Scenario Analysis: A Decision Making Tool for
Uncertain Times
by Michael S. Goree and Eric Craymer
Looking back from today it is easy to see the significance of past events and trends that have led to monumental change. Why didnít everyone see the change and react? Buggy whip manufacturers saw and recognized the invention of the automobile. What they didnít recognize was the impact it would have on their industry as lifestyles changed when Henry Ford developed the production line that made owning one a possibility for everyone. Technology that leapt beyond their imaginable boundaries and the unpredictable adaptability of the complex system of American society prevented them. All organizations and associations today are faced with the same situation. The events and trends that will determine their future and their success are beginning now. To thrive, even to survive, they must find a way to recognize them, explore their potential impact, and direct their organization appropriately.
Scenario Analysis is a Strategic Thinking tool that can aid strategic decision making and help an organization prepare for the future, even if that future is unknowable. It utilizes both our 20/20 hindsight and our ability to consider qualitatively what we cannot see quantitatively. Building on the important trends of today and the uncertain variables of the future, a scenario group builds a set of visions of how their world might look in the future. Their task is then to "look back" from that future to today and explain how they got there by telling a story.
The Scenario Analysis Process
To begin the Scenario Analysis, gather a group of individuals with a stake in the future of the organization. Include someone from outside the immediate organization such as a purveyor or National Association representative. Define the area of concern or the decision you need to make. This frames the basic setting of the story.
Next, brainstorm all of the factors or variables that will determine the success or failure within that area of focus. Look at the factors and determine what larger macro-environment forces and trends are driving them. Once you have listed the factors and forces, rank them according to both their importance and their certainty. These become the cast of elements available for the story.
Select a small number of elements that are both highly important to the future and whose future state is highly uncertain and unknown. Consider how different outcomes might combine to create a particular future. Describe what the world is like in that future. This is how your story ends. Repeat this process until you have a small set of possible futures. You now have the rough plot and ending for a set of related stories.
Break into smaller groups and "write" your stories. Each group should take one of the possible futures off to work on. Embellish the ending, look back to today as the beginning, and develop a story line that plausibly and interestingly tells what major events took place, who the main characters were, and where the major twists to the plot occurred that brought us to this future. When each group has a story to tell, rejoin the larger group and share your stories. Other groups are encouraged to ask for clarifications, explanations, and to question the reasoning behind any part of the story.
When the stories are finished and curiosity satisfied, it is time to apply the insight gained to the question at hand. Similarities and differences between stories are considered. How will each of the scenarios impact the organization? What will result under each scenario if we continue our current strategy? Is there any strategy that will allow us to do well no matter which scenario develops. Are there signpost patterns that will alert us to a developing scenario so that we can take contingent action? How can we best position the organization to be prepared for whichever story and ending occurs? This turns insight into foresight.
Scenario Analysis Applications
Scenario Analysis is particularly useful in three situations:
Scenario Analysis and Strategic Thinking
What does this have to do with strategy and Strategic Thinking? Much. Placing ourselves into the future allows us to escape our current world view and think "what if"? Using a story format that is grounded in relevant factors joined by a plot that must be plausible and "read well" forces us to consider the underlying dynamic relationships and unexpected developments that might otherwise take us by surprise. Working in a diverse group with differing perspectives and viewpoints enables us question our own assumptions and experiment with other alternatives. Scenario Analysis uses the components of Strategic Thinking to reduce uncertainty and increase organizational insight and knowledge by playing with outcomes in a complex manner. Strategic stories allow a simplification of the facts and relationships, maintain the general structure of the situation, and highlight critical elements through dramatic emphasis. A list of benefits can be found in Table 1.
Table 1
Benefits Gained in Scenario Analysis |
|
There are some challenges to Scenario Analysis that we have discovered while using it with our clients. First, it takes a real commitment of time at all levels of the organization. To build the background and understand the process takes several sessions and most people want to solve complex problems simply and speedily. It rarely happens that way. Second, we have yet to find an organization that considers a possible future that does not include its continued existence. This self preservation instinct can blind-side you if not recognized and considered. A good way to end the session is to ask "Is there any set of elements that create a story in which we die"? Third, the process requires a high level of ambiguity which discomforts many. Their concerns are usually forgotten once the actual story building begins. Lastly, even with all of this consideration, it is still possible to miss major development or variable. Some of this risk is reduced by throwing in "wildcards" that would probably never occur but, boy, what if they did!
In our experience, the benefits of Scenario Analysis far outweigh the costs and challenges. In the Fall we will complete the fourth and last article in this series of four. It will focus on Strategic Alignment, turning strategic knowledge into action that succeeds. We will discuss how to build an organization whose processes, systems, and behavior support and leverage its strategy. For a summary of many of the concepts that we have covered in the first three articles, see Table 2.
Table 2
A Shift in the Strategic Paradigm
|
Moving From ý ý |
ý ý Moving To |
| mechanics of the parts |
dynamics of the whole |
| linear |
non-linear |
| static, individual cause and effect factors |
dynamic, interaction of multiple factors |
| seperatedness |
relatedness |
| understand the parts to make sense of the whole |
parts can only be understood in relation to the dynamics of the whole |
| component thinking |
seeing and thinking in wholes |
| structure |
process |
| politics |
learning |
| organizational pathology |
organizational potential |
| planning as an event |
planning and Strategic Thinking as an ongoing process |
| input by planning staff, committee, consultant |
input by whole system |
| the future is tomorrow |
the future is beginning today |
| forecasting through analysis |
foresight through synthesis |
| controlling, stabilizing, or managing change |
responding to and influencing change as it emerges |