Assumptions
What are Assumptions in Planning?
Definition and Core Purpose
In the Integrated Business Planning (IBP) framework, an Assumption is a documented and agreed-upon piece of thinking that underlies business plans when definitive facts are unavailable.
They represent beliefs about the future—such as customer behavior, competitor actions, or economic conditions—where accurate prediction is difficult. The primary goal of documenting assumptions is not just to predict the future, but to provide a clear rationale for decisions. This enables continuous testing, measurement, and adjustment as new information becomes available, preventing conflicting opinions from pulling plans in different directions.
The 10 Keys to Effective Assumption Management
For assumptions to be useful, they must be managed rigorously. Best practices define ten essential characteristics:
Sourcing: Assumptions should be derived from both historical data and the strategic planning process.
Documentation: They must be written down and managed in a central database to prevent them from becoming "urban myths."
Quantification & Time Phasing: Assumptions must be quantified (e.g., "5% lift") and mapped over the planning horizon to facilitate financial modeling.
Measurement: They must be routinely measured against actual outcomes to test their validity.
Root-Cause Analysis (RCA): If an assumption proves inaccurate, RCA must be performed to understand the cause and adjust future plans.
Aggregation: Keep them to the "vital few" (80/20 rule) to maintain focus on the most important drivers.
Proactive Testing: Use experiments (e.g., PDCA cycle) to test validity rather than waiting for events to unfold.
Continuous Review: Assumptions are dynamic and must be adjusted as new market intelligence is learned.
Horizon & Granularity: They should become more granular as the plan moves closer to execution.
Event Tying: Assumptions should be tied to major events (e.g., product launches, holidays) that significantly impact the plan.
Categorization Across the Business
Assumptions are organized to align with the core IBP review steps:
Product Portfolio: Growth rates, competitor activity, and investment plans.
Marketing & Sales: The "4Ps" (Product, Price, Place, Promotion) and industry growth.
Supply Chain: Internal capabilities like lead times, lot sizes, and utilization rates.
Procurement: Material costs, supplier performance, and inventory strategies.
Financial: Foreign exchange rates, labor costs, and cost of capital.
Organizational: Human capital capabilities and recruitment lead times.
Strategic Context: AROs and the Demand Review
In a mature Demand Review, the focus shifts from debating the numbers to debating the assumptions. It is more valuable to agree on why demand is generated (e.g., "We assume the price cut will drive 10% volume growth") than to argue over the forecast result.
This process directly drives Risks and Opportunities (AROs).
Risks: Factors that would cause actuals to be lower than the assumed plan.
Opportunities: Factors that would cause actuals to be higher than the assumed plan.
By deriving AROs directly from underlying assumptions, the Integrated Reconciliation Review (IRR) can present a quantified range of outcomes to the executive team, ensuring the plan is robust against uncertainty.
About SIMCEL
SIMCEL unites your planning processes into one seamless platform. Whether you're optimizing inventory in Supply, refining forecasts in Demand, aligning financial strategy in Finance, or driving sustainability in Carbon—SIMCEL empowers your team to simulate, visualize, and align every decision across the business. Say goodbye to silos and hello to truly integrated, agile planning.