Which three of the following statements accurately relate to scenario analysis?
A) It is essentially a 'what- if' analysis in which a number of variables may be changed at the same time.
B) It uses a series of calculations to build up a picture of the nature of the risks facing the project and their impact on project profitability.
C) It is used by managers to analyse how projects have been affected by decisions made by their predecessors.
D) It can identify the extent to which variables may change allowing management to consider possible actions to be taken before a negative NPV is produced.

Question

Quizplus · Accepted Answer

Scenario analysis is a technique used to evaluate possible future outcomes of a project by considering various combinations of factors that may impact the project. It involves changing multiple variables simultaneously to understand the potential impact on project profitability. Additionally, it helps management to understand the extent to which certain variables may change and consider appropriate actions to mitigate potential negative impacts on the project's NPV. However, scenario analysis is not used to analyze past decisions made by the project's predecessors, making option C incorrect.

Which Three of the Following Statements Accurately Relate to Scenario