Scenario planning combined with probabilities as a risk management tool - analysis of pros and cons

Abstract

Scenario planning and probabilities are often very helpful in uncertain decision problems. In the paper, we examine the correctness of combining probabilities with scenario planning in risk management. We make a literature review and analyse diverse decision problems differing from each other with regard to their nature, the decision maker's objectives and preferences. We explore competition, quality, innovation, resource allocation, inventory and banking issues. The illustrative examples concern both one-criterion and multi-criteria decision problems. We get to the point that scenario planning is an unquestionable support for risk management. Nevertheless, the use of probabilities as an accompanying tool may be necessary and justified merely in some specific cases.