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Low, base and high scenarios are consistent stories about the assumptions; compute the profit in each, weight them, check whether the plan survives the low case, and decide and price the response to it in advance.
Paper packet. Every task here also exists on screen, where it is checked automatically; answers written on paper are not assessed by Nydus. When you are back at a device, enter your answers there.
You will compute the profit in a low, a base and a high scenario, sort consistent scenarios from daydreams, weight the scenarios, price a response to the low case, and check whether a plan survives a harsher fall.
Sensitivity changes one assumption at a time. Real months change several at once, in ways that hang together. A scenario tells one of those stories and works out where it leaves the business, with the forecast rule you already use.
| Term | What it means |
|---|---|
| Scenario | A consistent story about the assumptions: a bad case, the expected case, a good case. |
| Base forecast | The expected case, between the low and high scenarios. |
| Weighted profit | Each scenario's profit times how likely it seems, added up. |
| Prepared response | What the owner will do if the low scenario arrives, decided in advance. |
| Trigger | The measurable sign that the low scenario has arrived and the response should start. |
Neighborhood Kitchen's base forecast is 1,200 lunches a month, contributing 6 dollars each, against 5,400 of fixed costs: 1,800 dollars of profit. Two other stories are just as possible:
Each scenario is a consistent story, not a random mix. A scenario in which volume doubles, prices rise and costs fall all at once is a daydream; nobody should plan on it. A good low scenario often moves two things together, because bad news comes in bundles: fewer lunches and a rival's price promotion.
The range — 360 to 3,240 — is what the owner is actually facing. Planning on the base alone treats one story as certain.
Another way: table
Neighborhood Kitchen's three scenarios.
| Scenario | Lunches | Profit |
|---|---|---|
| Low | 960 | 360 |
| Base | 1,200 | 1,800 |
| High | 1,440 | 3,240 |
Another way: steps
Write the stories first, then the numbers. A scenario begins as a sentence: the office block stays half empty; a wet summer keeps cyclists at home; a second café opens across the street. Each sentence then decides which assumptions move and by how much, using the business's own records for the sizes.
Work each profit with the same rule. Contribution a unit times volume, less fixed costs, with the scenario's figures.
Weight them if there is reason to. Most owners can say whether a bad month is more or less likely than a good one. Weights that add to one — 30, 50 and 20 percent, say — give a single figure that leans the way the records lean.
Test the low case and prepare. Does it make a profit, or at least pay the bills? What will the owner do, and what will start it?
Check the scenarios for consistency: read each story aloud and ask whether every assumption in it follows from the sentence. Check the arithmetic by the order: the low profit must be below the base and the high above it; if not, an assumption was moved the wrong way.
For a small business the scenario that matters most is the low one. Does the plan survive it — still profitable, or at least able to pay its bills? Neighborhood Kitchen's low case still makes 360 dollars; Monica's stall, with thinner contribution, may make a loss in hers. Either way, decide now what the business would do if the low case came: a trigger ('if lunches stay below 1,000 for three weeks') and an action ('drop the Saturday opening; pause the new menu'). Decided calmly in advance, the response is sensible; decided in the middle of a bad month, it is usually late and panicked.
Price the response the same way as everything else. Closing on Saturdays saves the day's wages and power, and gives up the day's contribution. If Saturday brings 80 lunches at 6 dollars and costs 600 to open, closing saves 600 − 480 = 120 a month. A response that looks decisive may do very little, and it is far better to discover that now.
A plain average of three scenarios treats them as equally likely, which is rarely true. An owner who has seen two slow months in the last twelve and one boom month might weight the low case at 20 percent, the base at 70 and the high at 10. The weighted profit is each profit times its weight, added: it gives the figure to plan the business's spending on, while the low case alone gives the figure the business must be able to survive.
Weights are judgment, not measurement, so write them down with their reason and revisit them. The weighted figure should never replace the low case in the owner's mind; a plan whose weighted profit is healthy can still fail in its low case, and the low case is what closes businesses.
A high scenario is not pure upside. Can the business actually deliver 1,440 lunches, or does the kitchen's capacity cap it at 1,300? A high scenario beyond capacity is not a profit, it is a line of customers turned away, and possibly a reputation damaged by slow service. The prepared response for the high case is as useful as the one for the low: a relief cook on call, a simplified menu for busy days, a booking system ready to switch on.
Keep scenarios few — three is enough — and revisit them when a leading measure starts to point one way. If quotes are running below target for three weeks, the low scenario is no longer hypothetical, and the prepared response should start. If they run well above, the high-case preparations come out of the drawer. Scenarios are written once and read every month.
A scenario that shows a loss is a warning about cash as well as profit. If the low case loses 600 dollars a month, the business needs 600 of cash for every month the low case lasts, on top of the buffer it keeps for other surprises. Three months of the low case is 1,800, and an owner who has not got it will be forced into decisions — late payments to suppliers, an expensive short-term loan — that make the low case worse.
So the low scenario should be carried into the cash forecast, month by month, to find its lowest balance. The questions are simple. How low does the account go if the low case lasts three months? Is that below the buffer? If it is, what will cover the gap: a line of credit arranged now, while the business looks healthy, or cash put aside from the good months? Banks lend far more readily to a business that asks before it needs the money.
The same arithmetic shows how long the business can afford to wait before starting its prepared response. If the low case costs 600 a month and the buffer can absorb 1,500, the business has about two and a half months before the response must have taken effect. A response that needs a month to arrange — ending a lease, reducing a staff member's hours with notice — has to be triggered well before the buffer runs out, which is why the trigger is set on a leading measure rather than on the bank balance.
Finally, the high scenario has cash consequences too. More sales usually mean more inventory bought, more wages paid and more invoices waiting to be paid, all before the extra profit arrives. A business that plans only for the low case can be caught short by success. The money course showed how growth consumes cash; the scenarios in this lesson show how much growth, and when, so that the cash can be ready.
A family garden center wrote three scenarios for its spring each January. The base was built from the last three springs; the low was 'a cold, wet April, 25 percent fewer plant sales in April and May'; the high was 'an early warm spell, 20 percent more'. Its base spring made about 42,000 of profit, the high about 58,000, and the low only 9,000 — because nearly all of the center's fixed costs, its seasonal staff above all, were hired for a busy spring.
The owners prepared a response for the low case with a trigger: if plant sales over the first three weekends of April came in more than 15 percent under the base, they would delay hiring the last four seasonal staff, cancel the second delivery of bedding plants, and move the spring sale forward. They priced it at the time: about 11,000 of costs saved against about 4,000 of contribution given up.
Two years later April was the coldest in a decade. The first three weekends ran 22 percent under the base. The response started on the Monday, before the owners had time to hope the weather would turn. The spring made 15,000 instead of the 9,000 the low scenario had shown, the staff who were hired kept full hours, and the center paid its bills through a summer that many of its neighbors struggled through.
Large organizations plan with scenarios for the same reason small ones should: a single forecast invites the reader to treat it as certain. Two or three consistent stories, each worked through, make the range visible and turn 'what if' into a prepared answer.
Plan on the base forecast. It is one story among several.
A scenario can combine the best of everything. Scenarios must be consistent stories.
Deal with the low case if it happens. Decide the response and trigger now.
A dramatic response must help a lot. Price it: it saves costs and loses sales.
The high case is pure upside. Check the business can deliver it.
Three scenarios mean three plans. It is one plan with a prepared response for the low case and a prepared response for the high one, both decided before either arrives.
The weights are facts. They are judgments drawn from the records; write them down with their reason, and change them when the records change.
The middle scenario is the one to plan for. Plan for the middle, but make sure the business survives the low one.
Work the base.
$25 \times 150 - 2500 = 1250$
The expected story.
Work the low: a wet summer.
$25 \times 120 - 2500 = 500$
Twenty percent fewer repairs.
Work the high: a cycling boom.
$25 \times 180 - 2500 = 2000$
Twenty percent more.
Prepare the low response.
$\text{second mechanic to four days if under 125 a month}$
A trigger and an action.
Check the high case against capacity.
$\text{Saturday line; booking system ready}$
The limit is the bench.
Write the story.
$\text{block half empty; rival's promotion}$
Two things move together.
Take 20 percent off the lunches.
$1200 \times 0.8 = 960$
The office trade lost.
Take a dollar off the contribution.
$6 - 1 = 5$
Matching the promotion.
Work the low profit.
$5 \times 960 - 5400 = -600$
A loss.
Price the response: drop a part-time shift.
$-600 + 800 = 200$
Back above zero.
Write the trigger.
$\text{lunches below 1000 for three weeks}$
So the response starts on time.
Work the low case.
$18 \times 240 - 3600 = 720$
Twenty percent fewer mugs.
Work the base.
$18 \times 300 - 3600 = 1800$
The forecast.
Work the high case.
$18 \times 360 - 3600 = 2880$
Twenty percent more.
Choose the weights from her records.
$30, \ 50, \ 20 \text{ percent}$
Slow years have been more common than boom years.
Weight and add.
$216 + 900 + 576 = 1692$
The figure to plan spending on.
Keep the low case in view.
$720$
The figure to survive.
Prepare the response.
$\text{pause the gift range after two slow months}$
Cuts firing costs.
Work the low case.
$5 \times 800 - 3500 = 500$
Twenty percent fewer baskets.
Add a price cut to make a consistent bad story.
$4 \times 800 - 3500 = -300$
A dollar off each basket too.
Prepare the response.
Northside Repairs's base forecast is $150$ repairs a month, each contributing $25$ dollars, against fixed costs of $2500$ dollars. Its low scenario is 20 percent fewer repairs; its high scenario 20 percent more. Fill in the month's profit in each scenario, in dollars.
| Profit, dollars | |
|---|---|
| Low scenario | |
| Base forecast | |
| High scenario |
Complete the worked solution: a café's base forecast is $1200$ lunches a month at $6$ dollars of contribution each, with fixed costs of $3400$. Its low scenario is a consistent story: an office closes, lunches fall 20 percent, and a rival's promotion forces a 1-dollar price cut. If that happens, the owner will drop a part-time shift, saving $500$ a month. Work the low case.
Take 20 percent off the lunches.
$1200 \times 0.8 =$ w
The office's lunches gone.
Take the price cut off the contribution.
$6 - 1 =$ u
It comes off every lunch.
Work the low profit.
$(\text{contribution}) \times (\text{lunches}) - 3400 =$ b
Both changes together.
Add the saving from the response.
$(\text{low profit}) + 500 =$ n
The shift dropped, decided in advance.
Write the trigger.
$\text{lunches below plan for three weeks}$
So the response starts on time.
Bright Home Cleaning's base forecast is $115$ cleans a month, each contributing $31$ dollars, with fixed costs of $3806$ dollars. What is the profit in the low scenario of 20 percent fewer cleans?
Answer:
Neighborhood Kitchen drafts scenarios for next quarter. Match each to what it is.
| Low scenario | Base forecast | High scenario | Not a usable scenario | |
|---|---|---|---|---|
| The new office block stays half empty; lunches fall 20 percent | ||||
| Lunches as the last three months, plus the new block's first tenants | ||||
| Both new blocks fill and catering doubles | ||||
| Lunches double, prices rise and costs fall, all at once |
In Neighborhood Kitchen's low scenario the month's profit is $-500$ dollars. The prepared response is to close on Saturdays, which saves $300$ a month in wages and power but gives up the $36$ lunches a month sold on Saturdays, each contributing $5$. Fill in what the response does, in dollars.
| Amount | |
|---|---|
| Contribution given up | |
| Net effect of closing Saturdays | |
| Low-case profit after the response |
A florist's three scenarios for next month give profits of $2520$ (low), $4200$ (base) and $5880$ (high) dollars. Her records suggest the low case is a little more likely than the high: she weights them 30, 50 and 20 percent. What is the weighted profit, in dollars?
Answer:
A florist's base forecast is $600$ bouquets a month at $11$ dollars of contribution each, with fixed costs of $4500$. Her low scenario is 30 percent fewer bouquets. If it arrives, she will drop her Sunday opening, saving $400$ a month and losing no weekday trade. Fill in her plan, in dollars.
| Amount | |
|---|---|
| Base profit | |
| Low-scenario profit | |
| Low-scenario profit after the response |
Lesson test: one question per skill, one attempt each, no hints. Your answers are checked when you submit.
Northside Repairs's base forecast is $150$ repairs a month, each contributing $25$ dollars, against fixed costs of $2500$ dollars. Its low scenario is 20 percent fewer repairs; its high scenario 20 percent more. A harsher low scenario has $40$ percent fewer repairs. What would the month's profit be in that case, in dollars? Write a loss with a minus sign.
Answer:
You can plan across a range of outcomes instead of betting on one. Tell someone why the low scenario matters most for a small business. Next: break-even on a decision rather than a business.
17. Your turn: Monica's stall, step 3
$\text{drop the Sunday market if three weeks run under plan}$
A trigger and an action.