Summary Chapter 16 Scenario Planning

Scenario planning: an alternative way of dealing with
uncertainty
Scenario planning is an alternative way of dealing with uncertainty than that encapsulated in
decision analysis. This chapter outlines the conceptual approach, provides a step-by-step guide to
scenario construction and introduces a simple method of evaluating current decisions against
scenarios of plausible futures.
Figure 16.1 – The Müller–Lyer illusion
The practice of scenario planning implicitly accepts that managers are not able to make valid
assessments of the likelihood of unique future events and that ‘best guesses’ of what the future
may hold can be wrong. This view is in harmony with Gigerenzer’s argument that probability
theory does not apply to single events. Advocates of scenario planning also argue that it can
counter groupthink by allowing minority opinions about the future to have ‘airtime’ relative to the
majority opinion.
How do scenarios achieve this? The first point to note is that a scenario is not a forecast of the
future. Multiple scenarios are pen-pictures of a range of plausible futures. Each individual scenario
has an infinitesimal probability of actual occurrence but the range of a set of individual scenarios
can be constructed in such a way as to bound the uncertainties that are seen to be inherent in the
future – like the edges on the boundaries surrounding a multi-dimensional space.
Scenario construction: the extreme-world method

Figure 16.2 – Steps in scenario construction: the extreme-world method
1. Identify the issue of concern and the horizon year which will be captured in the scenarios
2. Identify predetermined trends that have some degree of impact on the issue of concern
3. Identify critical uncertainties which, when resolved (one way or the other), have some
degree of impact on the issue of concern.
4. Identify the degree to which the trends and resolved uncertainties have a negative of
positive impact on the issue of concern.
5. Create extreme worlds by putting all positively resolved uncertainties in one scenario and
all negatively resolved uncertainties in another scenario.
6. Add the predetermined trends to both scenarios.
7. Check for internal coherence. Could the trends and resolved uncertainties co-exist in a
plausible future scenario?
8. Add in the sections of individuals and/or organizations who will be impacted by the future
described in a scenario. What actions would the take/have taken satisfy their own interests?
The first step is to identify an issue of concern around which the scenarios will be constructed.
Key issues often concern the survival and viability of an organization, or one of its divisions, in an
environment that is known to be changing and which might change in such a way as to be
inhospitable to that organization with its current competencies and core capabilities.
Using scenarios in decision making

There are two ways in which scenarios can be used in decision making. The first is to test the
viability of a current ‘business idea’ against the plausible futures represented in the scenarios. In
the abstract analytical sense, a business can be thought of as a business idea. A business idea is the
systemic linking of the business’s competencies and strengths.
Figure 16.6 – An illustrative business idea for a business school

Figure 16.7 – Testing the robustness of strategies against scenarios
Scenario construction: the driving forces method

This method shares much in common with the first method that we introduced, in that the critical
elements in the decomposition process are predetermineds and uncertainties. However, in the
driving forces method, degrees of predictability and uncertainty are allowable and the outputs of
the scenario construction process are not, usually, extreme scenarios. Nevertheless, the output
scenarios from this method also bound the perceived uncertainties in a similar way to the scenarios
produced in the extreme-world scenario construction method that we discussed earlier.
Figure 16.9 – An output of a ‘driving forces’ scenario structuring methodology

Figure 16.12 – Stakeholder structuring space
Typical outcomes of the scenario planning process include:
(i) confirmation that the business idea is sound or that new strengths need to be added to create
more robustness;
(ii) confirmation that lower-level business choices are sound or that alternative new options are
more robust;
(iii) recognition that none of the business options are robust and, therefore, contingency planning
against unfavorable futures is necessary;
(iv) sensitivity to the ‘early warning’ elements that are precursors of desirable and unfavorable
futures.
Table 16.1 – The components of the futures methodologies
Conclusion
Scenario thinking can be used as a way of evaluating decision options, as we have described above.
As we have seen, used in this way, scenario thinking avoids any need to think probabilistically and
allows a variety of viewpoints about the future to be reflected.
However, scenario planning is a practitioner-derived approach to dealing with uncertainty in

decision making. It is not based on an axiom system – as is decision analysis – and so different
practitioners tend to promote different methodologies to construct scenarios .

Summary Chapter 16 Scenario Planning

Uploaded by

Copyright:

Available Formats

Summary Chapter 16 Scenario Planning

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Summary Chapter 16 Scenario Planning

Uploaded by

Copyright:

Available Formats

Scenario planning: an alternative way of dealing with

Figure 16.1 – The Müller–Lyer illusion

Scenario construction: the extreme-world method

Using scenarios in decision making

Figure 16.6 – An illustrative business idea for a business school

Scenario construction: the driving forces method

Figure 16.9 – An output of a ‘driving forces’ scenario structuring methodology

Typical outcomes of the scenario planning process include:

However, scenario planning is a practitioner-derived approach to dealing with uncertainty in

You might also like