Cima E2 Exam Question No 30

Question No 30:

What is Scenario Analysis?

Whether analysing the broad environment (PESTEL analysis) or the industry environment (Porter's Five Forces) it is important not just to consider the current position but also the future possible scenarios. Scenario analysis is the examination of different possible scenarios which may unfold in the future as any of the PESTEL factors or five forces change and evolve. So for example scenarios might be considered where:

• The economy goes into recession
• A competitor enters or leaves the market
• Exchange rates fall dramatically
• Competitors develop a new product which is cheaper than the current products available.
• A major suppler goes into liquidation.

• The analyses of the consequences of this scenario help the organisation to:
• Define a strategy which will reduce risk of events causing problems for the organisation.
• Prepare to take appropriate action if the situation arises.