Scenario analysis: A practical guide

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Scenario analysis is a technique which can be used for developing insight and managing uncertainty in support of organisational decision-making. The objective of this guide is to provide a practical framework for risk, resilience and insurance professionals (risk professionals) to help them take a leading role in undertaking scenario analysis within their organisation.

Scenario analysis is a creative technique used to identify, measure and respond to the potential occurrence of risk events. Unlike some other risk management techniques, scenario analysis involves a forward looking ‘what if’ analysis. Scenario analysis does not provide a crystal ball, but the technique does help to stretch minds, confront assumptions and choices about the future, and encourage the leadership of organisations to broaden their horizons and think differently about the complex and fast-changing world in which they operate.

Scenario analysis should embrace emerging risks which are characterised by a lack of the verifiable information, knowledge and reliable trends needed for effective decision-making. Emerging risks are not only new risks but can include existing risks changed by the circumstances or conditions of an organisation and its context. Information gathered during scenario analysis can be used to help plug emerging risk information and knowledge gaps.