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Author's profile photo Janet Nguyen

Creating the Ultimate What-If Analysis

Have you ever asked, ‘what if’? The phrase is more than fodder for the free spirited or the idealistic musings of a person fantasying about the future. It has practical applications in sales, finance, and other lines of business such as human resources.

If you’re running a business, you’ve undoubtedly had questions such as: What if I hired more employees? What if I gave everyone a raise? What if I discounted my products? Whatever harebrained scenario you can conceive, you can test it in SAP Analytics Cloud using a value driver tree.

Value driver trees are a way for you to connect areas of your business and run simulations in one area to see how it will impact other areas. They are typically made up of four different node types, each performing different functions.

  • Data source nodes — provides actual data (e.g. apparel sales, footwear sales, etc.)
  • YOY — calculates the year over year values as well as projected data for future dates (e.g. 2017, 2018, 2019, 2020, etc.)
  • Union nodes — unites data source nodes together (e.g. total sales: combining sales data of all product lines such as apparel and footwear)
  • Simple Calculation nodes — allows you to perform basic arithmetical calculations using two input nodes

Let’s look at an example of a value driver tree in action. Suppose you run an activewear company that sells athletic apparel and footwear. You import or connect all your data sources such as sales data, financial data, and HR data to SAP Analytics Cloud and create a model. Since you have data for the past ten years, you use the predictive analytics feature in SAP Analytics Cloud to forecast future sales.

Using the data from the sales forecast, you create a value driver tree in your planning model. For your data source nodes, you have Apparel Sales and Footwear Sales. You connect both of those nodes with a union node and call it Total Sales.

You have more data source nodes such as:

  • Recruiting Cost + Headcount Cost = HR Cost
  • HR Cost + Marketing Expense = Operating Expense

As you start to build out your value driver tree, you will end up with an interconnected network of nodes, each representing an area of your business.

Now you can start to play around with different ‘what if’ scenarios:

  • What if you discount all footwear by 20%?
  • What if you hire more staff?
  • What if you gave everyone a raise?

The possibilities are endless.

In the example below, we want to test what would happen if we increased our marketing spend by 20%. How will that impact profit forecast, which is $205.1 million?

By selecting the node containing Marketing Expense, we can select 2017 and adjust the slider to 20%. All connected areas, including profit forecast, will automatically update.

SAP Analytics Cloud looks at all factors and predicts that a 20% increase in marketing spend is likely to increase profit to $209 million.

Running these forecasts using the predictive analytics capabilities, you can project how much you are likely to make in coming years. This information can help inform business decisions such as increasing inventory to match projected demand, allocating resources to hiring more staff, or justifying the cost of a new campaign.

Value driver trees are a great way for you to explore possible scenarios and their projected outcomes. You can see how a decision at one branch impacts all the other branches.

You can even insert your value driver tree into your story and share it with others to play around with it and explore relationships between drivers and metrics.

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