How to use scenarios to improve your business plan
The global InsureTech market is expected to reach $172.6 billion by 2030.
Or is it?
During research for a market report, I came across half a dozen primary sources predicting the end of decade growth for the insurance technology market. Unsurprisingly, there were as many variations as there were reports. This is inevitable as different research agencies will use their own assumptions and models to get to the numbers they publish. The three I chose for this graphic were simply ones that sat towards the top, middle and bottom of the ranges.
Whenever I look at predictions for modeling purposes, I aim for a mix rather than settle on the one that looks best. My reasons?
- The outliers can have profound effects on costs, scale and profitability we don’t often appreciate. Worse than expected performance usually means lower revenues, which affects funds available to invest. Better than expected can raise costs quicker than we might be ready for, demanding more investment or hitting profitability as prices fall.
- Underlying assumptions used in the reports can inform my own thinking. I don’t know everything, particularly if I’m looking at a market for the first time, and there can be factors I might otherwise miss. They could also flag risks I should draw out in my commentary.
- A robust model designed to flex to best / worst / most likely scenarios makes it easier to have “what if” discussions with decision makers, investors, suppliers and other stakeholders. A single view of a market and how it might play out can betray a lack of experience or competence.
My suggestion if you’re putting together a business plan is design your models to cope with the likely, best and worst case outcomes from your research. Treat the most optimistic set of data as the best case, the worst as your worst, and either pick the one in the middle as your most likely, or average them out. If you can’t find a trio to work with, adding and subtracting 10% is a reasonable starting point until you can find better numbers.