SCENARIO BASED ANALYSIS USING DRIVER BASED BUDGETING

Abstract

Scenario analysis is a technique that entails calculating various reinvestment rates for predicted returns that are reinvested within the investment horizon. Scenario analysis, which is based on mathematical and statistical concepts, is a method for estimating changes in the value of a portfolio depending on the occurrence of various scenarios, or "what if" scenarios, using the principles of "what if" analysis, or sensitivity analysis. Sensitivity analysis is the process of determining how different values of an independent variable impact a dependent variable under specific circumstances. These evaluations can be used to measure the level of risk in a specific investment in relation to a number of hypothetical occurrences, ranging from highly likely to highly improbable. An investor can assess whether the level of risk involved is within his comfort zone based on the research' findings. Scenario analysis is the process of evaluating a portfolio's expected value once a change in the values of critical elements occurs. The sales department kicks off the budgeting process. They'll have to enter the products, quantities, and prices they expect to see in the future. They'll have to consider how they'll make money as well. Following that, the sales forecast will be utilised to plan operations. They'll figure out how much money they'll need in terms of labour and equipment to deliver this budget, and they'll document everything in a set of guidelines.