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Scenarios help managers tackle risk, uncertainty and complexity. Scenario planning
enables organizations to rehearse the future, to walk the battlefield before battle
commences so that they are better prepared. Their value lies not in predicting the future
but in their ability to recognise and understand future developments, enabling managers to
influence events.
What is scenario planning?
The benefits of scenario planning
Saving billions with scenarios: Pierre Wack and Royal Dutch/Shell
When establishing a strategic direction and a set of priorities that will guide decision-makers, few techniques are as
powerful as scenario planning. Scenarios are perspectives on potential events and their consequences, providing a
context in which managers can make decisions. By contemplating a range of possible futures, decisions are better
informed, and a strategy based on this deeper insight is more likely to succeed.
Scenarios help managers tackle risk, uncertainty and complexity, enabling better strategy development. Scenario
planning enables organizations to rehearse the future, to walk the battlefield before battle commences so that they
are better prepared.
Scenario thinking has been used by the military for centuries and by organizations such as Royal Dutch/Shell since
the 1960s. According to Kees van der Heijden, Professor of Strategy at Strathclyde Graduate School of Business:
"Scenario planning is neither an episodic activity nor a new technique: it is a way of thinking that works best when it
permeates the entire organization, affecting decisions at all levels. However, unlike most popular management
initiatives, it does not require major investment in resources or restructuring, simply a commitment for people to take
time away from their routine activities to come together to reflect and learn."
Scenarios may not predict the future but they do illuminate the causes of change – which helps managers to take
greater control when market conditions shift. An organization’s future success will depend much on how managers
react to what they do not know. As Mark Twain put it: "The important thing is not how much we don’t know, as how
wrong we are in what we think we do know."
Understanding the present. Scenario thinking helps provide a better understanding of how different factors affecting a
business effect each other. It can reveal linkages between apparently unrelated factors and, most importantly, it can
provide greater insight into the forces shaping the future, delivering real competitive advantage.
• Promoting action and ownership of the strategy process. Scenario thinking helps break the constraints
on traditional strategic practices, as it enables those involved to discuss the complexity and ambiguity of
their perspectives in a wide context. Ged Davis highlights this: "Scenarios attempt to look beyond our more
limited mindsets, recognising that possibilities are influenced by a wide range of people and that many views
of the world are different from our own."
• Stimulating creativity and innovation. Scenarios encourage the opening of minds to new possibilities and
the excitement of how they may be realised. The process leads to a positive attitude that actively seeks the
desired outcome.
• Promoting learning. Scenarios help people to understand their environment, consider the future, share
knowledge and evaluate strategic options. Information is better evaluated and integrated in the scenario
planning process, which enables those involved in it to recognise and react to emerging circumstances.
• Creating a shared view. Scenario thinking works because it looks beyond current assignments, facts and
forecasts. It allows discussions to be more uninhibited and it creates the conditions for a genuinely effective
shared sense of purpose to evolve. Getting support for strategic decisions requires involving those that
matter in the scenario planning process.
One of the first uses of scenarios in business was in the 1960s by Royal Dutch/Shell, and was largely driven by
Pierre Wack, who was Shell’s Head of Group Planning. His view was that: "Scenarios help us to understand today
better by imagining tomorrow, increasing the breadth of vision and enabling us to spot change earlier… Effective
future thinking brings a reduction in the level of crisis management and improves management capability, particularly
change management."
Shell created a unit, managed by Pierre Wack, to overcome problems of cash-flow management and to forecast
future cash requirements. When traditional techniques for forecasting cash-flow ran into problems, Wack’s diagnosis
was that they were trying to apply statistical techniques to variables that were fundamentally unpredictable.
Wack realised that fundamental uncertainties needed to be distinguished from what could be predicted. So, the group
started to discuss what was predictable – in this case, the future of the global oil price and issues of supply and
demand. With global demand for oil having grown consistently by 6% to 8 % per annum since 1945, demand was
initially assumed to be a predetermined factor. This led the team to focus on supply. Given that the engineers
assured the group that availability would not be a technical problem, most people in Shell assumed that traditional
price trends would continue.
Pierre Wack was not satisfied. He wanted to know if there were other factors in supply, besides technical availability,
that might be more uncertain. By listing stakeholders, they quickly arrived at governments in oil-producing countries.
Pierre Wack posed the questions: would they be happy to continue to increase production year on year? Would this
be in their interest? By playing the role of such a government, they analysed the policy options available. It soon
became apparent that these governments were unlikely to remain amenable to Shell’s business activities. Many oil-
producing countries did not need an increase in income. Therefore, they had the upper hand and could exploit the
situation to their benefit. The overwhelming logic for the oil producing countries was to reduce supply, increase prices
and conserve their reserves.
When Pierre Wack outlined this to his superiors, he was told that there was a lack of unity among oil producing
countries and that the oil companies were in practice able to control supply Pierre Wack’s response was to sharpen
the scenario to include growth in demand and the increasing realisation of OPEC nations of the strength of their
position if they acted in concert. As Wack commented: "Participating in the scenario-building process improves a
management team’s ability to manage uncertainty and risk. Risky decisions become more transparent and key
threats and opportunities are identified."
Then, the scenario became reality. The 1973 Israeli-Arab War had a dramatic impact and the effect of limiting the
supply of oil: prices rose five-fold.
Fortunately for Shell, Pierre Wack’s work had encouraged the company to be prepared for such a change – and
when it happened Shell was streets ahead of its competitors, which enabled it to climb from seventh to second place
in the oil firm’s profitability league table.
For Shell, scenario thinking is an essential strategic tool. Ged Davis of Shell explains: "It is quite normal in the energy
and resources industries… to be dealing with projects that have very long lead times. A typical large-scale gas project
might require an investment of $10 billion, take six years from the decision to invest to come on stream, and have a
life of at least twenty years. Thus, the review of such a project requires thinking of at least 25 years."
Shell’s experience demonstrates that scenarios provide an effective mechanism for assessing existing strategies and
for developing and assessing options. The scenario thinking process helps underpin and develop the strengths of an
organization and makes it more sensitive to the early warning signs of trouble ahead.
The scenario thinking process is not one of linear implementation, providing a single snapshot; its effectiveness lies in
stimulating decisions and generating the strategic conversation. This is the continuous process of planning, analysing
the environment, generating and testing scenarios, developing options, selecting, refining and implementing – a
process that is itself refined with further environmental analysis. Steps in using the scenario process include:
Ask team members for their ‘histories of the future’: how things will look (say in five year’s time) and how we
reached that point. Allow one or two days for people to develop scenarios based on existing information within the
company. Use scenarios to stimulate debate, develop resilient strategies and test business plans against possible
futures.
Hold workshops off-site to allow optimum reflection and absorption time. For a single capital project, try back-of-
the-envelope calculations to capture the essential differences in the viability of alternatives. To assess the likelihood
of a scenario coming true, use early indicators—events that should be seen in the next year or so.
Communicate scenarios graphically, for example, by imaginary newspapers written as if in the future, day-in-the-
life stories, film or glossy booklets.
Regularly read trade and business publications focusing on your industry, finance, business, politics and
economics (for example, the Financial Times, The Economist, Fortune, BusinessWeek).
Maintain and review information on economic, social, technological and governmental and regulatory trends.
Deliver to your boss, peers and/or team members a presentation on the major changes (technological, socio-
economic, regulatory and commercial) likely to affect your business. This could coincide with the annual
planning cycle or contribute to a strategic plan. The presentation should:
Keep informed and up-to-date by joining a professional membership or trade association. These are
especially valuable for networking and attending seminars. Also, find a relevant website and subscribe to their email
alerts.
• Scenarios don't aim to pinpoint future events but to consider the forces which may push the future along
different paths.
• Critically assessing each scenario keeps the process focused, relevant and valuable.
• Don’t try to predict the future; instead, try to understand the forces that will shape it.
• Encourage creative thinking, and do not allow existing biases to guide the process. Also, ensure that the
process is not over-shadowed by operational pressures, as these can limit energy and creativity.
Key questions
• Do the current strategic approaches typify traditional, ‘business-as-usual’ thinking? Are you prepared to
accept that a strategy is failing or is vulnerable?
• Is the organization in touch with market developments and the needs of customers? Are you prepared to
challenge your confidence in existing orthodoxy?
• Is any part of your organizational planning weak and lacking clear direction? Do you lack confidence in your
ability to engage in strategic debate?
• In your decision-making process do you, as a matter of routine, always consider multiple options before
deciding? Is the quality of your strategic thinking limited, narrow and uninspired?
• Is your organization afraid of uncertainty, or does it enjoy thinking about it? Do people see it as a threat or as
an opportunity? Is it recognised as a potential source of competitive advantage?
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Scenario Planning
Scenario planning is a model for learning about the future in which a corporate
strategy is formed by drawing a small number of scenarios, stories how the future may
unfold, and how this may affect an issue that confronts the corporation.
Royal Dutch Shell, one of the first and leading adopters, defines scenarios as follows:
Scenarios are carefully crafted stories about the future embodying a wide variety of ideas
and integrating them in a way that is communicable and useful. Scenarios help us link the
uncertainties we hold about the future to the decisions we must make today.
The scenario planning method works by understanding the nature and impact of the
most uncertain and important driving forces affecting the future. It is a group process which
encourages knowledge exchange and development of mutual deeper understanding of
central issues important to the future of your business. The goal is to craft a number of
diverging stories by extrapolating uncertain and heavily influencing driving forces. The
stories together with the work getting there has the dual purpose of increasing the
knowledge of the business environment and widen both the receiver's and participant's
perception of possible future events. The method is most widely used as a strategic
management tool, but it is also used for enabling group discussion about a common future.
• What do you need to know to make this decision or resolve this issue? Evaluate Your
Competitive Strategy
• What will you consider success or failure?
A Competitive Strategy
• What conditions or events will determine success or failure? Model
• What critical assumptions define the logic for these responses? A Scenario Planning
Process
Step 3. List the driving forces that influence these key factors.
Root Cause Problem
Identify the driving forces in the macro-environment that drive the key factors you Solving
listed. These driving forces can originate in the following areas.
A Strategic Thinking
• Society and its structure including demographic, economic and political factors, Workbook for Non-
and public opinion. Profit Executives
• Markets and customer behavior. A Board Governance
• Technology and innovation. Model
Scenario Planning
What is Scenario Planning?
DecisionPath's ForeTell methodology derives from scenario planning, a technique developed by the
U.S. military and later refined by oil industry strategists to prepare for decisions in highly uncertain
and risk-intensive environments. (See, for example, The Art of the Long View: Planning for the
Future in an Uncertain World, by Peter Schwartz).
Scenario planning provides a systematic approach to thinking about the forces, events, and actors
likely to shape a particular industry, society, or geo-political landscape. These exercises produce a
small number of vivid scenarios that depict plausible possible futures. Decision makers then use these
results as baselines or targets for developing strategies to either influence or respond to those
scenarios to their organizations' advantage.
For example, oil companies use scenario planning to anticipate future energy needs, price structures,
and sociopolitical environments. They then plan long-term investments in energy assets, production
technologies, and business models in order to increase their likelihood of continued growth. One
famous success story is that scenario planners at Royal Dutch Shell anticipated the emergence a
Middle-East oil cartel, and positioned the company well for the upheavals caused by OPEC. Similarly,
military strategists use scenario planning to help envisage future threats and alliances, and then plan
force structures, weapons and logistics systems capable of responding to those threats.
Scenario Planning has limitations.
The value of scenario planning is widely recognized. However, the method is not applied as widely as it
merits, because of the considerable effort and skill it demands.
Developing effective scenarios requires considerable knowledge, discipline, and artful construction to
focus on the issues of direct relevance while maintaining receptivity to the unexpected. Organizations
typically only develop three to five scenarios because they are so difficult to develop. Similarly, they
update and revisit them every five years or so because the process is so intense.
In addition, playing out the effects of particular decisions in alternate scenarios presupposes a deep
understanding of environmental forces and stakeholder behaviors. Knowledge of situational dynamics
is typically dispersed across many people and data sources. Assembling and applying this knowledge is
a daunting task. Performing this exercise in a detailed, consistent and repeatable manner, with
adequate documentation of the process is a more formidable challenge still.
Most organizations find it hard to justify the time, investment, and other risks to carry out these
important strategic exercises, or perform them only rarely.
ForeTell Automates and Extends Scenario Planning to Overcome These Problems
DecisionPath addresses these adoption problems by extending scenario planning methods with
complementary software tools. ForeTell solutions simplify the task of defining scenarios for particular
kinds of decisions. A ForeTell solution provides a pre-defined template for creating scenarios quickly
and correctly, based on two kinds of expertise - scenario planning and knowledge that focuses on a
particular domain and/or type of critical decision. In addition, it takes minimal effort to make as many
scenarios as you require. With ForeTell, you simply copy an existing "baseline" scenario and add or
delete entities, or change assumptions or decisions.
ForeTell does not create decisions automatically, any more than traditional scenario planning does.
However, ForeTell's simulation engine automates and standardizes the task of projecting the likely
consequences of candidate decisions in alternate possible futures. And ForeTell's analytics help you
compare the outcomes of competing decisions, to identify robust decisions.
Hide
Scenario planning
From Wikipedia, the free encyclopedia
This article has multiple issues. Please help improve it or discuss these issues on
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• It needs additional references or sources for verification. Tagged since June
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since November 2006.
Scenario planning, also called scenario thinking or scenario analysis, is a strategic planning method that some organizations use to make flexible long-term plans.
It is in large part an adaptation and generalization of classic methods used by military intelligence.
The original method was that a group of analysts would generate simulation games for policy makers. The
games combine known facts about the future, such as demographics, geography, military, political, industrial
information, and mineral reserves, with plausible alternative social, technical, economic, environmental,
educational, political and aesthetic (STEEEPA) trends which are key driving forces.
In business applications, the emphasis on gaming the behavior of opponents was reduced (shifting more
toward a game against nature). At Royal Dutch/Shell for example, scenario planning was viewed as changing
mindsets about the exogenous part of the world, prior to formulating specific strategies.
Scenario planning may involve aspects of Systems thinking, specifically the recognition that many factors
may combine in complex ways to create sometime surprising futures (due to non-linear feedback loops). The
method also allows the inclusion of factors that are difficult to formalize, such as novel insights about the
future, deep shifts in values, unprecedented regulations or inventions. Systems thinking used in conjunction
with scenario planning leads to plausible scenario story lines because the causal relationship between factors
can be demonstrated. In these cases when scenario planning is integrated with a systems thinking approach to
scenario development, it is sometimes referred to as structural dynamics.
Contents
[hide]
• 1 Crafting scenarios
○ 1.1 Zero-sum game scenarios
• 2 How military scenario planning or scenario thinking is done
○ 2.1 Scenario planning in military applications
• 3 Development of scenario analysis in business organizations
• 4 History of use by academic and commercial organizations
○ 4.1 Critique of Shell's use of scenario planning
• 5 General Limitations of Scenario Planning
• 6 Use of scenario planning by managers
• 7 Process
○ 7.1 Step 1 - decide assumptions/drivers for change
○ 7.2 Step 2 - bring drivers together into a viable
framework
○ 7.3 Step 3 - produce initial (seven to nine) mini-
scenarios
○ 7.4 Step 4 - reduce to two or three scenarios
○ 7.5 Step 5 - write the scenarios
○ 7.6 Step 6 - identify issues arising
• 8 Use of scenarios
• 9 Scenario planning compared to other techniques
• 10 References
• 11 External links
[edit] Process
The part of the overall process which is radically different from most other forms of long-range planning is
the central section, the actual production of the scenarios. Even this, though, is relatively simple, at its most
basic level. As derived from the approach most commonly used by Shell, it follows six steps:
1. Decide drivers for change/assumptions
2. Bring drivers together into a viable framework
3. Produce 7-9 initial mini-scenarios
4. Reduce to 2-3 scenarios
5. Draft the scenarios
6. Identify the issues arising
[edit] References
1. ^ a b Schoemaker, Paul J.H. “Scenario Planning: A Tool for Strategic Thinking,” Sloan
Management Review. Winter: 1995, pp. 25-40.
a b c
2. ^ Schwartz, Peter. The Art of the Long View. Doubleday, 1991.
a b
3. ^ van der Heijden, Kees. Scenarios: The Art of Strategic Conversation. Wiley & Sons,
1996.
4. ^ Ringland, Gil. Scenario Planning: Managing for the Future. Wiley & Sons, 1998.
5. ^ Wack, Pierre. "Scenarios: Uncharted Waters Ahead", Harvard Business Review.
September-October, 1985.
6. ^ Schoemaker, Paul J.H. and Cornelius A.J.M. van der Heijden, "Integrating Scenarios into
Strategic Planning at Royal Dutch/Shell," Planning Review. Vol. 20 (3): 1992, pp.41-46.
7. ^ Schwartz, Peter. . The Art of the Long View: Planning for the Future in an Uncertain
World New York: Currency Doubleday, 1991.
8. ^ "Herman Kahn." The Columbia Encyclopedia, Sixth Edition. 2008. Retrieved November
30, 2009 from Encyclopedia.com: http://www.encyclopedia.com/doc/1E1-Kahn-Her.html
a b
9. ^ Chermack, Thomas J., Susan A. Lynham, and Wendy E. A. Ruona. "A Review of
Scenario Planning Literature." Futures Research Quarterly 7 2 (2001): 7-32.
10.^ Lindgren, Mats, and Hans Bandhold. Scenario Planning: The Link between Future and
Strategy. New York: Palgrave McMillan, 2003.
11.^ a b Bradfield, Ron, et al. "The Origins and Evolution of Scenario Techniques in Long
Range Business Planning." Futures 37 8 (2005): 795-812.
12.^ Kahn, Herman. Thinking About the Unthinkable. New York: Horizon Press, 1965.
13.^ Berger, G. "Phénoménologies du Temps et Prospectives." Presse Universitaires de
France, 1964.
14.^ Kahn, Herman, and Anthony J. Wiener. "The Next Thirty-Three Years: A Framework for
Speculation." Daedalus 96 3 (1967): 705-32.
15.^ Godet, Michel, and Fabrice Roubelat. "Creating the Future :The Use and Misuse of
Scenarios." Long Range Planning 29 2 (1996): 164-71.
16.^ Godet, Michel, Fabrice Roubelat, and Guest Editors. "Scenario Planning: An Open
Future." Technological Forecasting and Social Change 65 1 (2000): 1-2.
17.^ Diffenbach, John. "Corporate Environmental Analysis in Large US Corporations," Long
Range Planning. 16 (3), 1983.
18.^ Peter Cornelius, Alexander Van de Putte and Mattia Romani. "Three Decades of
Scenario Planning in Shell", California Management Review, Nov. 2005
19.^ a b Mercer, David. "Simpler Scenarios," Management Decision. Vol. 33 Issue 4:1995, pp
32-40.
20.^ Fahey, Liam and Randall, Robert M. Learning from the Future. Wiley & Sons, 1998.
21.^ Schoemaker, Paul J.H. “Multiple Scenario Developing: Its Conceptual and Behavioral
Basis,” Strategic Management Journal. Vol. 14: 1993, pp 193-213.
22.^ Schoemaker, Paul J.H. “Twenty Common Pitfalls in Scenario Planning,” in Learning
from the Future. Wiley & Sons, 1998, pp 422-431.
a b
23.^ Schoemaker, Paul J.H. Profiting from Uncertainty. Free Press, 2002.
24.^ Backoff, R.W. and P.C. Nutt. "A Process for Strategic Management with Specific
Application for the Non-Profit Organization," Strategic Planning: Threats and
Opportunities for Planners. Planners Press, 1988.
25.^ T. Eriksson & T. Ritchey, "Scenario Development using Computer Aided Morphological
Analysis,". http://www.swemorph.com/pdf/cornwallis3.pdf. Adapted from a Paper
Presented at the Winchester International OR Conference, England, 2002.
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