Assumption based planning - Strategic Management

Assumption-based planning is project management is a post-planning method that helps companies to deal with uncertainty. It is used to identify the most important assumptions in a company’s business plans, to test these assumptions, and to accommodate unexpected outcomes. 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:

  1. Critical assumption planning.
  2. Assumption-based planning: raises the visibility of make-or-break uncertainties common to new ventures by forcing managers to admit what they don’t know.
  3. Discovery-Driven Planning.

Assumption-based planning methodologies provided the foundation for other planning frameworks and tools such as robust decision making. Position in business planning process Most business planning methods or books about “how to write a business plan” indicate that you should write down your financial assumptions at the end of your plan, but assumption-based planning encourages managers to actively plan and monitor the validation of these assumptions.

The identification of assumptions may lead to a change in the business plan, so advocates of assumption-based planning argue that it should be at the core of business planning. RAND defines an assumption as “an assertion about some characteristic of the future that underlies the current operations or plans of an organization.” There are several types of assumption. Include implicit and explicit assumptions, and primary and secondary assumptions, an important aspect of critical assumption planning. The two classifications are not mutually exclusive; an assumption can be both explicit and primary.

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