What is the purpose of scenario analysis in risk assessment?

• A. To examine the impact of changing key parameters on outcomes
• B. To measure past performance
• C. To generate deterministic results
• D. To identify the one true future

Answer: (B)

Scenario analysis is about exploring how outcomes change when you vary the key assumptions. In risk assessment, you test different plausible conditions—such as shifts in demand, prices, or costs—and observe the resulting results. This approach reveals how sensitive the outcome is to each input and shows the range of possible futures you could face, helping identify which variables drive risk. Measuring past performance looks backward rather than forward, so it doesn’t reveal how outcomes react to new conditions. Generating a single fixed result ignores uncertainty, whereas scenario analysis intentionally produces multiple possible outcomes. And there isn’t just one future you must plan for; recognizing multiple plausible paths is exactly what this technique aims to illuminate.