent, energy cost plus 15 percent in the worst case.
Scenario analysis combines simultaneous movements of variables with coherent logic. A base scenario reflects your best estimate, the optimistic one improves plausible levers and the adverse one introduces realistic tensions. It’s not about getting the future right, but about preparing responses.
A simple scenario matrix and a three-column dashboard solve most needs: revenue, contribution margin and cash. If you want to go one step further, a tornado analysis visualizes which variables move the result most, and a Monte Carlo simulation helps estimate probabilities, although for SMEs it’s usually enough with well-chosen ranges and monthly update discipline.
Integrate the analysis with treasury. Each scenario must translate into a cash plan with detail of collections, payments, taxes and debt service. With a few well-chosen variables, three consistent scenarios and a direct link to price, mix, terms and expense decisions, your SME arrives prepared for the unexpected. The budget stops being a wish and becomes a map with alternative routes to protect margin and cash.
Having personalized support, such as that of the Economic Office of Galicia, can make a difference in implementation success. Request free specialized advice and use the available resources to boost your company.
