1
Q
Scenario Analysis Vs. Forecasting
A
Forecasting - it involves predicting a specific outcome based on available data and assumed trends.
Scenatio Analysis - Rather than predicting particular outcome, it explores a range of potential outcomes without assigning any probability to a given scenario.
2
Q
Why is scenario analysis important?
A
- Risk Management: helps orgs understand and prepare for adverse situations
- Strategic Planning: allows businesses to explore and plan multiple possible futures
- Enhanced decision making: orgs can make informed choices that optimize oportunities and reduce probability of bad results
3
Q
Components of Scenario Analysis
A
- Base case
- Worst case
- Best case
4
Q
Process of scenario analysis
A
- Define the scope
- Identify key variables
- Develop different Scenarios
- Assess the impact
- Review and update
5
Q
Conducting Sensitivity Analysis
A
- Select variable for testing
- Determine range
- Run the analysis
- Visualize results
6
Q
Sensitivity
Limitations and Cautions
A
- Overreliance - while sensitivity provides value, it should not be the sole tool in decision making
- Garbage in Garbage ou - results are only good as the assumptions you start with.
