Alternate Scenario Planning

Scenario Planning has been around for some time now. By some companies it is seen as a core tool to assess a risky future and support strategic planning. Up to now I only mentioned it briefly in a few articles.

In 1977 Vanston et al. were one of the first authors to document a complete scenario planning methodology.
So this article answers questions of what scenarios are and how to generate and analyze them.

Scenarios

In order to minimize the risk inherent in planning against a single, unforeseeable future and to be in a position to profit from different possible trends and events, many governmental agencies and private companies are finding it desirable to plan against, not one, but rather a range of possible futures. Obviously, for the technique to be used effectively a set of alternate scenarios which are relevant, reasonable, and logically interrelated needs to be developed.

There are four requirements which each scenario should fulfill:

1. Plausibility.
2. Self-consistency.
3. Inclusion of all critical, relevant factors.
4. Similarity to other scenarios in form and scope.
   

Scenario Planning

The methodology consist of twelve steps, which are described briefly and afterwards discussed in a case study. In the case study the University of Texas (UT) was asked by the National Aeronautics and Space Administration (NASA) to develop a set of alternate scenarios for use in a workshop to assess possible national policies concerning portable fuels.

1. Define Purpose and Organize Development Team
   The goal has to be set first, building on the objective the candidates for a development team are selected.
   

   Case study: The general purpose of the workshop and the proposed use of the scenarios to be developed by The University of Texas (UT) team (composed of members of the Center for Energy Studies and the Population Research Center (PRC)) were outlined in the original NASA work statement. Subsequent meetings of UT, TRW, and NASA representatives allowed further definition of the intended nature of the scenarios and the methodol- ogy for integrating the scenarios into the workshop procedures. It was agreed that approximately six different scenarios could be accommodated-given the size of the workshop. […]
   

2. Gather Relevant Data
   The underlying data is key to any good scenario and determines its credibility and completeness.
   

   Case study: The contract work statement for the university team emphasized nontechnical aspects of the energy problem. The scenario development committee hence focused most of its data-gathering activities on “futures” literature and societal factors and demographic trends.

3. List all relevant factors
   Now the factors which are relevant for the project in a social, political, economic, technical and ecological way. This selection should be broad.
   

   Case study: the committee next listed all components of the social structure which could reasonably be associated with energy consumption or which would limit or restrict the production of energy. All relevant factors were listed even though in some cases their impact on the energy dimension appeared remote. In all,
   approximately ninety factors were identified.

4. Determine the most pertinent factors
   In a team work approach a further specification and selection of the factors has to be conducted. An inclusion of management staff is recommended.
   

   Case study: At this point three additional consultants were engaged to assist in factor evaluation. These consultants included an economist, a sociologist, and a political policy specialist. After a general meeting of the committee with the consultants, members of both groups were asked to rank the factors in order of their importance to the energy status of the nation.

5. Choose themes for alternate scenarios
   General topics for the scenarios should be defined. “Obviously, the company or agency can plan against only a finite, generally small, number of futures. Although the exact number of scenarios to be developed will vary, experience has shown that from three to six are usually appropriate. As will be discussed later, one of the scenarios should be the one believed to be the most probable. The other scenarios should be chosen according to the degree to which they provide maximum value to the planning process.”
   

   Case study: The [6] themes were chosen as follows:
   (a) Economic expansion: A future in which the nation puts primary emphasis on economic growth, increased production, and improved material well-being.
   (b) Environmental concern: A future in which the nation puts major emphasis on environmental and ecological improvement even, if necessary, at the expense of other factors. […]

6. Arrange factors into related groups
   The factors found in step 4 have to be summarized into groups to describe the interdependencies between them.
   

   Case study: After the factors developed in step 4 were compared with the six chosen themes, it was decided that the factors could be grouped into nine general topics.
   (a) Population, (b) Urbanization, (c) Labor Force […]

7. Define present situation in terms of the chosen factors
   “Using information on the status at present and in the recent past of the previously chosen factors, a narrative statement is written regarding the present state of the relevant society and the manner whereby this state came into being.”
   

   Case study: At this time the scenario development committee prepared a narrative description of
   the present status and recent history of the United States based on the above groups of factors. All listed data were carefully referenced and a glossary of terms was attached.

8. Develop most probable scenario
   The authors suggest to start of with the most probable scenario and set the factors. To generate the necessary information either own forecast and/or projections of others shall be used.
   

   Case study: To begin the development process, values were assigned to each of the relevant factors.
   These values were carefully chosen after comparing estimates from various technical and “futures” sources with trend extrapolations developed by the committee itself.

9. Alter basic factors to support alternate scenarios
   Finding alternative possibilities for factor combinations then support the other scenarios.
   

   Case study: The scenario development committee next examined each of the relevant factors and
   determined how they might be affected by the futures envisioned in the six alternative themes. When appropriate, factors were modified to reflect projected effects.

10. Prepare alternate scenarios
    “All scenarios should be as closely alike in format, wording, and style as practical. This congruency will assist in comparison of the planning programs based on the different scenarios. As with the most probable scenario, projections should be referenced where possible, and reasoning carefully explained.”
    

    Case study: Using the modified factor values developed in Step 9, scenarios were developed for each
    bounding theme. To the extent possible, each alternate scenario had the same format and, in many cases, the same phrasing as the most probable scenario. This parallelism was intended to facilitate comparison of the plans which would be developed using the different scenarios.

11. Check all scenarios for consistency, clarity, and completeness
    “It is very easy in a complex scenario to overlook internal inconsistencies and normally
    obvious violations of logic and reason. All scenarios should be checked by people not involved in their preparation to guarantee their clarity, correctness, and completeness.”
    

    Case study: The completed scenarios were then sent to two editors for review and rewrite as necessary. Copies were also sent to selected consultants for suggestions and comments.

12. Modify scenarios as necessary and organize for use
    Depending on the purpose of this method the scenarios should be organized and finalized.
    

    Case study: The comments of the trial run participants were carefully weighed and scenarios altered as appropriate.

Conclusion

Scenario planning can help companies to try to get a better grasp of future events and their effects on strategic variables.
The method presented here does show several drawbacks. It does leave a lot of room for interpretation and any reasoning for using exactly this process is just missing.

On the other hand I think the major advantages lie in the communication processes which are induced by using this or any similar methodology and I agree with the authors’ conclusions:

1. It forces planners to accept and act on the fact that the future can never be exactly known. Thus, the plans resulting from the use of this technique should involve more flexibility than those drawn up to meet one set of postulated events.
2. It serves as a tool for communication between people with very different points of view and encourages cross-fertilization of ideas.
3. It provides a vehicle for integrating relevant technical and nontechnical factors into the planning process.
4. It encourages the development of a structured system for monitoring trends and events of import to the organization. Thus, it aids in preventing the organization from being faced with unexpected threats and from failing to take advantage of emerging opportunities.
5. It helps to identify the point at which important decisions will Irave to be made in the future. This should allow more time for consideration and data acquisition.