I have been a fan of scenario analysis for a very long time. Not only is it a great way to understand the current situation, whether it is a problem, which options are available, and what actions to take, but it is far more effective than making decisions based on a list of risks.
Scenario analysis helps everybody view risks and opportunities together and in context.
I highly recommend a 2019 article How to Use Scenario Analysis to Manage in Uncertain Times.
Here are some high points:
- Every single decision in an organization is made under a certain degree of uncertainty.
- Often, leaders make these decisions based on anticipated events, along with corresponding best-case and worst-case predictions about what might happen. Whether or not these predictions will actually come to pass is unknown at the time the decision is made.
- Scenario analysis is a method for creating responses to various future events with the aim of reducing uncertainty and maximizing the chances of achieving a desired outcome. This process requires investments of people, time, and money. Imagination also comes into play as managers use scenario analysis to determine or invent possible courses of action to take so the organization can reduce its overall risk and maximize its value.
- Historically, scenario analysis arose out of military…
