It is impossible to know everything. It is even difficult to accurately model or simulate those things that you actually do know. The very nature of the future means that it is impossible to predict.
Unknowns are not a negative in a solution. Instead, they are an opportunity that should be embraced. Unknowns present the chance for improvement and change. Choosing how you handle the unknown can often determine whether your solution is bad, good, or great.
For example, when you are determining the length of a lease term there are many unknowns to consider:
- What is going to happen to the local economy?
- How will the business perform against growth estimates?
- What M&A activity could happen during the term of the lease?
- Changes to business products and delivery?
- How will the operation perform against revenue forecasts?
Sensitivity modeling is the act of understanding how your solution performs given various outcomes within the unknown categories. Performing sensitivity modeling can add a lot of complexity to a model and, if done wrong, can actually lead to worse outcomes. But when done correctly, it can give you incredible insights into what aspects of a decision actually matter.
When negotiating a lease, sensitivity modeling can help you understand the relative value of an earlier break option versus simply taking additional square footage. It can help you understand whether it is better to have a single large office or several smaller offices. It can help you take into account the various confidence levels that stakeholders have around their forecasts.