What is the purpose of scenario analysis in business?

The purpose of scenario analysis in business is to evaluate different potential future events by analyzing alternative possible outcomes. This method allows organizations to assess how various uncertainties or changes in the business environment could impact their operations, financial performance, or strategic objectives. By exploring a range of scenarios, organizations can better understand the risks and opportunities they face and make informed decisions based on a broader spectrum of possibilities.

Scenario analysis encourages creative thinking and strategic foresight, enabling businesses to prepare for multiple eventualities rather than just relying on a single prediction. This proactive approach can enhance a company’s agility in adapting to changing market conditions or unforeseen challenges, ultimately supporting more resilient strategic planning.

The other options, while relevant to business analytics in different contexts, do not capture the essence of scenario analysis. Evaluating financial models under different conditions is a narrower focus, and tracking customer feedback, as well as analyzing historical performance, do not align with the core objective of exploring future possibilities through varied scenarios.