Scenario Analysis

Questions

What is Scenario Analysis?

Scenario Analysis means sketching a handful of distinct, plausible futures, such as a boom, a bust and a surprise, then working out how each would affect your plans. The aim is not to predict correctly but to make change feel familiar instead of shocking.

How do you use Scenario Analysis?

Use it for big, uncertain decisions: a job move, a budget, a major event. Ask what you would do in each scenario and look for steps that help in all of them. Keep it to three or four vivid stories so planning leads to action.

When does Scenario Analysis matter?

Scenario Analysis is one of the 32 mental models for risk, the situations where you ask: What could go wrong, and what will I do if it does? Within that, it belongs to “Protecting yourself”, alongside Antifragility, De-Risking and Margin of Safety.

What is an example of Scenario Analysis?

Two stories show it at work: Shell’s oil shock (1973) and Walmart and Katrina (2005). Both are told in full in The Mental Models Daily Almanac, which has two stories for each of its 365 models.

Which mental models are related to Scenario Analysis?

Monte Carlo Simulation, Luck Surface Area and Inversion. Scenario Analysis itself comes from general thinking.