Scenario Planning exercises

7 MDD course, 28th October 2002

Three techniques, Three exercises following the background lectures on

Scenario Planning, its development and application to issues of defence
management.

1
 In the second half of this session, three teams
will use each method to develop scenarios

Team / Team 1 Team 2 Team 3

Scenario

Exercise: System- Morphologie Corporate risk

Anvil thinking led led management
led
Exercise: Corporate risk System- Morphologie
Trident management thinking led led
led
Exercise: Morphologie Corporate risk System-
Pampers led management thinking led
led

October 02 ©Dr. Jeffrey Bradford 2002

Grid showing ordering for teams to apply methods learnt to scenarios in the
second part of the session.

2
 Exercise Anvil - Review and improve upon
scenario planning effort for the steel industry

• Your team has been invited to audit a scenario

planning review for the country’
country’s steel industry.

• You have been chosen specifically because it is a

politically sensitive process and you have no
previous involvement.

• Assess the summary findings, apply the method

you have been equipped with to see what
scenario drivers you can identify.

October 02 ©Dr. Jeffrey Bradford 2002

First of three scenario planning exercises. In 2002, several months considering the future of
the steel industry in our country using a ten year time horizon (to 2012), enabled participants
from ‘Steelco’ (our national champion) and the Ministry for Commerce to identify six relevant
scenarios constructed around three general macro-economic hypotheses:

Macro-economic hypotheses:
- H1 (low GDP growth, below 1.8%);
- H2 (severe constraints on the environment);
- H3 (strong competition from other materials)
Scenarios:
- “Stormy” Poor GDP growth and strong competition.
- “Morose” Poor GDP growth with no strong competition.
- “Status quo” Continuation of the current situation.
- “Ecological” Strong constraints from the environment.
- “Pink Steel” Strong GDP growth and competition favourable to SteelCo.
- “Pink Plastic” Strong GDP growth and competition favourable to imports.

Key Steel Industry Data:

Employment has moved over the past four years from 80,000 to 77,000; 74,000 and this
year 70,000. Production of steel (measured in tons) has moved from 3.5million through 3.55
and 6.0 million to this years figure of 3.75m. Total foreign imports of steel have risen from
0.25m tons three years ago to 0.55m; 0.6m and this year 0.68m. Foreign import of plastics
has grown very slowly until this year from 0.01m to 0.015; 0.02 and this year 0.05m.

Team Advisory:
Your objective is to construct scenarios for the steel industry which can act as a basis for
strategic planning to ensure a surviving, successful steel industry. The Ministry of Commerce
have readily supplied you with this executive summary, but have not supplied the full report.
You have learnt that the presentation of your preliminary findings has been moved to 60
minutes time, in this office complex.

3
 Using influence diagrams as a tool for
structuring exercise Anvil
Quality of
imported steel

Demand Price of
for imported imported
steel steel

imported Steel
sales
Level of
Substitution
Demand Total national (Steel>Plastic)
for SteelCo Domestic Steel demand
steel sales For Steel

Price of
plastics
Price of
SteelCo
steel Quality of
SteelCo steel
October 02 ©Dr. Jeffrey Bradford 2002

Influence diagrams can grow very quickly into very large complex pictures. One management
consultancy built a model of the London Underground railway business which contained over
4,000 factors to explain how passengers interacted with the network. The illustration above
looks at the interaction between demand for SteelCo versus imported steel, and what drives
the use of plastics as a substitute. Note the following:

Total National demand for steel and the level of substitution seem to be the most important
variables. The former because of the number of positive (blue) and negative (red) arrows,
and secondly because the impact of level of substitution on the quality of steel affects the two
loops which can be traced starting with national demand, and then being traced through price,
demand, and sales.

In terms of actor analysis, possible actors are the Ministry of Steel (who could control
imported steel sales through protectionist laws ?), SteelCo’s management (improving quality),
Consumers (who will be crucial in the link between steel demand and substitution - maybe a
consumer education campaign as to the benefits of steel is needed ?).

In building an influence diagram try and apply the following techniques: Firstly stop building
a diagram when you reach approximately twenty factors. At this point examine your model
and try to identify the most important factors, and then build a new diagram specifically
focused upon those. Second, always test your thinking in the model in stages, so that the
model makes sense to yourself, but also those whom you wish to communicate it to.

4
 Applying the morphological box to the
national steel industry in exercise Anvil
Foreign Quality of Access to End user
steel SteelCo raw attitude to
imports product materials plastics
Plastics are
Rise by up Stockpiles
Quality falls substitute
to 5% fall
25% 50% 35% for steel 30%
Harmony
Stick to Quality Stockpiles
between
trend constant Steady
40% 20% 10% steel/plastic 40%
Fall by Quality Stockpiles “Steel as
<=5% increases increase king”
25% 30% 50% 20%
Drastic fall Move to “What about
(protection) Import all ceramic
-25% 10% stocks 5% composites?” 10%
October 02 ©Dr. Jeffrey Bradford 2002

Technique:
•List the drivers derived from the brainstorming exercise in the yellow boxes atop each
column - they can be different to the ones used by Zwicky.
•List the possibilities in the grey boxes underneath each column (column sizes can be
different). Try to create Mutually Exclusive & Comprehensively Exhaustive (MECE) possibilities
(Barbara Minto).
•Decide on probabilities for each grey box based on the participants judgement (each column
totals 100% (excluding yellow box)).
•You can create scenarios using highest probability boxes as well as Monte Carlo simulation
via computer software or even random number generators (e.g. dice).
•When thinking about the probabilities, try to ask the question, “what is the probability of x
happening, by the time frame chosen, without the current situation changing ?” This is to
avoid pre-judging the strategic options for mitigating or taking advantage of the scenario.

Exercise Anvil:
•Scenario drivers (yellow boxes) could include; foreign steel imports, the quality of steel
produced by SteelCo, access to raw materials for producing steel, and the attitude of the
manufacturers to plastics. There could be many more.
•Discrete possibilities for each driver (column of grey boxes). Tips: Try to avoid 3 as in the
second column. The risk of this is that you will end up thinking “best case, worst case, in-
between”. In the other columns I have tried to introduce a random wild card, generated by
thinking about the other alternatives, such as “what if the country imports its raw materials
for making steel instead of risking depletion of its stocks (what Britain has done with its coal
industry in the 1990s)”.

5
 Plot the drivers for exercise Anvil in a matrix
on the basis of significance and likelihood

Significance/Likelihood matrix for macro-economic hypothesis H1

Gvt./Public
Gvt./Public influences
influences Imports
Resource
Resource Availability
Availability Imports

Reputation
Reputation Competitor
Competitor
Service/Product Actions
Actions
Service/Product Quality
Quality
Credit
Credit Default
Default
Business
Business Portfolio
Portfolio (BIF)
(BIF)
Efficiency/Productivity Capacity
Capacity
Efficiency/Productivity
Significance

Business
Business Plan
Plan
Hiring/retaining
Hiring/retaining Logistics
Logistics
Future
Future Regulations
Regulations
Catastrophe
Catastrophe Budget Compliance Environmental
Environmental
Budget &
& Compliance
Planning
Planning
Liquidity/Cash Empowerment IT
IT Infrastructure
Infrastructure
Liquidity/Cash Flow
Flow Empowerment
Info
Info Integrity
Integrity
Obsolescence
Obsolescence
Asset
Asset Shareholder
Shareholder Relations
Relations
Protection
Protection CAPEX
CAPEX Projects
Projects
Health
Health &
& Safety
Safety

Likelihood

October 02 ©Dr. Jeffrey Bradford 2002

For each driver ask the questions, “how significant is this driver to the scenario ?”, and, “How
likely is it that the significance of this driver will occur in the timeframe ?”. Plot the driver on
this basis in the matrix. Items in the top right, are both high impact and high probability -
and therefore worthy of immediate further investigation by mind mapping.

In exercise Anvil it could be possible to construct a matrix for each of the macro-economic
hypotheses (H1-H3) or by scenarios.

A mind map of imports may well highlight key drivers such as government intervention, price,
and quality for which indicators and timeframes can be derived.

6
 Exercise Trident - Review procurement
options for a new generation of naval vessel

• Your team has been tasked to develop possible

scenarios around the area of procuring six new
naval vessels.

• Your team has wide defence experience and is

regarded as having a greater chance of thinking
“out-of-the-box”
out-of-the-box”.

• Apply the method you have been designated

with to develop new insights and options for your
Defence Management Board.

October 02 ©Dr. Jeffrey Bradford 2002

Exercise Trident - Review procurement options for a new generation of naval vessel. Your
team has been tasked to develop scenarios for procuring six new naval vessels. Your team
has wide defence experience and is regarded as having a greater chance of thinking “out-of-
the-box”. Apply the method you have been designated with to develop scenarios and options
for your Defence Management Board.

Additional information:
•The six new vessels are designed to replace ten existing vessels. Each
new vessel is regarded as being 25% more capable than the previous
generation (according to Operational Research). The last generation of
vessels were procured to provide a combination of protection of fish stocks,
coastal patrol capabilities and prestige.
•Your country has two indigenous suppliers of Naval vessels, ‘Hull inc.’ and
‘NavyBlue’. Both manufacturers claim they shall be forced out of business if
they do not receive the contract.
•Both suppliers are quoting a procurement cost of $125m per vessel,
delivering them at a rate of 2 per year starting in five years from completion
of contract.
•A foreign supplier is offering a price of $100m per vessel with a 3 year
timeframe before supplying them at a rate of 2 per year.
•A friendly foreign government is offering a batch of 8 obsolete naval
vessels which are each regarded as being +5% more effective than the
current vessels in service.
•Your government has used a combination of foreign surplus equipment,
indigenous and foreign procurement techniques in previous years.
•It is believed that a neighbouring country has procured its naval vessels in
direct response to your own acquisition of the current capabilities.
•A faction of the Navy has been promoting the idea of replacing the coastal
patrol capability using helicopters instead of replacement naval vessels from
a merchant ship converted into a helicopter-pad.

7
 Using influence diagrams as a tool for
structuring exercise Trident
Number of
vessels Naval
Operational Ability to
Effectiveness Perform tasks

Quality of
Naval vessels Level of
National
Level of security
foreign
Cost of procurement
Naval vessels

Level of
Size of Naval domestic Good quality Conditions
procurement
budget For economic activity

October 02 ©Dr. Jeffrey Bradford 2002

Influence diagrams can grow very quickly into very large complex pictures. One management
consultancy built a model of the London Underground railway business which contained over
4,000 factors to explain how passengers interacted with the network. The illustration above
looks at a couple of aspects of the trident situation. Note the following:

The cost of naval vessels seem to be the single most important variable because of the
number of positive (blue) and negative (red) arrows. There are two main loops which can be
traced starting from the cost of naval vessels.

In terms of actor analysis, possible actors are the Politicians (who could influence the link
from national security to positive economic conditions for growth ?), Ship manufacturers
(reducing cost and the quality of naval vessels).

In building an influence diagram try and apply the following techniques: Firstly stop building
a diagram when you reach approximately twenty factors. At this point examine your model
and try to identify the most important factors, and then build a new diagram specifically
focused upon those. Second, always test your thinking in the model in stages, so that the
model makes sense to yourself, but also those whom you wish to communicate it to.

8
 Applying the morphological box to the Naval
procurement exercise ‘Trident’
Trident’
Most likely Naval Favoured
Price paid
mission for personnel political
per ship
new ships retention solution
$125m Over- Support
Coastal
(supplier manning: home
patrol
20% Quotes) 70% cuts 5% industry 60%
Protecting $100m Natural Improve
fishing (foreign wastage: foreign
stocks 25% supplier) 20% As today 10% relations 20%
Providing $75m ? Defuse
General
prestige (buy from Naval
shortfall
for Navy 30% neighbour) 10% 50% tensions 10%
Defending Shortfall Like being
against In technical flown in
neighbour 25% skills 35% helicopters 10%
October 02 ©Dr. Jeffrey Bradford 2002

Technique:
•List the drivers derived from the brainstorming exercise in the yellow boxes atop each
column - they can be different to the ones used by Zwicky.
•List the possibilities in the grey boxes underneath each column (column sizes can be
different). Try to create Mutually Exclusive & Comprehensively Exhaustive (MECE) possibilities
(Barbara Minto).
•Decide on probabilities for each grey box based on the participants judgement (each column
totals 100% (excluding yellow box)).
•You can create scenarios using highest probability boxes as well as Monte Carlo simulation
via computer software or even random number generators (e.g. dice).
•When thinking about the probabilities, try to ask the question, “what is the probability of x
happening, by the time frame chosen, without the current situation changing ?” This is to
avoid pre-judging the strategic options for mitigating or taking advantage of the scenario.

Exercise Trident:
•Scenario drivers (yellow boxes) could include the four listed above - Most likely mission for
the new ships, the price paid, naval personnel retention, and the favoured political solution.
There are many possibilities.
•Discrete possibilities for each driver (column of grey boxes). Tips: Try to avoid 3 as in the
second column. The risk of this is that you will end up thinking “best case, worst case, in-
between”. In the other columns I have tried to introduce a random wild card, generated by
thinking about the other alternatives, such as “The favoured political solution is that
politicians love helicopter rides - ships make them seasick”.

9
 Plot the drivers for exercise Trident in a matrix
on the basis of significance & likelihood

Significance/Likelihood matrix for scenario drivers in exercise Trident

Quality
Quality of
of
Public
Public opinion
opinion ships
ships
Reputation
Reputation

Logistics
Logistics Operational
Operational
Effectiveness
Effectiveness

Personnel
Significance

Personnel
Hiring/retaining
Hiring/retaining

Budget
Budget &
& Environmental
Environmental
Planning
Planning

Obsolescence
Obsolescence

CAPEX
CAPEX Projects
Projects
Naval
Naval
infrastructure
infrastructure

Likelihood

October 02 ©Dr. Jeffrey Bradford 2002

For each driver ask the questions, “how significant is this driver to the scenario ?”, and, “How
likely is it that the significance of this driver will occur in the timeframe ?”. Plot the driver on
this basis in the matrix. Items in the top right, are both high impact and high probability -
and therefore worthy of immediate further investigation by mind mapping.

In exercise Trident it could be suggested that high significance / likelihood scenario drivers
would include issues relating to personnel (having the right numbers of trained personnel in
the right platform at the right time), logistics implications (do the new ships use the same
spares, stores etc. as the ones they are replacing ?)

A mind map of Quality of ships may well highlight key drivers such as the capability of
domestic versus foreign producers to meet the needs of the Navy, government intervention,
and price for which indicators and timeframes can be derived.

10
 Exercise Pampers - Develop scenarios for
demographic change and its implications

• Your team has been tasked to develop possible

scenarios looking at population growth in your
country and its neighbours

• The national statistics office has developed data,

and there are trends available from international
organisations

• Apply the method you have been designated

with to identify develop possible security
implications for your country

October 02 ©Dr. Jeffrey Bradford 2002

Exercise Pampers - Develop scenarios for demographic change and its implications. Your
team has been tasked to develop possible scenarios looking at population growth in your
country and its neighbours. The national statistics office has supplied basic data. Apply the
method you have been designated with to identify develop possible defence management
implications for your country.

Population survey data*:

•Your country has a total population of 1,500,000. Births average 100,000 and deaths
30,000.
•Nearby Land has the largest population of 2,000,000. Births are running at 125,000 and
deaths 65,000.
•Close Kingdom has a population of 1,000,000 with births of 50,000 but deaths higher at
55,000.
•The Isles of Local have the smallest population of 750,000. The birth rate is 30,000 and the
death rate is half that figure.

*All figures are in thousands of people per year. Total refers to total population. Births and
deaths are per year (5 year average).

The survey also identified four key drivers:

•Health. ‘Close Kingdom’ has suffered the ravages of an epidemic over the
past 2 years which has skewed the figures from its average of +5,000 per
year. It is forecast this growth figure will return in 3 years.
•Terrain. ‘Close kingdom’ is largest, followed by ‘Isles of Local’ and your
own country. ‘Nearby land’ is the smallest territory.
•Technology. ‘The Isles of Local’ have invested extensively in combating
malaria over the past decade to lift net population growth 1% per year.
•Military. The size of population available for military service is highest in
‘Nearby land’ (25%) and your own country (23.5%).

Team Advisory:
Utilise what is known about the drivers as best as your method allows and consider the
implications. Use the data as a basis to think about demographic shifts over a 2010, 2015 11
and/or 2020 year time frame.
 Using influence diagrams as a tool for
structuring exercise Pampers

Death rate

Quality of Population
Health size
services Incidence of
Conflict with
% available for neighbours
Birth rate Military service

Ability to
Attitude to Protect territory
Government “The family”
budget for health
Quality of
Equipment &
training

October 02 ©Dr. Jeffrey Bradford 2002

Influence diagrams can grow very quickly into very large complex pictures. One management
consultancy built a model of the London Underground railway business which contained over
4,000 factors to explain how passengers interacted with the network. The illustration above
looks at the Pampers exercise, focusing on the interaction between quality of health and
population growth, linked to territorial integrity. Note the following:

The ability to protect territory and quality of health services seem to be the most important
variables. The former because of the number of positive (blue) and negative (red) arrows.
Two loops can be observed starting from the variable ‘population size’.

In terms of actor analysis, possible actors are the Government (who allocate resources both
for health and for the quality of equipment and training ?), and possibly institutions such as
the Church, or the media whom might propose measures to increase the attitude to the
family…

In building an influence diagram try and apply the following techniques: Firstly stop building
a diagram when you reach approximately twenty factors. At this point examine your model
and try to identify the most important factors, and then build a new diagram specifically
focused upon those. Second, always test your thinking in the model in stages, so that the
model makes sense to yourself, but also those whom you wish to communicate it to.

12
 Applying the morphological box to the
demographic challenge of exercise ‘Pampers’
Pampers’
Health Terrain Technology Military

Funding Benign
More travel: End to
poor +1,000 weather
Health risk mass service
deaths 60% patterns 30% 35% 50%
Global Improved Professional
Status Quo warming: surveillance core & no
5% flood threat 30% few migrants 15% reserves 25%
More funds Less forest: Better Professional
+2,000 erosion of comms - core &
births 15% agriculture 40% less travel 50% reserves 24%
Foreign aid “Vatican
+1,500 guard”
births 20% solution 1%
October 02 ©Dr. Jeffrey Bradford 2002

Technique:
•List the drivers derived from the brainstorming exercise in the yellow boxes atop each
column - they can be different to the ones used by Zwicky.
•List the possibilities in the grey boxes underneath each column (column sizes can be
different). Try to create Mutually Exclusive & Comprehensively Exhaustive (MECE)
possibilities (Barbara Minto).
•Decide on probabilities for each grey box based on the participants judgement (each column
totals 100% (excluding yellow box)).
•You can create scenarios using highest probability boxes as well as Monte Carlo simulation
via computer software or even random number generators (e.g. dice).
•When thinking about the probabilities, try to ask the question, “what is the probability of x
happening, by the time frame chosen, without the current situation changing ?” This is to
avoid pre-judging the strategic options for mitigating or taking advantage of the scenario.

Exercise Pampers:
•Scenario drivers (yellow boxes) could include; Health, Terrain, Technology and the Military
(as identified by the National Statistics Office). There could be many more.
•Discrete possibilities for each driver (column of grey boxes). Tips: Try to avoid 3 as in the
second column. The risk of this is that you will end up thinking “best case, worst case, in-
between”. In the other columns I have tried to introduce a random wild card, generated by
thinking about the other alternatives, for example the employment of Swiss mercenaries (“the
Vatican Guard solution”) to defence needs.

13
 Plot the drivers for exercise Pampers in a
matrix on the basis of significance & likelihood

Significance/Likelihood matrix for scenario drivers in exercise Pampers

Gvt./Public
Gvt./Public influences
influences

Outbreak
Outbreak of
of
Health
Health budget
budget
Significance

disease
disease

Conscription
Conscription
dodgers
dodgers
Risk
Risk of
of floods
floods
(global
(global warming)
warming)

Global
Global warming:
warming:
Soil
Soil erosion
erosion

Likelihood

October 02 ©Dr. Jeffrey Bradford 2002

For each driver ask the questions, “how significant is this driver to the scenario ?”, and, “How
likely is it that the significance of this driver will occur in the timeframe ?”. Plot the driver on
this basis in the matrix. Items in the top right, are both high impact and high probability -
and therefore worthy of immediate further investigation by mind mapping.

In exercise Pampers it may be possible to brainstorm scenario drivers from the four core ones
derived by the National Statistics Office - health, terrain, technology & military.

A mind map of ‘outbreak of disease’ may well highlight key drivers such as population
movements, government information systems, stockpiles and effectiveness of medical
counter-measures for which indicators and timeframes can be derived.

14