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The ultimate guide to Scenario Analysis for PPM: how it works, examples, techniques and tools

Q: What are the key inputs needed for scenario analysis?

To perform scenario analysis, you need: Clear objectives for what you want to achieve. Key variables such as budget, timeline, resources, and market conditions. Assumptions about future uncertainties , such as economic factors or stakeholder needs. Data to support quantitative analysis , such as historical performance, trends, and forecasts.

When it comes to managing multiple project and product portfolios, making the right decisions is critical for companies to succeed. In today’s uncertain business environment, organizations need tools to help them foresee possible outcomes and make informed choices.

Scenario analysis is certainly one of the most effective tools for planning your organization’s roadmap in advance. In this guide, we will explain in detail what Scenario Analysis is, how it works, its different use cases and the best software to use this technique.

What is Scenario Analysis and why they are important in PPM

Scenario analysis is a strategic process by which you can create different what-if scenarios to help your organization better prepare for risks, uncertainties and opportunities that may arise along the way.

This analysis, in an environment where multiple projects and products are managed, is indispensable to evaluate in advance the possible outcomes of decisions on resource allocation, prioritization of initiatives, or project delivery dates.

Unlike other forecasting methods based solely on historical data, with scenario simulation you can explore as many hypothetical futures as you need. Scenario analyses, in a business environment where budget constraints and changing priorities and market conditions are the order of the day, offer a structured approach to exploring these variables. They are a great resource for decision makers to simulate different outcomes, assess risks and develop contingency plans.

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Advantages of Scenario Simulation

Thus, Scenario Simulation brings with it a number of benefits for Project Portfolio Management that cannot be denied. Here are some of its main advantages:

Risk mitigation: it helps identify bottlenecks, potential delays and risks before they become a serious problem.
Flexible planning: it allows your organization to be agile and flexible in periods of uncertainty.
Better decision making: it provides insights with which executives, resource managers, PMOs and financial controllers can make data-driven decisions.
Resource optimization: it helps you ensure that the highest-priority projects have the resources they need.

Scenario Simulation challenges

However, this process also comes with its own set of challenges that you need to be aware of. These are some of the main challenges of Scenario Analysis:

It requires accurate data: for Scenario Analysis to be efficient, the data must be 100% reliable. If the analysis is done based on assumptions or incorrect data, it will result in inaccurate scenarios that could lead to erroneous decisions.
Complexity in multi-project environments: the more projects you manage in your organization, the more complex the scenario analysis will be. Each project may have its own variables and uncertainties, and having to consider them all at once can result in simplistic scenarios.
Uncertainty remains: although scenario analysis is a very effective tool for organizations to face the future with guarantees, it does not eliminate uncertainty. There are many external factors, such as political, technological or economic changes, that can catch organizations off guard, no matter how well the scenarios have been modeled.
Time-consuming: scenario analysis is a time-consuming process. You need to collect and validate data, consult with different stakeholders and analyze each scenario carefully.

How to do a scenario analysis? A 10- step framework

And yes, conducting a scenario analysis is a time-consuming process. It is a process in which, in order to obtain useful and actionable outcomes, you need a well-structured approach in which nothing can be left to improvisation.

This is the 10-step process you need to follow so that your scenario analyses and simulations bring value to the business.

1. Define objectives and scope

Every scenario analysis should start with a clear definition of the objectives and scope. What are you really trying to analyze? Do you want to focus on resource allocation, or rather on financial management and project prioritization?

Defining the objective and scope of the analysis will give you a roadmap and prevent you from wasting time on irrelevant details. For example, if your goal is to evaluate how to redistribute resources among projects, you will need to focus on knowing the internal capacity, the expected timelines for each project and the organization’s strategic objectives.

Key points to consider:

Focus on concrete objectives.
Define a time horizon (quarterly, annual, etc.).
Determine the critical factors (financial management, deadlines, resource allocation, etc.).

2. Identify key uncertainties and variables

Once you are clear on the objectives, the next step is to identify those key uncertainties and variables that may affect the outcome of the projects. In PPM, we can identify 2 types of variables:

External: these include, among others, market conditions, economic changes or new regulations.
Internal: budgetary restrictions, availability of resources, technological advances, etc.

Understanding the impact of each uncertainty is crucial, as they will be the basis for developing your scenario simulations.

Keys to keep in mind

Prioritize uncertainties according to their likelihood and impact.
Gather data to quantify these uncertainties.
Involve stakeholders to help you identify these variables and their impact.

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3. Develop a set of possible scenarios

Once the uncertainties have been identified, you should develop a set of scenarios that represent various possible futures, with each scenario addressing how the uncertainties evolve.

These scenarios should serve to test your strategic and operational plans. Here you should put some strategic creativity into practice and come up with at least 3 possible scenarios. For example:

Best-case scenario: in this scenario, everything goes smoothly. Projects are delivered on time, there are no resource constraints, and the budget for each project hardly varies. This type of scenario will help you set ambitious goals and encourage creative thinking to exceed expectations.
Worst-case scenario: In this scenario you will encounter a myriad of obstacles. If you prepare in advance for the worst-case scenario, you can then develop contingency plans to minimize the impact of each variable.
Most likely scenario: this would be the most realistic scenario you can come up with, neither as optimistic nor as pessimistic as the previous ones. There will be difficulties, yes: some delays, some pressure with the budget, but in the end the projects will move forward, more or less.

Keys to keep in mind

Create 3-5 scenarios to get the full picture.
Make sure each scenario covers the major uncertainties.
Scenarios should be realistic, and data driven.

4. Assess the impact

With the scenarios in place, you must now evaluate how well or poorly your project portfolios will perform. This assessment can be both quantitative (financial impact, resource costs) and qualitative (alignment with strategy, stakeholder opinion, etc.).

For example, let’s focus on a pessimistic scenario: what would happen if the organization had no key skills, or if the budget was reduced by 25%? Assessing these impacts will give you a clear idea of the challenges and opportunities that each scenario presents.

Key tips to keep in mind

Evaluate both short-term and long-term impact.
Use quantitative and qualitative metrics.
Involve team leaders, project managers and other stakeholders to get a more complete picture.

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5. Evaluate strategic options and contingency plans

Now that you have an idea of the impact of each variable on your organization, you will need to:

Develop a strategic roadmap to take advantage of the opportunities of the most optimistic scenarios.
Develop contingency plans to mitigate risks for the worst-case scenario.

For example, if the worst-case scenario includes resource reductions, you might design a plan to prioritize certain projects or delay the less important ones. Or if you encounter an ideal scenario, you could accelerate key projects or expand the portfolio to take advantage of the favorable timing and available resources.

Key takeaways

Develop flexible strategies that you can adjust in case scenarios change.
Prioritize actions based on their impact and feasibility.
Always prepare contingency plans for the most unfavorable scenarios.

6. Quantitative and qualitative analysis

At this point, it is time to combine quantitative and qualitative analysis to get a more complete view of each scenario.

Quantitative analysis may include resource planning, timeline projections or financial modeling of project portfolios.
Qualitative analysis, on the other hand, involves assessing factors such as stakeholder engagement, team morale and the alignment of each project with strategy.

For example, in resource allocation, quantitative analysis would calculate the cost of resources, while qualitative analysis would look at the ability of teams to meet project demands under different conditions.

Key considerations

Use historical data for quantitative analysis.
Leverage stakeholder feedback for qualitative analysis.
Seek a balance between data and real-world consequences.

7. Test the sensitivity of the results

Sensitivity analysis is key to understanding how small changes in certain variables can affect different scenarios. You have to adjust some factors, such as resource availability or project duration, to see how sensitive the results are to those changes.

For example, what would happen if a project is delayed by a month, or if the budget increases by 10%? Sensitivity analysis will help you identify which variables are really critical to your organization’s success and prepare better.

Key things to consider

Identify the key drivers for each scenario.
Test small changes to understand sensitivity.
Adjust your strategic plans based on the results.

8. Engage stakeholders and review feedback

Scenario Simulation is not something that should be done by just one person. You must involve different stakeholders to ensure that the scenarios are realistic and that everyone is aligned.

For example, a Product Manager or IT Manager could provide operational details that you may not have initially considered, or executives and strategy managers could highlight strategic priorities that need to be integrated into the analysis.

Key things to consider

Organize regular review sessions with stakeholders.
Incorporate their feedback into the adjustments you make to the scenarios.
Ensure that the scenario results are aligned with the organization’s strategy.

9. Make informed decisions

With all the information at your fingertips, you can now begin to make decisions on how to proceed. This might involve reprioritizing projects, reallocating staff and funds, or implementing contingency plans based on what each scenario simulation tells you.

For example, if in the most-likely scenario you conclude that key projects can be completed, you can move forward with minor adjustments. On the other hand, if the worst-case scenario is ultimately the most likely, you will need to cancel or delay some projects so as not to waste resources.

Key takeaways

Base your decisions on data and feedback.
Prioritize initiatives that offer more value with less risk.
Be flexible to adapt to changing conditions in today’s business environment.

10. Document and communicate results

And finally, you must document everything and communicate the results to stakeholders. Use dashboards, tables, presentations and other resources to make information more accessible. Make sure everyone is aligned on the way forward and understands the steps needed to execute contingency plans if necessary.

WHAT-IF SCENARIO ANALYSIS

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Scenario Analysis techniques

When performing scenario analysis and simulations, you can use certain techniques to assess future uncertainties and make more informed decisions.

In our 10-step Scenario Analysis framework we have already highlighted two of these techniques: best-case, worst-case and sensitivity analysis. These are two of the most widespread techniques for simulating scenarios, but they are not the only ones. These are other techniques that you can put into practice in your Scenario Simulation processes:

Monte Carlo Simulation: this is based on the use of probability distributions to simulate different possible scenarios. Basically, it allows you to visualize how likely it is that one scenario or another will occur and, from there, make decisions. It is especially useful in financial and risk analysis.
Cross impact analysis: this technique focuses on how changes in one variable can affect others. It is very useful in complex environments with many project interdependencies, where any change in one project or resource can generate a domino effect.
Decision trees: This is a visual representation of possible outcomes based on the decisions you make. Each branch of the tree shows a different path, with its respective risks and outcomes. It is a very useful technique for evaluating sequential decisions and comparing different strategic options.
Scenario storytelling: this involves creating detailed descriptions of each scenario, mixing the qualitative with the quantitative. It is a very useful technique for departments with a less technical background to understand how each scenario would play out and prepare them for broader impacts, such as market trends or regulatory changes,
Scenario Matrix: finally, with the Scenario Matrix you can compare different scenarios by plotting them on 2 axes, each representing a key variable. It is a quick and visual way to see how the scenarios relate to each other and to prioritize which ones to focus on for decision making.

Use cases and examples of Scenario Analysis

Whether you use techniques such as Monte Carlo Simulation or Decision Trees, what does not change when performing scenario analysis are the use cases of this process. There are mainly 3 use cases, which are as follows:

Resource allocation: you can analyze skills shortages and bottlenecks, and thus plan ahead if they need to hire more staff or outsource.
Budget management: scenario analyses help companies test different funding allocation models to see how capital is best distributed across projects or product lines.
Project prioritization: by simulating changes in demand or organizational capacity you can see how each project aligns with its long-term goals and how it will perform under different conditions.

However, the impact and focus of scenario analysis can vary depending on the specific context in which it is applied. Whether in new product development, strategic decision-making, or resource management, the versatility of scenario simulation allows organizations to tailor the process to their specific challenges.

Below are several examples of how scenario analysis can be effectively applied in various business contexts.

Scenario analysis example #1: Innovation and New Product Development

For R&D project management and New Product Development, scenario simulation is very useful for assessing the feasibility of new product launches and analyzing potential risks.

For example, a tech company is going to launch a new wearable device, and they perform scenario analysis to assess the feasibility of the launch and the risks involved. They simulate 3 possible scenarios:

Best-case scenario: everything goes as planned. There are no delays, and sales exceed expectations.
Worst case scenario: there are technical problems in the development of the product and, in addition, the competition is ahead with a similar device, leading to limited sales.
Most likely scenario: the product is launched on schedule, but without some of the features initially planned, resulting in moderate success in the market.

With this, the company can evaluate whether it has enough engineers and designers to meet the deadlines, or if they need to outsource part of the project to accelerate it. It can also decide whether to adjust the marketing budget and make changes to the promotional strategy for the new product.

Scenario analysis example #2: Strategic Planning

When it comes to medium- and long-term strategy planning, scenario analysis is key to prioritizing projects and aligning resource allocation and budget management with objectives.

For example, a healthcare provider is considering 3 major initiatives:

To Expand its facilities.
Launch telehealth services.
Upgrade its electronic records system.

And, by simulating scenarios, they proceed to assess the impact of some variables:

Increase in patient demand: in this case, the company would prioritize the expansion of its facilities and telehealth services.
Changes in current regulations: in this case, priority would be given to updating electronic records to comply with new regulations.
Budget constraints: in the event of a budget cut, 2 of the initiatives would be delayed and only the most critical one would be prioritized.

In this case, the analysis helps them decide which of these projects has the most strategic value and how they can adjust resources.

Scenario analysis example #3: Project and Portfolio Management

For example, a global manufacturing company is managing several concurrent projects across its portfolio, including facility upgrades, new product lines, and process optimization initiatives. Each project competes for the same pool of resources, and the budget for the incoming year is limited.

They run scenario analysis to compare different allocation strategies based on key criteria such as potential ROI, strategic alignment and resource constraints. By simulating various combinations of project priorities and staff allocation, they can visualize the impact on their choices on project timelines, resource usage and budget consumption. So, for example:

In one scenario they decide to prioritize high-ROI projects that can be completed within the fiscal year.
In a second scenario, they may focus on long-term strategic projects with lower immediate returns but higher alignment with future goals.

In this case, the analysis helps them decide which projects should be accelerated or delayed based on resource availability and budget restrictions. Also, the company can make informed decisions about whether to outsource certain functions or hire temporary staff to handle peak demand periods.

Scenario analysis example #4: Demand Planning and Management

For demand planning and management, scenario simulations can help companies readjust staff allocation and prioritize initiatives.

For example, let’s take the IT department of a leading banking company. The various teams within this IT unit are responsible for the organization’s entire technology infrastructure, from servers and data storage to cybersecurity systems and the applications used by both customers and internal employees.

With scenario analysis, they can anticipate how potential changes in demand may affect capacity planning and resource management.

Increased demand for digital banking services: an increase in the number of customers using online and mobile banking applications can lead to an increase in demand for technical support and, therefore, make it necessary to hire more staff.
Cybersecurity threat: a cybersecurity threat may force the company to strengthen security protocols and allocate more resources to security teams.
Economic downturn: in the event of an economic recession and, therefore, less demand for new projects, it would be necessary to look at how to reallocate the budget and prioritize initiatives that help reduce costs.

By simulating these variables, the IT department can identify in which areas they need to adjust resources and personnel, and develop contingency plans for any fluctuations in demand, thus ensuring continuity of service.

Scenario analysis example #5: Business Transformation Program

Let´s imagine a large retail firm undergoing a business transformation program. The aim is to enhance customer experience through e-commerce expansion, upgrading physical store layouts, and implementing a new supply chain management system. The company faces the challenge of balancing these transformation initiatives with limited resources, both in terms of personnel and budget.

So, the company leverages scenario analysis to explore different prioritization strategies:

Scenario 1: focuses on fast-tracking the e-commerce expansion, allocating the majority of the budget and personnel to IT and marketing teams, while delaying store upgrades.
Scenario 2: this one prioritizes the supply chain system upgrade, which could optimize logistics and reduce long-term operational costs, but slow down customer-facing improvements.
Scenario 3: this scenario tries to balance resources more evenly across all three initiatives, ensuring steady progress but with potential delays in achieving full digital transformation.

By analyzing these scenarios, the company identifies the optimal scenario that accelerates the e-commerce initiative, which has the most immediate impact on revenue growth, while allocating sufficient resources to the supply chain upgrade to ensure long-term operational efficiency. The simulations also show that delaying store layout changes will have a minimal negative impact, allowing those initiatives to be phased in later.

Best tools to perform Scenario Analysis in multi-project environments

In environments with multiple ongoing projects as in the examples we have shown above, performing scenario analysis can be a real headache if you don’t have the right tools at your disposal. It’s not enough to manage several variables at once, you also need to be able to visualize the data, communicate with the teams and view resource availability in real time.

Here are some of the best tools to simulate scenarios that you can find on the market.

1. Triskell Software

Triskell is a cloud-based PPM platform designed specifically for project portfolio management with the most advanced Scenario Simulation functionality on the market. If you have to manage multiple projects, resources and also perform scenario simulations, Triskell will be your best ally.

Advantages of Triskell

All-in-one solution: it is a PPM software with Strategic Planning, Resource Management, Budget Management and project management capabilities.
Detailed scenario modeling: with Triskell you can analyze how each scenario affects other projects within a portfolio, program or set of projects and how to allocate resources and budgets accordingly.
Real-time collaboration: your teams can collaborate directly on the platform, adjusting variables and testing different scenarios. You can also set up alerts and notifications to managers about the outcomes of the different Scenario Simulations.

Disadvantages of Triskell

Price: for small organizations or those that manage few projects, it is not the most suitable option due to its price.
Learning curve: it is one of the best PPM tools on the market, so mastering all its functionalities will take some time.

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2. Excel

While Excel isn’t specifically designed for scenario simulations, it can be a viable option for small organizations with only one or two project managers. It’s accessible, widely known, and offers useful data analysis features.

Advantages of Excel

Customizable models: create tailored scenarios using pivot tables, data validation, and conditional formatting.
Cost-effective: compared to other tools, Excel is very affordable.
Analytical tools: Excel includes powerful tools like Solver, Goal Seek, and What-If Analysis, enabling you to create and test different scenarios.

Disadvantages of Excel

Lack of automation: Excel is a manual tool. It doesn’t provide real-time data or automatic updates. As your project portfolio grows, managing projects in Excel becomes cumbersome.
Limited collaboration: While you can share spreadsheets, maintaining version control and enabling multiple users to collaborate simultaneously can be challenging.
Scalability issues: As you manage larger projects or those with many interdependencies, Excel’s limitations become more apparent.

3. BigPicture

BigPicture is a project management tool that offers robust features for planning, tracking, and executing projects. Its scenario simulation capabilities allow teams to create different project scenarios, compare outcomes, and make informed decisions.

Advantages of BigPicture

Integration with Jira: users can leverage integration with Jira data for accurate scenario simulations.
Portfolio-level view: it enables users to run simulations across multiple projects, giving insights at both the project and portfolio levels.
Resource Management: it offers strong resource allocation features, allowing you to simulate various capacity scenarios and their effects on project delivery.

Disadvantages of BigPicture

Limited standalone use: although it shines when it integrated with Jira, it may fall short when used as a standalone tool.
Complex setup: for users unfamiliar with Jira or complex project management tools, the learning curve can be steep
Cost: For smaller teams or companies, the pricing model could be prohibitive.

Conclusion

Scenario analysis is undoubtedly one of those tools that no organization can do without. It allows you to make informed decisions based on real data. Whether you’re managing multiple projects, launching new products, or planning for the long term, the key is understanding how different variables will impact your portfolio. That’s the key to keeping your eye on your goals.

Additionally, tools like Triskell Software allow you to perform scenario analysis easily and intuitively, even if you’re managing multiple projects simultaneously. This ensures that your teams are always prepared for whatever comes next, whether it’s a storm or an unexpected opportunity. Because, at the end of the day, the only certainty is that nothing is certain, right?

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FAQ Scenario Analysis examples and techniques

How does scenario analysis differ from risk management?

Scenario analysis and risk management are closely related but distinct. Risk management focuses on identifying and mitigating specific risks, while scenario analysis explores various possible futures by simulating a range of uncertainties.

Scenario analysis can be used as part of the risk management process, but it takes a broader view by considering multiple potential outcomes rather than focusing on specific risk events.

What are the key inputs needed for scenario analysis?

To perform scenario analysis, you need:

Clear objectives for what you want to achieve.
Key variables such as budget, timeline, resources, and market conditions.
Assumptions about future uncertainties, such as economic factors or stakeholder needs.
Data to support quantitative analysis, such as historical performance, trends, and forecasts.

How often should scenario analysis be updated?

Scenario analysis should be an ongoing process, updated regularly as new information or external factors come to light. In dynamic industries or rapidly changing projects, frequent updates ensure the scenarios remain relevant. It is advisable to review scenarios whenever there is a significant shift in project variables, such as budget cuts or market changes.

Can scenario analysis be integrated with agile project management?

Yes, scenario analysis can complement agile project management. Agile teams can use scenario planning to anticipate changes and prepare for different sprints or iterations. Scenarios help teams adjust quickly when circumstances change, ensuring that agile principles of flexibility and responsiveness are maintained throughout the project lifecycle.