Scenario planning is a strategic decision-making tool which enables organisations to prepare for various plausible futures. It is a structured process of exploring different plausible scenarios to support strategic decision-making and policy formulation.
The origins of scenario planning can be traced back to military strategy and game theory. However, it was not until the 1960s and 1970s that the technique gained popularity in the business world. The oil crisis of the 1970s prompted Shell to develop a systematic approach to dealing with uncertainty. The company's scenario planning team, led by Pierre Wack and Ted Newland, created a set of scenarios which helped the company anticipate and respond to the oil price shocks. Since then, scenario planning has evolved and become more sophisticated, with the development of new techniques and tools.
How to Use Scenario Planning
Scenario planning involves a series of steps which help organisations explore different plausible futures and develop strategies to respond to them. Here are the key steps involved in scenario planning:
- Identify the key drivers of change: The first step in scenario planning is to identify the key drivers of change that are likely to shape the future. These drivers can be economic, social, technological, political, or environmental.
- Develop scenarios: Once you have identified the key drivers of change, the next step is to develop scenarios that explore different plausible futures. Scenarios should be challenging, plausible, and relevant to the organisation's strategic objectives.
- Analyse the scenarios: After developing the scenarios, the next step is to analyse them to identify the implications for the organisation. This involves identifying the key challenges and opportunities which each scenario presents.
- Develop strategies: Based on the analysis of the scenarios, the next step is to develop strategies that enable the organisation to respond to the challenges and opportunities. These strategies should be robust, flexible, and adaptable to different scenarios.
- Monitor and update the scenarios: Finally, it is essential to monitor and update the scenarios regularly to ensure that they remain relevant and useful. This involves tracking the key drivers of change and updating the scenarios as necessary.
Scenario planning can be used in a wide range of situations, including:
- Strategic planning: Scenario planning can help organisations anticipate and respond to future uncertainties and develop long-term strategies that are robust and adaptable.
- Risk management: Scenario planning can help organisations identify and manage risks by exploring different plausible futures and developing strategies to respond to them.
- Innovation: Scenario planning can help organisations identify new opportunities for innovation by exploring different plausible futures and developing strategies to capitalise on them.
- Decision-making: Scenario planning can support decision-making by providing a structured approach to exploring different plausible futures and developing strategies to respond to them.
Strategic Usage of Scenario Planning
Scenario planning is a powerful tool for developing robust strategies in uncertain environments. It is a disciplined method for developing a set of plausible, challenging, and actionable scenarios, each of which describes a distinct future state of the world. By examining these scenarios, decision-makers can develop strategies that are robust across a range of possible futures. Some common management strategies and patterns to maximise its impact:
- Develop a range of scenarios: Creating multiple scenarios allows organisations to explore a broad set of future possibilities. This approach helps decision-makers identify the key drivers of change and their potential impacts, enabling them to develop strategies that are robust across a range of possible futures.
- Identify critical uncertainties: Scenario planning involves identifying the critical uncertainties which could significantly impact an organisation's future. By focusing on these uncertainties, organisations can develop strategies that are resilient to a range of potential shocks and changes.
- Explore alternative strategies: Once organisations have developed a set of scenarios, they can explore alternative strategies which are robust across multiple futures. This approach helps decision-makers identify strategies that are flexible and adaptable, enabling them to respond effectively to changing circumstances.
- Monitor and update scenarios: Scenario planning is an ongoing process that requires regular monitoring and updating. By regularly reviewing and updating scenarios, organisations can ensure that their strategies remain relevant and effective in the face of changing circumstances.
The output of scenario planning includes a set of plausible, challenging, and actionable scenarios that describe distinct future states of the world. These scenarios help decision-makers identify the key drivers of change and their potential impacts, enabling them to develop strategies to address a range of possible futures.
Best Practices
- Involve a diverse group of stakeholders: Scenario planning is most effective when it involves a diverse group of stakeholders, including subject matter experts, decision-makers, and front-line staff. This approach helps ensure that scenarios are grounded in reality and that they reflect a broad range of perspectives.
- Focus on plausibility, not probability: Scenarios are not intended to be predictions of the future. Instead, they are plausible stories about how the future might unfold. By focusing on plausibility, organisations can develop scenarios that are challenging and thought-provoking, rather than overly optimistic or pessimistic.
- Avoid analysis paralysis: Scenario planning is a tool for decision-making, not an end in itself. Organisations should avoid getting bogged down in endless analysis and instead focus on developing actionable strategies which can be implemented in the real world.
Common Pitfalls
- Failing to consider a broad range of possibilities: Scenario planning is most effective when it considers a broad range of possibilities, including those that are uncomfortable or challenging. Failing to consider a broad range of possibilities can result in strategies which are inflexible.
- Neglecting to update scenarios regularly: Scenario planning is an ongoing process which requires regular monitoring and updating. Neglecting to update scenarios can result in strategies that are no longer relevant or effective in the face of changing circumstances.
- Ignoring the implications of scenarios for decision-making: Scenarios are only useful if they are used to inform decision-making. Organisations should ensure that scenarios are integrated into their strategic planning processes and that they are used to develop actionable strategies which can be implemented in the real world.
