Scenario Planning

  1. Scenarios are one of the most popular and persuasive methods used in Futures Studies. Government planners, corporate strategists and military analysts use them in order to aid decision-making. The term scenario was introduced into planning and decision-making by Herman Kahn in connection with military and strategic studies done by RAND in the 1950s.

A scenario can be defined as:

"A rich and detailed portrait of a plausible future world, one sufficiently vivid that a planner can clearly see and comprehend the problems, challenges and opportunities that such an environment would present."

A scenario is not a specific forecast of the future, but a plausible description of what might happen. Scenarios are like stories built around carefully constructed plots based on trends and events. They assist in selection of strategies, identification of possible futures, making people aware of uncertainties and opening up their imagination and initiating learning processes.

Use of Backcasting

On this wiki, an important element of scenarios is backcasting, that is working back from a possible outcome such as 'a robot in every home', to the enabling steps that are likely to precede it - 'robot surgery'. Our scenarios aim to show event strings that lead to particular destinations - and to be more informative and more plausible for it.

Questions That Drive Scenario Planning

Although scenario planning is a rewarding method it is also very demanding. The difficulties in its use can arise from a lack of clear focus, purpose or directions. As a result too many scenario stories can be created and/or their content may not be directly related to the strategic question.

So, to be useful as a strategic tool, additional material related to a scenario is needed. Indeed, scenarios should be drawn up to provide insight into particular questions. Questions may be ones such as:

  • What should we do about this possibility? Do we want to encourage it or discourage it, and do we have the tools to do so?
  • What is the likely range of variation on this scenario? Do we have a litmus test to tell us which 'regime' of this scenario we are heading into? What actions should this trigger?

In this way a scenario changes from being mere entertainment into being a strategic tool.

Matrix of Outcomes and Litmus Test

The original form of scenario planning often used a matrix of factors to analyse. For example, suppose I am setting up a company for making robots, two of the many factors to consider around demand for the product are:

  • Is the demand likely to be high in level or low?
  • Is the demand likely to be continuous or arrive in bursts?

This leads to a matrix with four cells, each of which requires slightly different strategy. Sometimes these are given names:

  • Boutique - low demand, constant demand.
  • Commando - low demand, fluctuating demand.
  • Pipeline - high demand, constant demand.
  • Armada - high demand, fluctuating demand.

Given these four destinations, I can formulate a strategy to address each such market. If in addition I have a litmus test which tells me which regime the market is heading towards, I can plan ahead.

Shell's 'Balanced Scenarios'

In Shell's scenario planning, the process presented two contrasting scenarios for review each with a carefully chosen mix of factors. In the Shell approach the two scenarios are required to be equally likely, and between them to cover all the 'event strings'/drivers. Ideally they should not be obvious opposites, which might bias their acceptance by users, so the choice of 'neutral' titles is important. For example, Shell's two scenarios at the beginning of the 1990s were titled 'Sustainable World' and 'Global Mercantilism'. In practice this requirement posed few problems for the great majority, 85%, of those in the survey; who easily produced 'balanced' scenarios. The remaining 15% mainly fell into the expected trap of 'good versus bad'.

Management of Uncertainty

The scenario based planning methodology is an analytic framework tool used for ordering one's perceptions about alternate future environments in which today's decisions might play out. Scenario planning is NOT a predictive mechanism, but a way to manage uncertainty today.

Scenario analysis is a process of analysing possible future events by considering alternative possible outcomes or scenarios (using expert judgment, rather than quantitative forecasts). Each scenario developed tells a story about an "alternative" future world and encourages those who explore it to "stretch" their imaginations and suspend their preconceived judgments in order to develop a perspective on complex events contained in that world.

Existing or newly formulated strategies and policies can then be tested against the future scenarios. The method is a powerful planning tool because it is based on the idea that the future is unpredictable; it enables one to ask what the future might hold and to identify relevant actions that can be taken today, no matter how the future turns out. Scenario analysis is one the most popular and widely used method in futures studies and foresighting.

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