Assumption-based planning: Difference between revisions

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'''Assumption-based planning''' in [[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’scompany's [[business plan]]s, to test these assumptions, and to accommodate unexpected outcomes.

== Overview ==

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Assumption-based planning methods include:

* Critical assumption planning (CAP) by D. Dunham & Co.<ref>{{Cite journal |last=Sykes |first=Hollister B. |last2=Dunham |first2=David |date=1995-11-01 |title=Critical assumption planning: A practical tool for managing business development risk |url=https://www.sciencedirect.com/science/article/pii/088390269500085M |journal=Journal of Business Venturing |volume=10 |issue=6 |pages=413–424 |doi=10.1016/0883-9026(95)00085-M |issn=0883-9026|url-access=subscription }}</ref>

* [[Critical assumption planning]] (CAP) by D. Dunham & Co.

* Assumption-based planning by [[RAND]] : raises the visibility of make-or-break uncertainties common to new ventures by forcing managers to admit what they don’tdon't know.

* Discovery-Driven Planning by [[Rita Gunther McGrath]] and Ian C. MacMillan.<ref>McGrath, R. G. & MacMillan, I. C. 1995. Discovery Driven Planning. Harvard Business Review, 73(4): 44-54.</ref><ref>McGrath, R. G. & MacMillan, I. C. 2009. Discovery Driven Growth: A Breakthrough Process to Reduce Risk and Seize Opportunity. Boston: Harvard Business Publishing</ref>

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== Position in business planning process ==

Most business planning methods or books about “how"how to write a business plan”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.

==Types of assumption==

[[RAND]] defines an assumption as “an"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 [[Criticalcritical assumption planning]]. The two classifications are not mutually exclusive; an assumption can be both explicit and primary.

=== Implicit and explicit assumptions ===

Explicit assumptions are fully revealed without vagueness, implication, or ambiguity—though in a plan, they often rely on [[implicit assumptionsassumption]]s. Implicit assumptions are not expressed and may go undetected. If implicit assumptions are wrong, this can damage projects.

{|

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|-

| style="background-color: #CCC; border: 2px solid black" |

# Customers will buy our product because we think it’sit's a good product.

# Customers will buy our product because it’sit's technically superior.

# Customers will agree with our perception that the product is great.

# The product will sell itself

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|}

== Process of Assumption-Based Planning (ABP)==

[[File:ABP_process.png|thumb|320px|Assumption-Basedbased Planningplanning (ABP). The blue part of the figure depicts the process steps of a general assumption-based planning method, the white part identifies the separate deliverables. Every step is described in the assumption-based planning process list displayed below the picture.<ref>The modelling method in general is a result from a method engineering approach as proposed by the [[University of Utrecht]] in its "Method Engineering Encyclopedia"</ref>]]

The steps of Assumptionassumption-Basedbased Planningplanning (ABP) are:

* Identify assumptions: Collect all assumptions implicit, explicit, primary and derivative, out of the (business) plan.

* Determine criticality: quantify assumptions as much as possible in order to determine which assumptions have the greatest (financial) impact.

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===Test program design===

The assumptions must be tested. Sometimes good market research is enough,

other times a working prototype must be developed. The testing order for assumptions is critical in terms of testing cost. A major focusefocus of the CAP method is to maximize the learning per unit expenditure on testing.

To determine the best testing option, the test Effectiveness ratio (e)

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In this step the actual testing of the assumptions takes place.

===Venture Reassessmentreassessment===

When the results of one or more tests are known, it might be that resources must be re-allocated and business plans updated.

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*[http://dgital.link/critical-assumption-planning Australian CAP Case Study]

[[Category:ProjectSchedule (project management)]]