Scenario Planning

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What is scenario planning?

Scenario planning is a method of forecasting and analysis that takes a variety of assumptions to drive different outcomes in the future. The most common example is drawing various outcomes from an annual operating budget to improve business decisions around resource allocation and adjustment.

What is scenario analysis?

Scenario analysis, as the name suggests, is a way to consider and react to future changes in a business plan. It creates a baseline financial model and allows a planner to manipulate variables to show how it changes outcomes.

What is the primary purpose of scenario planning?

The main goal of scenario planning is to aid in decision-making. If companies know the potential outcomes various value drivers could derive, companies can make plans (including backup plans) and make decisions quickly.

What are the steps involved in scenario planning?

There are three main steps to scenario planning. First, identify significant goals for the business. Then, build plans around those goals. Finally, perform what-if analysis and best/worst-case scenario planning to map out backup plans beyond the base plan.

How is scenario planning different from financial modeling?

Financial modeling is a crucial aspect of scenario planning. While creating models is vital to understand possible financial outcomes, scenario planning takes things one step further and builds plans and further analysis informed by financial models.

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