Financial planning and analysis (FP&A) is a set of planning, forecasting, budgeting, and analytical activities that support a company's major business decisions and overall financial health. 10 Scenario Analysis Frameworks You work in FP&A ? Here is an extract from a course I gave recently. One of the questions from the students was: "What are the different methods for scenario analysis" Here are 10 different methods, with instructions and an illustrative example. 1. "What if" analysis Identify a set of variables that might impact your business, such as raw material, price, shipping costs, or regional demand. For example: "What if limestone prices rise by 10%?" 2. Sensitivity Analyze how changes in a single input would impact a certain output, such as profits. For instance: examine how a +/- 5% change in energy costs would affect your profits. 3. Probabilistic Assign probabilities to different scenarios based on historical data or industry insights. Example: There might be a 20% chance of a severe supply chain disruption. 4. Stress testing Identify extreme scenarios that might put your company under strain, Evaluate how your company would withstand these scenarios. Example: a massive drop in demand or a significant disruption in raw material supply. 5. Monte Carlo Use a computer program to simulate a range of outcomes of different scenarios and calculate probabilities for each. This could help you understand potential fluctuations in profits, costs, or revenues. 6. Brainstorming Bring together key stakeholders to generate a wide range of possible future scenarios. Examples: consider potential political, economic, or industry changes. Create narratives for different scenarios to help stakeholders visualize potential futures. 7. Clustering Group similar scenarios together to simplify your analysis. For example, you might have one cluster of scenarios for Raw material and another for Labor costs 8. Matrix Create a matrix with two key uncertainties as the axes. Then fill in the quadrants with scenarios based on these uncertainties. For instance, one axis could be "Energy price volatility" and the other "Regulatory changes". 9. Storytelling For example, tell a story on how your company would fare under a scenario of rapid economic growth or a severe recession. 10. Simulation Use sophisticated software to simulate how your company would perform under different scenarios. Source : Nicolas Boucher, LinkedIn www.nicolasboucher.online