Explain the term "What-If Analysis" in the context of data visualization with an example.

"What-If Analysis" refers to a process used in data visualization and data analysis to evaluate the potential outcomes of different scenarios by changing the input variables in a model. This technique helps decision-makers understand how different factors can affect results, enabling them to make more informed choices. ### Example of What-If Analysis in Data Visualization Imagine a company that sells a product and wants to analyze the impact of price changes on revenue. The company has a sales model which includes variables such as: 1. **Price per unit**: Current pricing is $20. 2. **Projected unit sales**: Currently estimated at 1,000 units per month. 3. **Fixed costs**: Monthly operational costs are $5,000. 4. **Variable costs per unit**: Costs to produce and sell each unit are $10. Using a data visualization tool, the company can create an interactive dashboard that allows users to adjust the "Price per unit." #### Scenario 1: Current Situation - Price per unit: $20 - Revenue = Price × Units Sold = $20 × 1,000 = $20,000 - Costs = Fixed + (Variable × Units Sold) = $5,000 + ($10 × 1,000) = $15,000 - Profit = Revenue - Costs = $20,000 - $15,000 = $5,000 #### Scenario 2: Price Increase Now, using What-If Analysis, the user can simulate a price increase to $25: - Price per unit: $25 - Revenue = $25 × 1,000 = $25,000 - Costs = $5,000 + ($10 × 1,000) = $15,000 - Profit = $25,000 - $15,000 = $10,000 #### Scenario 3: Price Decrease The user can also analyze the effect of lowering the price to $15: - Price per unit: $15 - Revenue = $15 × 1,000 = $15,000 - Costs = $5,000 + ($10 × 1,000) = $15,000 - Profit = $15,000 - $15,000 = $0 Through the interactive dashboard, the company can visualize these changes in real-time through graphs or charts that show revenue, costs, and profits at various price levels. This process enables the sales team to explore: - How a price change affects overall profitability. - The potential need for adjustments in marketing strategies if they anticipate a change in unit sales due to the price adjustment. ### Conclusion What-If Analysis empowers organizations to make strategic decisions based on potential scenarios and visualized data, thus providing a comprehensive understanding of how varying one or more input factors will impact desired outcomes.