Scenario planning, also called scenario analysis, is a method of forecasting that helps managers and business owners understand market trends so they can make better long-term plans. This reduces overall business risk and helps them discover how business variables affect the company.
The steps in scenario planning are:
- Identify drivers of change and create assumptions.
- Link these drivers in a meaningful way in a model.
- Produce at least six likely future scenarios.
- Conduct analysis to reduce these scenarios to about three.
- Run the models on each of these scenarios.
- Analyze the results and plan accordingly based on expected probabilities of each scenario actually happening.