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Scenario Planning for Uncertainty Management

This document provides an overview of 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 rather than making predictions. Each scenario has a low probability of occurring but the set of scenarios together bound the range of possible futures. Scenarios highlight the reasoning and relationships between critical uncertainties, trends, and actions of organizations that could impact the future. Scenario planning is recommended when there is high uncertainty, costly surprises have occurred, or there are differences of opinion about the future. Outcomes of scenario planning can include developing new opportunities, rethinking plans and strategies, and perceiving weak signals of change.

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18 views14 pages

Scenario Planning for Uncertainty Management

This document provides an overview of 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 rather than making predictions. Each scenario has a low probability of occurring but the set of scenarios together bound the range of possible futures. Scenarios highlight the reasoning and relationships between critical uncertainties, trends, and actions of organizations that could impact the future. Scenario planning is recommended when there is high uncertainty, costly surprises have occurred, or there are differences of opinion about the future. Outcomes of scenario planning can include developing new opportunities, rethinking plans and strategies, and perceiving weak signals of change.

Uploaded by

nivebala
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

2
‘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)

3
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. Identify the issue of concern and horizon year
2. Identify current trends that have an impact on the issue
of concern
3. Identify critical uncertainties
4. Identify whether trends and uncertainties have a negative
or positive impact on issue of concern
5. Create extreme worlds
6. Add predetermined trends to both scenarios
7. Check for internal consistency
8. Add in actions of individuals and organizations

7
Examples of predetermined trends

Demographic: population growth, birth rates


Technology: growth rates, production capacity
Political: power shifts, budget deficits
Cultural: changing values, spending
patterns
Economic: disposable incomes, investment
levels

8
An illustrative idea for a business school

9
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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