Scenario Planning

A Brief History

During the two decades following WWII, Europe experienced a period of sustained economic growth. Most countries were recovering and restructuring their economies. Growth rates of 5 to 6% were common during that period. OECD countries generally accepted that trends from the past could simply be extrapolated and markets would do the work of allocating resources most effectively, while in the communist blocks, planning was done centrally by large institutions.

Large computers allowed for macro-economic input and output analyses and there was a fascination with the possibility of predicting the future with the aid of complicated algorithms and modelling.

It was not until the early part of the seventies that it became apparent that it was impossible to predict the future using these tools. In the late sixties, the Club or Rome (who were using some of these models) indicated that there might be limits to growth and in 1973 the first oil crisis hit the world. Major changes, which were not covered by any of the models or forecasts available at that time, were experienced and it was clear that the old method of forecasting by extrapolating trends from the past did not work. It could not deal with the complex interactivity of large systems.

In the early seventies some companies, and in particular Shell, started to experiment with scenarios and introduced them as a part of their planning process. The main idea behind scenario thinking is that the future cannot be predicted; but one can at least think of possible different future developments. Looking at more than one future, explicitly taking relevant uncertainties as a starting point can then enrich the planning process.

Scenarios were constructed as plausible and consistent developments of political, economic, social and technological aspects of the business environment following different patterns. These were stories about the future with some quantification of macro-variables for each of the different future stories. These stories about different futures could then be used to judge plans and decisions against. They were also useful for understanding risks and rewards of various options, decisions and projects. Scenarios provide an enriched context and allow for a risk/reward evaluation in a more comprehensive way than the old project cash flow with its single future.

Since the early seventies a lot of experience has been gained using scenario planning in different organisations. Their use is most effective when the decision makers are part of the scenario building process, so that their perceptions of possible developments in the business environment can be mobilised and so that the resulting future stories are valid reflections of the issues and uncertainties which are surrounding their particular organisation's aspirations and objectives.

Scenarios - Definition, their Purpose and Role

A scenario is an interpretation of the present, archetypal image of the future, and an internally consistent story about the path from present to future.

The word scenario comes from the film industry where it is used to describe a detailed plan. Scenarios as they are used in organisations are the opposite of a plan. They are internally consistent descriptions of how a future business environment might develop over the next ten or twenty years. Since scenarios are 'only' stories, people can discuss almost anything, even previously taboo subjects. Developing them is a constructive process that turns people's thoughts towards building a common future rather than agonising about the past. Scenarios are not predictions of a future, rather they are credible possible futures.

Scenarios contain robust planning assumptions while at the same time they highlight key uncertainties. In scenarios we look systematically at linkages and dynamics of various parts of our business environment. During this workshop we will make a number of scenarios about our business environment and you will get a flavour of some aspects of building scenarios.

Scenarios are more than just stories about the future. When a group engages in conversations about the future and builds scenarios, they also build a shared understanding and language. They will clearly uncover common ground and increase their capability to anticipate and recognise change in the business environment. As indicated earlier, scenarios can be used for testing and generating options and helping people to create a shared vision.

In summary, scenarios provide a coherent framework for integrating diverse signals and developments, they provide creative images, which challenge existing mental maps, and they provide a perspective on key uncertainties and strategic issues. They are tools for learning and they provide a common language for communication among diverse groups with different functional and business backgrounds. Scenarios should describe very different futures because it is only by looking at different developments that we will be alert to 'trigger points' so that we can challenge the 'official future' and learn.

As Pierre Wack, one of the originators of Scenario Planning said, '…story telling is the best way to weave together analysis of the predetermined with imagination about the uncertain. Stories are the way to make the link between planning and dreaming.'