Scenarios Analysis in Excel - Free Template
Scenario analysis is a process of analyzing possible future events by considering alternative possible outcomes.
Thus, scenario analysis, which is one of the main forms of projection, does not try to show one exact picture of the future. Instead, it presents several alternative future developments.
Consequently, a scope of possible future outcomes is observable. Not only are the outcomes observable, also the development paths leading to the outcomes. It is not based on the past or the extension of past trends.
It does not rely on historical data and does not expect past observations to remain valid in the future. Instead, it tries to consider possible developments and turning points, which may only be connected to the past.
In short, several scenarios are fleshed out in a scenario analysis to show possible future outcomes. Each scenario normally combines optimistic, pessimistic, and more and less probable developments.
However, all aspects of scenarios should be plausible. Although highly discussed, experience has shown that around three scenarios are most appropriate for further discussion and selection. More scenarios risks making the analysis overly complicated.