| Method | Description | Purpose | How to Perform |
| Best / Worst Case Scenario | Evaluates the most optimistic and pessimistic conditions for a business, considering factors like market growth or economic downturns. | Used for risk assessment and to ensure the business can survive under extreme conditions. | - Adjust assumptions to reflect the best/worst possible outcomes. - Run the model under both optimistic and pessimistic assumptions. - Assess financial performance and risk tolerance. |
| Sensitivity Analysis | Involves changing one key factor at a time, such as sales volume, price, or costs, to measure the model's sensitivity to that variable. | Used to assess risk and identify which factors impact financial performance the most. | - Identify key drivers and determine which variables affect financial performance. - Change one variable at a time while keeping others constant. - Measure how the changes impact profitability, costs, and revenue. |
| Break-Even Analysis | Determines the point where total revenue equals total costs, meaning there is no profit or loss. | Helps understand the minimum performance level required to avoid losses. | - Identify fixed and variable costs. - Establish the sales price and determine how many units need to be sold to break even. - Use break-even output to evaluate financial feasibility. |
| Stress Testing | Applies extreme conditions or shocks, such as sudden market crashes or rapid interest rate changes, to test resilience. | Evaluates how well a financial model performs under severe yet possible conditions. | - Create scenarios with extreme market conditions. - Apply the stress factors to the model. - Analyze financial resilience and develop risk mitigation strategies. |
| Monte Carlo Simulation | A more complex analysis that uses random sampling and statistical modeling to estimate possible outcomes. | Accounts for risk and uncertainty in financial forecasting and decision-making. | - Define probability distributions for key variables. - Run thousands of simulation iterations to obtain a range of possible outcomes. - Use statistical analysis to interpret results. |
| Industry-Specific Scenarios | Tailored to specific industries, considering sector-specific risks like regulatory changes in pharmaceuticals or tech advancements. | Provides industry-specific insights and helps businesses align with sector trends. | - Research industry-specific factors. - Create scenarios relevant to the industry's market conditions. - Compare outcomes with industry benchmarks. |
| Regulatory Impact Analysis | Examines how potential legal or regulatory changes affect financial models and business operations. | Assesses net present value, internal rate of return, and compliance costs. | - Identify potential regulation changes. - Adjust financial models to reflect compliance requirements. - Analyze costs, benefits, and operational impact. |