Question

In a typical scenario planning exercise,:

Answer 1

Answer:

E) managers formulate plans that are based on "what-if" scenarios that are about the future

Explanation:

When you are carrying on a planning exercise, you must try to simulate possible business scenarios and determine the different possible outcomes for your project.

For example, in scenario 1 you might include very positive variables, e.g. if we have a high selling price, low costs, high demand, low taxes, what will be our net income. In scenario 2, if our sales are not that high, what will happen to our income. In scenario 3, if our costs might be higher than expected or taxes might increase, what will happen. And so on until you cover most of the possibilities.

If a project is profitable and has a positive NPV only with very favorable scenarios, then you should weigh how possible are those favorable scenarios. You should also determine how risky your investment becomes if something changes. Sometimes even a small change can make a project fail.