Modellgestützte Strategie- und Finanzplanung

Step 3: A deeper market model

In Step 1 we assumed that we know or that we are able to estimate directly the distribution of quantities sold.

Here, we are going one step further in order to show you how one can derive credible estimates from market data.

In order to do this we make the following assumptions:

  • There is market in our product A. Currently, 1’000 units of product A are sold per annum.
  • We estimate our market share to be 10% currently (i.e. we expect to sell 100 units of product A as before)
  • We expect the market to grow in line with the Gross Domestic Product (GDP), but we expect the reaction to be twice as sensitive (a so-called Beta of 2). So for example: If GDP grows by 1%, our market grows by 2% respectively.
  • We have a GDP estimate

As before, we start with the basic market estimate:

Step 3: Basic Market estimate

GDP is forecast to develop as follows:

Step 3: GDP forcast with uncertainty

The GDP forecast impacts the market’s evolution in time:

Step 3: Market forecast (please note the doubled reaction!)

 

Step 3: Quantity sold follows the market

We leave our market share – which could be increased by (costly) marketing expenses – to remain constant. It would be absolutely no problem to include the (certain!) cost of a marketing campaign as well as its uncertain success in the model estimates.

At this point we do not show the resulting balance sheet and P&L because we already did so in the previous step (with other results though, but still).

Take-away step 3

  • Uncertainty does not have to be modelled directly – it is absolutely no problem to derive a variable over multiple steps.
  • Using Opexar it is particularly easy to associate one known distribution with another to derive variables.
  • If multiple values in a model are driven by the same fundamental variables (like GDP or inflation), changes to the variables will be consistently reflected within the model.
  • Identifying fundamental values creates rich insights into the business modelled.

In Step 4 we show that uncertainty can also originate from the balance sheet: What, if we can’t estimate the size of the initial investment yet?