LIVE MODEL
RUNWAY12m+EBITDA M12+27.5%CASH M12£1.29mGROSS MARGIN30.0%EBITDA MARGIN10.0%DSO45dDPO30dREV GROWTH3.0%/moOPENING CASH£600kBAL CHECK£0 ✓CASEBASEIRR18.4%

Free resource · Monte Carlo for finance

Modelling theunknowable.

Forecasting with confidence when the future refuses to sit still. The key themes from the talk, with the field guide and the plain-Excel workbook to take away.

MELISSA WHIPP · NAKED FINANCE · IN COLLABORATION WITH PLUM SOLUTIONS

FIELD GUIDE · PDF

The talk in a plain-English field guide: the thesis, the method, the shapes and how to read the result.

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Enter your details to unlock the Monte Carlo workbook (.xlsx). You'll join the Naked Finance mailing list for the newsletter and occasional updates.

The thesis

Forecasting is an argument about the future.

Ask a room how long a talk will last and everyone gives a number. Ask how sure they are and everyone gives a range. In ten seconds they have done what most forecasts refuse to do: described the uncertainty.

We can move beyond "by how much?" and "by when?" into the question that actually matters to a board: how confident are we, and across what range?

ONE NUMBER

£250m

One future. Nothing about how likely it is, or how far off it could be.

THREE NUMBERS

£100m · £250m · £300m

Worst, base, best. Better, but still three points with nothing in between and no sense of how likely each one is.

THE SHAPE

Every possible future

The full range of what could happen and how likely each outcome is. Your three scenarios were always three points inside this.

01 · Fragility

What makes a forecast fragile.

No anchor

With no reliable history, every assumption is a judgement call, and judgement calls compound.

False precision

A number to two decimal places looks certain. The confidence is in the formatting, not the forecast.

Hidden single points

One base-case number per line hides the range, so nobody sees how wrong it could quietly be.

Correlated assumptions

Inputs move together in real life. Flex them one at a time and you miss how they gang up.

02 · The mindset

Stop hiding the uncertainty. Start describing it.

The instinct is to pick the single "right" number and defend it. The honest move is the opposite.

Ranges, not points

Give every key assumption a low, likely and high, not one hopeful figure.

Show your working

Make the assumptions visible and challengeable, so the debate is about them, not the output.

Confidence, stated

"Most likely X, but realistically anywhere from Y to Z" beats false certainty.

03 · The familiar tools

Scenarios and sensitivities, and where they run out.

Scenarios, sensitivities and two-way data tables are the tools you already use to pressure-test a model, and they are worth doing well before reaching for anything cleverer. Even two inputs flexed together only give a grid, never a likelihood. A tornado chart ranks the biggest swings, but still flexes one driver at a time.

REVENUE (£M) · PRICE ↔ VOLUME ↕
-10%-5%0%+5%+10%
-10%32.434.236.037.839.6
-5%34.236.138.039.941.8
0%36.038.040.042.044.0
+5%37.839.942.044.146.2
+10%39.641.844.046.248.4

THREE WALLS YOU HIT

01

Only a few futures

Three scenarios are three points in an infinite space of outcomes.

02

No likelihood

A grid shows what could happen, never how probable any of it is.

03

One thing at a time

Real uncertainty moves together. These tools cannot combine it all at once.

What if every input could vary at once, and we could see how likely each outcome really is?

04 · The method

Instead of one guess, run ten thousand.

01

Define the uncertainty

For each input, give a range and a shape instead of a single value: best case, worst case, most likely.

02

Run it thousands of times

Each run draws a random value from every range at once. Thousands of runs, thousands of possible futures.

03

Read the distribution

The results form a shape. Now you see the full range of outcomes, and how likely each one is.

A quick reminder

Not every uncertainty has the same shape.

A distribution is just the shape of what's likely. Choosing the shape is how we tell the model what kind of uncertainty we are dealing with. That is the judgement call; the rest is arithmetic.

Normal

Symmetric bell. Most outcomes cluster around the middle and tail off evenly. A typical forecast: most likely near the estimate.

Lognormal

Leans one way with a long tail. Cannot go below zero, but can spike. Costs and durations that overrun far more than they undershoot.

Uniform

Flat. Every outcome equally likely across a range. Use when you truly have no view within the band.

Triangular

Minimum, most likely, maximum. The estimator's friend: quick to define from three simple guesses.

SKEW

Which way the tail points. Right-skewed costs mean the average understates your typical outcome, and the tail is where the nasty surprises live.

KURTOSIS

How heavy the tails are. Fat tails are where crises live; models that assume a neat bell routinely underestimate how often extremes occur.

SPREAD

The width of the uncertainty. Two forecasts can share an average and feel completely different: standard deviation is the workhorse measure of risk.

Live demonstration

See it move.

Describe three assumptions as ranges, run ten thousand futures and watch the distribution build. Then move a range and see the floor, the midpoint and the probability of hitting target shift with it.

DESCRIBE THE UNCERTAINTY

Revenue growth% p.a.
Gross margin%
Cost inflation% p.a.
Target: cash at month 12£k

CASH AT MONTH 12 · 0 RUNS

P10 · floor

—

P50 · midpoint

—

P90 · ceiling

—

P(cash ≥ £750k)

—

Illustrative SME: £600k opening cash, £200k/month revenue, £30k headcount, £15k overhead. Inputs are triangular (low / likely / high). Bars between P10 and P90 are highlighted; red bars are futures where cash goes negative.

05 · In practice

No add-ins. No black box. Just Excel and RAND.

You do not need specialist software. Everything in the talk is built in plain Excel with functions you already have. The workbook walks from a single-point guess to a full distribution, one step at a time.

RAND()

The random draw behind every cell. Press F9 and one complete, volatile year rearranges itself.

NORM.INV / PERCENTILE

Turn a random number into a value from the shape you chose.

Data Table

Repeat the model thousands of times without a single macro.

COUNTIFS

Bucket the results into a histogram and answer "what is the chance we hit plan?"

06 · Reading it

What the distribution tells a board.

P10 / P50 / P90

The range that matters. A realistic floor, the midpoint, and a realistic ceiling, not one hopeful line.

Probability of target

"What is the chance we actually hit plan?" Answerable, at last, as a number.

The shape of risk

Where the downside clusters, how fat the tails are, whether the mean flatters or misleads.

07 · Where it earns its keep

Anywhere the answer is really a range.

Revenue and demand

Pipeline, conversion, price and volume that never behave exactly as planned.

Project cost and runway

Overruns, timing and burn. How long does the money really last?

Capex and investment

Payback and return under uncertain assumptions, before you commit.

Scenario stress-testing

Not three neat scenarios, but the full spread between them.

08 · The honest bit

A thinking tool, not a crystal ball.

Garbage in, garbage out

The output is only as good as the ranges you feed it. Assumptions still do the heavy lifting.

Precision is not accuracy

Ten thousand runs of a wrong model gives a very confident wrong answer.

The distribution is a choice

Normal, triangular, uniform: the shape you pick shapes the result. Choose deliberately.

The shift

Stop asking "what's the number?" Start asking "how confident are we, and across what range?"

If you are modelling something with no neat history to lean on, get in touch. This is the kind of problem Naked Finance was built for.

Back to Training and resources

FIELD GUIDE · PDF

The talk in a plain-English field guide: the thesis, the method, the shapes and how to read the result.

Download the PDF

SUBSCRIBE TO DOWNLOAD

Enter your details to unlock the Monte Carlo workbook (.xlsx). You'll join the Naked Finance mailing list for the newsletter and occasional updates.