Information about Scenario Analysis
Scenario analysis is a process of analyzing possible future events by considering alternative possible outcomes (scenarios). The analysis is designed to allow improved decision-making by allowing more complete consideration of outcomes and their implications.
For example, in economics and finance, a financial institution might attempt to forecast several possible scenarios for the economy (e.g. rapid growth, moderate growth, slow growth) and it might also attempt to forecast financial market returns (for bonds, stocks and cash) in each of those scenarios. It might consider sub-sets of each of the possibilities. It might further seek to determine correlations and assign probabilities to the scenarios (and sub-sets if any). Then it will be in a position to consider how to distribute assets between asset types (i.e. asset allocation); the institution can also calculate the scenario-weighted expected return (which figure will indicate the overall attractiveness of the financial environment).
Depending on the complexity of the financial environment, in economics and finance scenario analysis can be a demanding exercise. It can be difficult to foresee what the future holds (e.g. the actual future outcome may be entirely unexpected), i.e. to foresee what the scenarios are, and to assign probabilities to them; and this is true of the general forecasts never mind the implied financial market returns. The outcomes can be modelled mathematically/statistically e.g. taking account of possible variability within single scenarios as well as possible relationships between scenarios.
Financial institutions can take the analysis further by relating the asset allocation that the above calculations suggest to the industry or peer group distribution of assets. In so doing the financial institution seeks to control its business risk rather than the client's portfolio risk.
In politics or geo-politics, scenario analysis involves modelling the possible alternative paths of a social or political environment and possibly diplomatic and war risks. For example, in the recent Iraq War, the Pentagon certainly had to model alternative possibilities that might arise in the war situation and had to position materiel and troops accordingly. The difficulty of such forecasting is highlighted in that case by the fact that it is arguable the Pentagon failed to foresee the lawlessness and insecurity of the post-war situation and the level of hostility shown towards the occupying forces.
In other areas scenario analysis can be important and illuminating. For example, analysis of the probability of the earth being struck by a large celestial object (a meteor) suggests that whilst the probability is low, the damage inflicted is so high that the event is much more important (threatening) than the low probability (in any one year) alone would suggest.
..... Click the link for more information.
For example, in economics and finance, a financial institution might attempt to forecast several possible scenarios for the economy (e.g. rapid growth, moderate growth, slow growth) and it might also attempt to forecast financial market returns (for bonds, stocks and cash) in each of those scenarios. It might consider sub-sets of each of the possibilities. It might further seek to determine correlations and assign probabilities to the scenarios (and sub-sets if any). Then it will be in a position to consider how to distribute assets between asset types (i.e. asset allocation); the institution can also calculate the scenario-weighted expected return (which figure will indicate the overall attractiveness of the financial environment).
Depending on the complexity of the financial environment, in economics and finance scenario analysis can be a demanding exercise. It can be difficult to foresee what the future holds (e.g. the actual future outcome may be entirely unexpected), i.e. to foresee what the scenarios are, and to assign probabilities to them; and this is true of the general forecasts never mind the implied financial market returns. The outcomes can be modelled mathematically/statistically e.g. taking account of possible variability within single scenarios as well as possible relationships between scenarios.
Financial institutions can take the analysis further by relating the asset allocation that the above calculations suggest to the industry or peer group distribution of assets. In so doing the financial institution seeks to control its business risk rather than the client's portfolio risk.
In politics or geo-politics, scenario analysis involves modelling the possible alternative paths of a social or political environment and possibly diplomatic and war risks. For example, in the recent Iraq War, the Pentagon certainly had to model alternative possibilities that might arise in the war situation and had to position materiel and troops accordingly. The difficulty of such forecasting is highlighted in that case by the fact that it is arguable the Pentagon failed to foresee the lawlessness and insecurity of the post-war situation and the level of hostility shown towards the occupying forces.
In other areas scenario analysis can be important and illuminating. For example, analysis of the probability of the earth being struck by a large celestial object (a meteor) suggests that whilst the probability is low, the damage inflicted is so high that the event is much more important (threatening) than the low probability (in any one year) alone would suggest.
See also
References
"Shirt-sleeve approach to long-range plans.", Linneman, Robert E, Kennell, John D.; Harvard Business Review; Mar/Apr77, Vol. 55 Issue 2, p141External links
- Global Scenario Group Environmental group that analyzes scenarios for sustainable development using PoleStar scenario-building software.
Asset allocation is a term used to refer to how an investor distributes his investments among various classes of investment vehicles (e.g., stocks and bonds).
A large part of financial planning is finding an asset allocation that is appropriate for a given person in terms
..... Click the link for more information.
A large part of financial planning is finding an asset allocation that is appropriate for a given person in terms
..... Click the link for more information.
A peer group is a group of people of approximately the same age, social status, and interests. To work out the relationship with peers, there can be confusion for people to find out how they fit in.
..... Click the link for more information.
..... Click the link for more information.
Business law
Business organizations
Basic forms:
Sole proprietorship
Corporation
Partnership
(General · Limited · LLP)
Cooperative
USA:
Business trust · LLC · LLLP
Delaware corporation
Nevada corporation
UK/Commonwealth:
Limited company
..... Click the link for more information.
Business organizations
Basic forms:
Sole proprietorship
Corporation
Partnership
(General · Limited · LLP)
Cooperative
USA:
Business trust · LLC · LLLP
Delaware corporation
Nevada corporation
UK/Commonwealth:
Limited company
..... Click the link for more information.
For other senses of this word see morphology.
Morphological analysis or General Morphological Analysis is a method developed by Fritz Zwicky (1967, 1969) for exploring all the possible solutions to a multi-dimensional, non-quantified problem..... Click the link for more information.
Sustainable development is a socio-ecological process characterized by the fulfilment of human needs while maintaining the quality of the natural environment indefinitely. The linkage between environment and development was globally recognized in 1980, when the International Union
..... Click the link for more information.
..... Click the link for more information.
This article is copied from an article on Wikipedia.org - the free encyclopedia created and edited by online user community. The text was not checked or edited by anyone on our staff. Although the vast majority of the wikipedia encyclopedia articles provide accurate and timely information please do not assume the accuracy of any particular article. This article is distributed under the terms of GNU Free Documentation License.
Herod_Archelaus
