Scenario analysis

Scenario analysis is a shorter version of simulation analysis that uses only a few outcomes. Often the outcomes are for three scenarios: optimistic, pessimistic, and most likely.

Definitions

According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),

Scenario analysis. A shorter version of simulation analysis that uses only a few outcomes. Often the outcomes are for three scenarios: optimistic, pessimistic, and most likely.

According to Fundamentals of Financial Management by Eugene F. Brigham and Joel F. Houston (15th edition),

Scenario analysis. A risk analysis technique in which “bad” and “good” sets of financial circumstances are compared with a most likely, or base-case, situation.

According to Marketing Management by Keller and Kotler (15th edition),

Scenario analysis. Developing plausible representations of a firm's possible future that make different assumptions about forces driving the market and include different uncertainties.

Related concepts

• Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.

Related lectures

• Introduction to Financial Management.