The company's scenario tree is the result of the scenario analysis, which is the subject of the analyst's work. The scenario tree resembles a branched structure in which the root symbolizes strategy and key resources, the trunk represents the current business model, and the branches represent various possible directions of development. Branch points represent key decisions that affect the path ahead, and leaves represent specific options for action. In the process of enterprise development, some industries (successfully implemented scenarios) are strengthened and bear fruit in the form of positive results, while others may disappear due to risks and crises. External factors, such as competition and market trends, act like the wind, influencing growth and development. Over time, the tree undergoes changes: old branches may die, and new, promising shoots will appear in their place.
So, Scenario Analysis – what is it about? Why do you need it? How will you benefit from it?
Forecasting and scenario planning
Scenario planning is a process of creating strategic foresight to consider a variety of possible or probable futures. The principles of scenario planning have long been used in military intelligence, and for at least 50 years long they have been widely applied to the world of business.
Scenarios are not forecasts or predictions. Rather, they are descriptions of potential events and their likely impact on an organization. They are typically used as a basis for long-term strategy development.
The process of developing multiple scenarios leads to the identification of near-inevitable future events, potentially undervalued changes that may drastically influence your business. Scenario planning creates an environment in which company staff feels comfortable challenging the status quo, reducing the risk of decision making without critical reasoning or evaluating of the consequences/alternatives.
Considering multiple scenarios is a good way to get you ready for Strategy Development. As Jay Ogilvy, co-founder of Global Business Network, noted: "Think of scenarios as different hands of cards you might be dealt; think of strategies as the way you would play those cards." It is not funny at all - be careful - a good set of scenarios does not automatically lead to a good strategy. Rather than developing a strategy around the most realistic scenario, you should try to develop that one which embraces all the scenarios identified in the preceding planning process.
If your strategy is already in place, scenarios could be quite applicable to identify weaknesses and areas where a contingenty plan may be required.
Scenario Analysis vs Sensitivity Analysis
Scenario analysis is quite similar to sensitivity analysis, which is a par financial analysis that involves examining the impact of changes in key assumptions on a company’s financial performance and helps to identify the most important drivers of the company’s financial performance as well as the potential risks and opportunities associated with these drivers.
The main difference is - sensitivity analysis often applied to financial statements based on past data and historically achieved results. Scenario analysis looks into the future and works as a crystal bowl to foresight your business / investment future performance. To let you work with future options of your business development, at least you need to make a relevant digital model of your business, allowing scenarios as a tool to have a careful look over the horizon.
How Scenario Analysis can help you
Here we cometo help you foresightthe bright opportunitiesas well as murky uncharted waters to pave the right way for your business.
More detailed and updated information can be found in the relevant blog articles. Welcome.
For your convenience, you can download the document “Simplified scenario analysis for the case of a single-product industrial company", necessary to ensure thorough structured discussion among Stakeholders of the project - in the lower part of this page, under the "Free Template" button. After filling out the form, close the tab, then you can download the template.
