Scenario Planning versus Traditional Forecasting


Many executives in the corporate world are now exploring various methods to foresee potential disruptions and be ready for the future of uncertainty. The phrases scenario planning and forecasting tend to be used interchangeably and inconsistently, leading to misunderstandings. However, these approaches vary in how they achieve their goals and what they provide.

Discussion

Scenario planning

Is your company or organization prepared for what lies ahead? Strategic planning may benefit significantly from scenario planning, a fascinating but underused corporate strategy. The tool helps businesses see how different scenarios affect their ability to compete. It broadens the view that leaders may have to include potential possibilities and hazards that lie beyond the immediate future. Scenario planning is a tool for thinking about the future of your company, industry, and the globe by asking what may happen if specific trends continue. Scenario planning allows leaders and managers to (and assist you in preparing for) future developments that may alter the political, social, and economic landscapes in ways that substantially influence your company. It is helpful to think about how changes in technology and the introduction of new rivals can affect your company. It is also helpful to analyze difficulties that are only faintly recognized as possible issues at present (Wade, 2014).

Scenario planning is a technique that helps businesses prepare for the future by visualizing prospective solutions or situations, how they might develop through time, how to react to such changes, and what potential benefits there would be to doing so. Incorporating quantitative and qualitative techniques, this strategy "enables a top-down/bottom-up approach, as well as looking ahead and assessing how a portfolio may respond to specific market situations" (Schultz, 2021). Businesses and people may create flexible responses to unanticipated challenges by using various perspectives. Additionally, scenario planning enables the formulation of many potential scenarios that may be followed depending on the discovered uncertainties that arise for present citations.

The process for developing scenarios includes the following steps:

1.      Define the scope

2.      Identify the major stakeholders

3.      Identify basic trends

4.      Identify key uncertainties

5.      Construct initial scenario themes

6.      Check for consistency and plausibility

7.      Develop learning scenarios

8.      8. Identify research needs

9.      Develop quantitative models

10.  Evolve toward decision scenarios

(Schoemaker, 1995)

There are many different ways to approach scenario planning. As a field that has developed more in the real world than any other, there is still much that is not understood. As a result, scenario projects may be carried out in various ways. Keough & Shanahan (2008) discovered the features common to many models and processes, intending to consolidate these features into a best practice strategy. In this article, the writers explain in depth many well-known scenario planning models, discussing the advantages and disadvantages of each. Following this, they address potential avenues for further establishing best practices regarding a sound approach to scenario planning and provide the foundation for a unified model to study scenario planning further. Decision-makers and academics within the field are offered recommendations and final thoughts.

Traditional forecasting

Conventional forecasting, which adheres to a more regimented analytical approach, emphasizes the numerical inferences drawn from studying historical and current data within a particular domain. This strategy takes a more probabilistic approach to planning by significantly relying on acquired data and the ability to assess its correctness. It is a data-driven, unbiased approach that helps businesses see the bigger picture of how recent trends have evolved and how they can use that knowledge to provide innovative solutions (Mortlock, 2021). To some extent, this is consistent with the idea that the future is fixed and unchanging.

Forecasting versus scenario planning

 

Forecasting

Scenario Planning

Purpose

Prediction of the future based on past historical information

Planning for one future state

Thinking to consider potential futures based on risks & uncertainties

Certainty

Probable

Plausible

Information Type

Quantitative

Qualitative & Quantitative

Risks & Uncertainties

It does not factor in risks and uncertainties, more about certainty

Considers risks & uncertainties

Testing

Can be tested for accuracy

Challenging to test for accuracy

Theoretical Basis

Based on a theoretical model

Future and be predicted

Based on relationships and causality

Future is unpredictable

Stakeholder Engagement

Narrow stakeholders involved in the process

A comprehensive set of stakeholders involved in the process from across the organization, both internal and external

Objectivity

Objective – fact-based

Subjective- guessing and assumptions

Accountability

Expert analysts, financial planners

CEO, top-level executives, CSO, facilitators, and consultants

Frequency

Used daily

Used every 2-3 years

Horizon

Short term perspective

Long term perspective

Repeatability

Results can be replicated.

Involves unique representations

(Mortlock, 2021)

Conclusion

If you are trying to decide between scenario planning and forecasting as a means of approaching a challenge or opportunity, here are six common questions to ask yourself, as recommended by Mortlock (2021):

·         To what extent is the future open and unpredictable or fixed and dependable?

·         Does probability favor a single possible outcome, or does it allow for more than one?

·         Is there an emphasis on a quantitative or qualitative approach?

·         Is the goal of the meeting to have a debate with stakeholders based on facts and data or to have a more open and free-flowing exchange of ideas?

·         Is the time horizon being sought by the company shorter (within a year) or longer (many years out)?

·         Can these analyses be repeated regularly, or do they provide a real-time snapshot?


 

References

Keough, S. M., & Shanahan, K. J. (2008). Scenario planning: Towards a more complete model for practice. Advances in Developing Human Resources, 10(2), 166-178. https://doi.org/10.1177/1523422307313311

Mortlock, L. (2021, May 12). Scenario Planning versus Forecasting. Retrieved from Leadership Now: Leading Blog: https://www.leadershipnow.com/leadingblog/2021/05/scenario_planning_vs_forecasti.html#:~:text=Scenarios%20provide%20longer%2Dterm%2C%20multiple,much%20like%20it%20does%20today.

Schoemaker, P. J. (1995). Scenario planning: A tool for strategic thinking. MIT Sloan Management Review, 36(2), 25-50. https://enlazate.kuikmatch.com/wp-content/uploads/sites/19/2021/06/Scenario-Planning-2.pdf

Wade, W. (2014, September 3). Scenario planning: Thinking differently about future innovation. GLOBIS Professional Seminar: https://www.youtube.com/watch?v=MKhUKHzE8hk

 

 

 


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