What-if
analysis includes a broad range of techniques used to depict future possible
scenarios based on the possible developments or turning points that can affect
them. For example, we can hypothesize different scenarios with different states
of the economy or with different competitors’ strategies.
Even though
with this analysis we can estimate the most probable outcome (i.e. the most
likely scenario or the average of defined scenarios), the fact of defining less
probable outcomes as well gives decision makers additional information:
- - Assessment of the risk of an investment if the difference between extreme outcomes is very large;
- - Be prepared in case a less probable scenario unfolds;
- - Minimize risks and maximize opportunities;
- - Conduct stress tests.