Scenario analysis is useful when the future is uncertain and decisions have long-lived consequences. Its purpose is to test resilience and expose dependencies, not to produce a single prediction.
Start with the business question
Examples include the resilience of a site, the timing of a fleet replacement, or a product’s exposure to changing energy prices and customer demand. Define the decision, time horizon, and business boundary before choosing scenarios.
Connect assumptions to financial drivers
Translate selected conditions into the drivers that matter: revenue, input costs, capital expenditure, downtime, asset life, or access to finance. Document where data are limited and where expert judgment is needed.
Use scenario data with care
The Network for Greening the Financial System (NGFS) flags limitations in its Phase V physical-risk estimates following the retraction of an underlying academic paper. This is a reason to examine the relevant model documentation and test sensitivities before using outputs in a business case.
Bring the result back to a decision
Explain what is robust across the scenarios, what depends on a particular assumption, and what monitoring signal would prompt a change. Keep the model’s limits visible in the management readout.