Assumption-based Planning - Overview

Overview

Conventional business planning works on the expectation that managers can extrapolate future results from past experience, but for new businesses and projects this way of planning is often not possible. Experience may be lacking or extrapolating from past experience may be misleading.

A solution to this problem is to make assumptions and attempt to predict future outcomes. Some of the assumptions made during the planning process are very likely to come true; the outcome of others is very much uncertain, though not unimportant. Assumption-based planning identifies and tests the assumptions made in a business plan, the formulation of “hedging actions” and the construction of “what-if” scenarios.

Uncertainties are identified and plans can be prepared for what to do if original predictions prove to be false. Assumption-based planning does not demand accuracy for all assumptions made in a business plan, but builds a reasonable model to assess the assumptions involved.

Assumption-based planning methods include:

• Critical assumption planning (CAP) by D. Dunham & Co.
• Assumption-based planning by RAND : raises the visibility of make-or-break uncertainties common to new ventures by forcing managers to admit what they don’t know.
• Discovery-Driven Planning by Rita Gunther McGrath and Ian C. MacMillan.

Assumption-based planning methodologies provided the foundation for other planning frameworks and tools such as Robust decision making.