But-for Scenario
Definition
The hypothetical financial position the claimant would have been in had the wrongful conduct not occurred. The damages figure is the difference between actual performance and the but-for scenario, so the construction of the but-for scenario is the analytical heart of most lost-profits opinions.
- Field
- Forensic accounting, damages quantification
- Definition
- Hypothetical position absent the wrongful conduct
- Used to calculate
- Lost profits and other economic damages
- Compared against
- The claimant's actual financial performance
Common questions
Why is the but-for scenario described as the analytical heart of a damages opinion?+
Every other step in a lost-profits calculation, such as revenue projections, cost adjustments and mitigation, depends on how the but-for scenario is built. Two experts using the same actual results can reach very different damages figures if they construct the hypothetical baseline differently.
What makes a but-for scenario defensible under cross-examination?+
It needs to rest on reasonable, well-documented assumptions grounded in the company's own historical trends, industry benchmarks, or comparable unaffected periods, rather than speculative projections, since opposing experts routinely attack the assumptions rather than the arithmetic.
Related terms
- Avoided Costs
- The costs the claimant did not incur because the wrongful conduct interrupted operations. In a lost-profits calculation, avoided variable costs are deducted...
- Diminution in Value
- The reduction in the market value of a business or asset attributable to the defendant's conduct. Used when lost profits are not...
- Discount Rate
- The rate used to convert future projected cash flows to their present value. It reflects the time value of money and the...
- Lost Profits
- The net income the claimant would have earned during the damages period but for the defendant's wrongful conduct. It focuses on the...
- Unjust Enrichment
- A damages measure that focuses on the benefit the defendant gained from the wrongful conduct rather than the loss the claimant suffered....