Framework: Scenario Analysis
Core Question: How can I make investment decisions when faced with multiple external uncertainties ?
Key Application Steps:
1. Identify key focal issue or decision
2. Enumerate external uncertainties (PESTLE) and pick critical ones
3. Use 2x2 scenario framework to develop scenarios and construct narratives
4. For each scenario, develop implications and options for robust strategies
5. For each scenario, identify early warning signals
Comparisons with other concepts and frameworks:
Compared to forecasting techniques, focus is on identifying a range of futures
Compared to quantitative tools (game theory, contingency planning, etc.), emphasis is given to multiple uncertainties
Compared to other risk management tools that handle internal risks (risk event cards), the focus is on external uncertainties
Illustrative Decision Contexts:
This tool is useful for strategy formulation for longer term decision- making
It can also be useful for more focused problems (e.g., projects and individual investments in business units rather than at the corporate level)
Companies are beginning to integrate it with financial numbers
