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Critical Uncertainties in Scenario Planning

This document discusses scenario planning as an alternative approach to dealing with uncertainty. Scenario planning involves creating multiple plausible futures or "scenarios" that encompass a range of uncertainties. Unlike forecasts which predict a single most likely future, scenarios are not assigned probabilities but aim to bound uncertainties. Scenarios are constructed using methods like identifying critical uncertainties and trends, and creating "extreme worlds" that are then made internally consistent. Scenario planning is recommended when there is high uncertainty, many past surprises, insufficient opportunities are perceived, or there are strong differences of opinion in an industry experiencing significant change. Typical outcomes of scenario planning include developing new opportunities, rethinking plans, perceiving weak signals, and moving forward with more confidence.

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9 views14 pages

Critical Uncertainties in Scenario Planning

This document discusses scenario planning as an alternative approach to dealing with uncertainty. Scenario planning involves creating multiple plausible futures or "scenarios" that encompass a range of uncertainties. Unlike forecasts which predict a single most likely future, scenarios are not assigned probabilities but aim to bound uncertainties. Scenarios are constructed using methods like identifying critical uncertainties and trends, and creating "extreme worlds" that are then made internally consistent. Scenario planning is recommended when there is high uncertainty, many past surprises, insufficient opportunities are perceived, or there are strong differences of opinion in an industry experiencing significant change. Typical outcomes of scenario planning include developing new opportunities, rethinking plans, perceiving weak signals, and moving forward with more confidence.

Uploaded by

cheah1410
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

Scenario Planning:

An Alternative Way
of Dealing
with Uncertainty
1

In times of rapid change, strategic failure is


often caused by a crisis of perception (that
is, the inability to see an emergent novel
reality by being locked inside obsolete
assumptions), particularly in large, well-run
companies
Pierre Wack

I mistrust isolated trends ... In a period of


rapid change, strategic planning based on
straight-line trend extrapolation is
inherently treacherous ... what is needed for
planning is multidimensional models that
interrelate forces technological, social,
political, even cultural, along with the
economies.
Alvin Toffler in The Adaptive Corporation (1985)

Assumptions of scenario planning


1. Managers are not able to make valid
assessments of probabilities of unique
future events

2. Best guesses of the future may be


wrong
3. Minority opinions should be allowed
airtime
4

What are scenarios?


A scenario is not a forecast of the future
multiple scenarios are pen pictures
encompassing a range of plausible futures
Each scenario has an infinitesimal
probability of occurrence, but the range
of the set of scenarios is constructed to
BOUND uncertainties seen to be inherent in
the future
Unlike probability judgments, scenarios
highlight the reasoning underlying judgments
about the future
5

More on scenarios
A major focus is how the future can evolve from
now to the horizon year
Relationship between critical uncertainties,
predetermined trends and behavior of actors is
thought through

Decisions are then tested for robustness in


the wind tunnel of the set of scenarios
6

Scenario construction: The extreme world


method
1.
2.
3.
4.
5.
6.
7.
8.

Identify the issue of concern and horizon year


Identify current trends that have an impact on the issue
of concern
Identify critical uncertainties
Identify whether trends and uncertainties have a negative
or positive impact on issue of concern
Create extreme worlds
Add predetermined trends to both scenarios
Check for internal consistency
Add in actions of individuals and organizations
7

Examples of predetermined trends


Demographic:
Technology:
Political:
Cultural:
Economic:

population growth, birth rates


growth rates, production capacity
power shifts, budget deficits
changing values, spending
patterns
disposable incomes, investment
levels

An illustrative idea for a business school

Testing the robustness of strategies against scenarios

10

An output of the driving forces method

11

Stakeholder structuring space

12

When should a company use scenario planning?


1. When uncertainty is high
2. Too many costly surprises have occurred in the
past
3. Insufficient new opportunities are perceived or
generated
4. The industry has experienced significant change,
or is about to
5. Strong differences of opinion exist, each of
which has its merits

13

Typical outcomes of scenario planning


This is what we have to do
(developing new business opportunities)
We better think again
(understanding outcomes of plans better)
We better watch those dots on the horizon
(perceiving weak signals of new developments)
We are in the right track
(moving forward with more confidence)

14

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