Scenario Analysis

Scenario planning requires managers to think of possible and plausible future states of the world or the environment they operate in, take advantage of opportunities available and actions to ward of threats. In scenario analysis managers distil a number of possible future prospects arising from the firm’s macro environment into a plausible few.

This technique allows contingencies, risks, trends, opportunities and threats to be to be identified, and their impact analysed, before recommending strategic responses for each plausible scenario.

Scenario Analysis by definition is qualitative by nature; Real Options, on the other hand, are quantitative techniques. As a consequence, both techniques complement each other.