Scenario Planning

Scenario planning is a structured process that is used to develop alternate viewpoints about an organization’s potential future, by scrutinizing key uncertainties that have the potential to alter the business landscape. These scenarios are usually given in a sequence of event format by describing the proposed future in a story-like manner but one that would be relevant to the business’s managers. Scenarios are not focused on accurately foretelling the future, they are primarily concerned with changing the way of thinking and providing a series of stories which draws in the attention to areas that would not have been scrutinized. “The focus is not on forecasting the future, or fully characterizing key uncertainties in terms of probabilities, but on bounding the uncertainty range and creating frameworks for discussion.” (Schoemaker, 2016).   

Scenarios are more likely to be used when, uncertainty is high, when there has historically been too many blind spots and costly surprises made from forecasting, the industry is undergoing significant change which could be transformative for businesses, strong differences of opinions exist, all of which has strong merits, among leaders in the organization and or the business competition are already using scenario planning to gain a strategic advantage in the market.

 

Forecasting

The theory of forecasting is dependent on the concept that current and past experience can be used to make predictions about the outcome of an event will be in the future. “Forecasting should not be confused with planning. Whereas planning is concerned with what the planner thinks the future should be like, forecasting is concerned with what it will be like.” (Graefe et al., 2013). Before embarking on doing a forecast the decision must be made if it is at all necessary. This is because a forecast is only needed when there is uncertainty, meaning a forecast about an event that is established, as in the return of a tide, is not a real forecast. Similarly, a forecast is not necessary when the variables around an event can be controlled. “Nevertheless, many situations are uncertain, and proper forecasting procedures can help to reduce and assess uncertainty and thereby help managers to make better decisions.” (Graefe et al., 2013).

 

Some of the advantages of using a forecast are that they can provide valuable insight as it requires the integration of past events with those of the present to provide the ability to anticipate upcoming events. It enables learning from the past as it requires that past events be taken into consideration, which provides the opportunity to learn from past mistakes. Forecasting helps to lower costs as being able to anticipate future events provides the ability to preplan the actions necessary ahead of time and minimize the cost of having to react to an event as it is happening.

Some of the disadvantages are that forecasts are never 100 % accurate but can still be of benefit in providing a guide for future actions. Forecasts can also be time consuming and may require extensive resources to be allocated to collect, compile, and organize past and present data into a format that can be used to create a forecast.

 

References: -

 

Graefe, A., Green, K., & Armstrong, J. (2013). Forecasting. In (pp. 539-604). https://doi.org/10.1007/978-1-4419-1153-7_357

Schoemaker, P. (2016). Scenario Planning. In (pp. 1-9). https://doi.org/10.1057/978-1-349-94848-2_652-1

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