Read the paragraph and answer the following questions based on the scenario paragraph.

$1.$ Describe best approaches to scenario analysis.

$2.$ Is there any disadvantages of scenario analysis? If yes, write them briefly.

Scenario analysis is the third pillar of the framework suggested by the Bank of

International Settlements in their Basel norms. In the previous articles, we have already

studied a collection of internal and external loss data as well as the self$-$assessment of

risks. However, it is important to note that the loss data collection framework has certain

shortcomings. Firstly, it does not take into account losses that are beyond the mentioned

time period. For instance, companies generally maintain loss data for three years.

However, if a loss is likely to happen once in ten years, that risk is completely missed out

on the loss data framework. Secondly, loss data only considers losses that have

materialized. Scenario analysis, on the other hand, takes into account losses that may not

have occurred till now, but which have the potential to occur in the future. This is the

main benefit of scenario analysis. They help the company identify emerging risks. The

methodology used for scenario analysis is much more comprehensive. The internal

position of the company is studied in addition to the vulnerabilities posed by the external

situation.