scenario planning


  • The current situation does not need to be in the middle of the diagram (inflation may already be low), and possible scenarios may keep one (or more) of the forces relatively
    constant, especially if using three or more driving forces.

  • We have found that our own relatively complex (OBS) scenarios can also be made complementary to each other; without any great effort needed from the teams involved; and the
    resulting two scenarios are both developed further by all involved, without unnecessary focusing on one or the other.

  • If the question is based on small changes or a very small number of elements, other more formalized methods may be more useful.

  • However, a time horizon of anything less than ten years often leads participants to extrapolate from present trends, rather than consider the alternatives which might face

  • This may be obvious, where some of the factors are clearly related to each other in one way or another.

  • There are, however, a range of techniques which can help; and again the Post-It-Notes approach is especially useful: Thus, the participants try to arrange the drivers, which
    have emerged from the first stage, into groups which seem to make sense to them.

  • [5][6] Scenario planning may involve aspects of systems thinking, specifically the recognition that many factors may combine in complex ways to create sometimes surprising
    futures (due to non-linear feedback loops).

  • Take into consideration how quickly changes have happened in the past, and try to assess to what degree it is possible to predict common trends in demographics, product life

  • The methods and organizations are almost identical, except that scenario planning is applied to a wider variety of problems than merely military and political problems.

  • The 80:20 Rule here means that, at the end of the process, management’s attention must be focused on a limited number of most important issues.

  • taking account of possible variability within single scenarios as well as possible relationships between scenarios.

  • In the absence of proof, but taking account of Shell’s well documented experiences of using it over several decades (where, in the 1990s, its then CEO ascribed its success
    to its use of such scenarios), can be significant benefit to be obtained from extending the horizons of managers’ long-range forecasting in the way that the use of scenarios uniquely does.

  • However, it is likely that some work on this element will already have taken place during the preceding environmental analysis.

  • Identify the issues arising Step 1 – decide assumptions/drivers for change[edit] The first stage is to examine the results of environmental analysis to determine which are
    the most important factors that will decide the nature of the future environment within which the organisation operates.

  • Complementary scenarios As used by Shell, and as favoured by a number of the academics, two scenarios should be complementary; the reason being that this helps avoid managers
    ‘choosing’ just one, ‘preferred’, scenario – and lapsing once more into single-track forecasting (negating the benefits of using ‘alternative’ scenarios to allow for alternative, uncertain futures).

  • Important and uncertain This step is, though, also one of selection – since only the most important factors will justify a place in the scenarios.

  • Corporate strategy The first of these groups quite simply comprises the normal environmental analysis.

  • This step does of course require a significant amount of work compared to the others, and may be left out in back-of-the-envelope-analyses.

  • A challenge and a strength of scenario-building is that “predictors are part of the social context about which they are trying to make a prediction and may influence that
    context in the process”.

  • As the clusters – the ‘mini-scenarios’ – emerge, the associated notes may be stuck to each other rather than individually to the wall; which makes it easier to move the clusters
    around (and is a considerable help during the final, demanding stage to reducing the scenarios to two or three).

  • It is where managers’ ‘intuition’ – their ability to make sense of complex patterns of ‘soft’ data which more rigorous analysis would be unable to handle – plays an important

  • This is, however, a potentially difficult concept to grasp, where managers are used to looking for opposites; a good and a bad scenario, say, or an optimistic one versus a
    pessimistic one – and indeed this is the approach (for small businesses) advocated by Foster.

  • Further information: Strategic assumptions Brainstorming In any case, the brainstorming which should then take place, to ensure that the list is complete, may unearth more
    variables – and, in particular, the combination of factors may suggest yet others.

  • One approach can be to create all positive elements into one scenario and all negative elements (relative to the current situation) in another scenario, then refining these.

  • [19][21][25][26] Possibly as a result of these very sophisticated approaches, and of the difficult techniques they employed (which usually demanded the resources of a central
    planning staff), scenarios earned a reputation for difficulty (and cost) in use.

  • Try to include good reasons why the changes have occurred as this helps the further analysis.

  • Less obviously, the managers who are going to implement this strategy should also be taken into account.

  • These plans are almost always based on scenarios, and often the plans and scenarios are kept up-to-date by war games, sometimes played out with real troops.

  • Having placed the factors in these groups, the next action is to work out, very approximately at this stage, what is the connection between them.

  • The method also allows the inclusion of factors that are difficult to formalize, such as novel insights about the future, deep shifts in values, and unprecedented regulations
    or inventions.

  • Indeed, as – in common with most forms of long-range forecasting – the use of scenarios has (during the depressed trading conditions of the last decade) reduced to only a
    handful of private-sector organisations, Shell remains almost alone amongst them in keeping the technique at the forefront of forecasting.

  • If this is the case then you need to return to the first step – the whole scenario planning process is above all an iterative one (returning to its beginnings a number of
    times until the final outcome makes the best sense).

  • In general, one should take care when assigning probabilities to different scenarios as this could invite a tendency to consider only the scenario with the highest probability.

  • Identify their current interests, whether and why these interests have changed over time in the past.

  • In this step of the process, brainstorming is commonly used, where all trends that can be thought of are presented before they are assessed, to capture possible group thinking
    and tunnel vision.

  • The rule, though, is that you should produce the scenarios in the form most suitable for use by the managers who are going to base their strategy on them.

  • [14] The approach may have had more impact outside Shell than within, as many others firms and consultancies started to benefit as well from scenario planning.

  • When, however, they are asked to consider timescales in excess of ten years they almost all seem to accept the logic of the scenario planning process, and no longer fall back
    on that of extrapolation.

  • The usual problem is that one or more of the assumptions turns out to be unrealistic in terms of how the participants see their world.

  • It has been found that the managers who will be asked to use the final scenarios can only cope effectively with a maximum of three versions!

  • These factors are sometimes called ‘variables’ (because they will vary over the time being investigated, though the terminology may confuse scientists who use it in a more
    rigorous manner).

  • In terms of the overall approach to forecasting, they can be divided into three main groups of activities (which are, generally speaking, common to all long range forecasting
    processes):[13] 1.

  • It also offers a very good introduction for those who are coming to the scenario process for the first time.

  • A very simple technique which is especially useful at this – brainstorming – stage, and in general for handling scenario planning debates is derived from use in Shell where
    this type of approach is often used.

  • [28] There has only been anecdotal evidence offered in support of the value of scenarios, even as aids to forecasting; and most of this has come from one company – Shell.

  • As in military intelligence, the chief challenge of scenario planning is to find out the real needs of policy-makers, when policy-makers may not themselves know what they
    need to know, or may not know how to describe the information that they really want.

  • [32] At this point it is also worth pointing out that a great virtue of scenarios is that they can accommodate the input from any other form of forecasting.

  • While this process is taking place the participants will probably want to add new topics – so more Post-It Notes are added to the wall.

  • The central part represents the specific techniques – covered here – which differentiate the scenario forecasting process from the others in long-range planning.

  • [14] More recently scenario planning has been discussed as a tool to improve the strategic agility, by cognitively preparing not only multiple scenarios but also multiple
    consistent strategies.

  • At a later stage more meaningful links may be found, or the factors may then be rejected from the scenarios.

  • Experience has proved that offering a wider range of topics merely allows them to select those few which interest them, and not necessarily those which are most important
    to the organisation.

  • As a result, many of the larger organizations started to use the technique in one form or another.

  • Applications Business[edit] In the past, strategic plans have often considered only the “official future”, which was usually a straight-line graph of current trends carried
    into the future.

  • [13] Process The part of the overall process which is radically different from most other forms of long-range planning is the central section, the actual production of the

  • Shell has, since that time, led the commercial world in the use of scenarios – and in the development of more practical techniques to support these.

  • In practice, even at this early stage the participants will want to cluster them in groups which seem to make sense.

  • [16] Geopolitics[edit] In politics or geopolitics, scenario analysis involves reflecting on the possible alternative paths of a social or political environment and possibly
    diplomatic and war risks.

  • By the time the formal scenario planning stage has been reached, the participants may have already decided – probably in their sub-conscious rather than formally – what the
    main forces are.

  • [27] Practical development of scenario forecasting, to guide strategy rather than for the more limited academic uses which had previously been the case, was started by Pierre
    Wack in 1971 at the Royal Dutch Shell group of companies – and it, too, was given impetus by the Oil Shock two years later.

  • The final group represents all the subsequent processes which go towards producing the corporate strategy and plans.

  • Scenarios usually include plausible, but unexpectedly important, situations and problems that exist in some nascent form in the present day.

  • This chief value of scenario planning is that it allows policy-makers to make and learn from mistakes without risking career-limiting failures in real life.

  • As a result, the planners reduced the number to three, which managers could handle easily but could no longer so easily justify the selection of only one!

  • Users tend to prefer the term ‘drivers’ (for change), since this terminology is not laden with quasi-scientific connotations and reinforces the participant’s commitment to
    search for those forces which will act to change the future.

  • In business applications, the emphasis on understanding the behavior of opponents has been reduced while more attention is now paid to changes in the natural environment.

  • Even so, the theoretical importance of the use of alternative scenarios, to help address the uncertainty implicit in long-range forecasts, was dramatically underlined by the
    widespread confusion which followed the Oil Shock of 1973.

  • Usually the games’ simulated time runs hundreds of times faster than real life, so policy-makers experience several years of policy decisions, and their simulated effects,
    in less than a day.

  • The ‘natural’ reason for this may be that it represents some form of limit as to what participants can visualise.

  • History of use by academic and commercial organizations Most authors attribute the introduction of scenario planning to Herman Kahn through his work for the US Military in
    the 1950s at the RAND Corporation where he developed a technique of describing the future in stories as if written by people in the future.


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