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  • The Origins and Evolution of Scenario Techniques in Long Range Business Planning

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    Vinícius Janick
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    A valid concept of what the future could be implies the existence of an overall conjectural framework which makes full allowance for the dynamics and complexity of the various systems involved. Such a framework must integrate the variable factors which determine the behaviour of all the economic and other agents contributing to the shape of the future, even when these variables are of a qualitative, subjective nature. A new method based on the cross-impact analysis is proposed to improve decision-making processes. A simple example is given to illustrate how this method can be used in forecasting studies and scenarios.

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    A valid concept of what the future could be implies the existence of an overall conjectural framework which makes full allowance for the dynamics and complexity of the various systems involved. Such a framework must integrate the variable factors which determine the behaviour of all the economic and other agents contributing to the shape of the future, even when these variables are of a qualitative, subjective nature. A new method based on the cross-impact analysis is proposed to improve decision-making processes. A simple example is given to illustrate how this method can be used in forecasting studies and scenarios.

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    18 views11 pages

    The Origins and Evolution of Scenario Techniques in Long Range Business Planning

    Uploaded by

    Vinícius Janick
    A valid concept of what the future could be implies the existence of an overall conjectural framework which makes full allowance for the dynamics and complexity of the various systems involved. Such a framework must integrate the variable factors which determine the behaviour of all the economic and other agents contributing to the shape of the future, even when these variables are of a qualitative, subjective nature. A new method based on the cross-impact analysis is proposed to improve decision-making processes. A simple example is given to illustrate how this method can be used in forecasting studies and scenarios.

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    302 SMIC 74 for Constructing and Ranking Scenarios SMIC 74—A method for constructing and ranking scenarios J. ©. Duperrin and M. Godet A valid concept of what the future could be implies the existence of an overall conjectural framework which makes full allowance for the dynamics and complexity of the various systems involved, Such a framework must integrate dhe variable factors which determine the behaviour of all the economic and other agents contributing to the shape of the future, even when these variables are of a qualitative, subjective nature. A new method based on the cross-impact analysis is proposed to improve decision-making processes. A simple example is given to illustrate how this method can be used in forecasting studies and scenarios Soctax systems are becoming increasingly complex and diversified, the factors which influence them increasingly interdependent, and the events which occur within them increasingly interrelated. Consequently, if we are to control future events, we must first have some idea of the future context of the system considered. Just as we can summarise past history by listing a sequence of salient happenings, so can we visualise possible futures by envisaging a series of impending events which, if they materialise, will have predictable effects during the time period considered. Once established, this set of possible events constitutes a frame of reference containing as many different versions of the future as there are different combinations of those events. The question which we will now attempt to answer is how it is possible to identify the most probable events and thus the most probable future. When we are considering the future, personal judgement is often the only available means of assessing which events are likely to occur and to influence those aspects of that future that we are trying to foresee. Some methods, such as Delphi, are quite suitable for compiling a consensus of expert opinion on the probability of occurrence of specified events to give a convergent view of the future. However, such methods are imperfect in that they do not make allowance for interactions between different events. By contrast, the cross- Dr J..C. Duperrin is with the Planning Department, French Atomic Commission, 93 rue de la Fédéra- tion, Paris NVe. Dr M, Godet is at SEMA Metra International, 16-18 rue Barbes, 92 128 Montrouge, France. This article is adapted from a paper first published in French in Metra, Vol XIIT, No 4, 1974. FUTURES August 1975, SMIC 4 for Constructing and Ranking Scenarios 303 impacts method has the advantage of both taking into account the opinions which are expressed, and the interdependence between the factors to which those opinions relate, so that it provides a more coherent frame of reference. Gritique of the cross-impact method The cross-impact method is the general name given to a whole family of techniques designed to evaluate changes in the probability of occurrence of a given set of events consequent on the actual occurrence of one of them. First of all, the method takes the form of a list of events accompanied by the probabilities, given by expert opinion, of the occurrence of each event. The fundamental assumption of the method is that these probability ratings allow for interactions between separate events, but these probability ratings are incomplete. When allowance is made cystematically for the whole gamut of interactions, the pattern of “raw” probabilities becomes one of “finished”, or corrected, probabilities.” This conversion from raw to finished probabilities is usually achieved by the application of fairly sophisticated techniques, such as reiterated Monte Carlo simulation models, ete. Several approaches have been put forward, often consisting of an ingenious mixture of quadratic forms, mathematical probabilities, and subjective-weighting coefficients. In practice none of these formulas has come to dominate the field and as many different results emerge from a problem as there are formulas being tried.* Furthermore, as has been demonstrated by the Battelle Institute team,® the aim of the method should be to verify the consistency of the forecasts by reference to standard probability theory. In practice, most of the methods— however complex they may be—lead up to inconsistent “finished” probabilities and give results such as P(i) < P(iij)P(j). This is incompatible with P(i) = P(ij)P(j) + P(if)P(J), against which they should be measured. Most authors on the subject tend to mistake convergence for consistency: the fact that a process is convergent does not necessarily mean that it gives consistent results. Scenarios: sensitivity and construction The sensitivity analysis enables us to separate powerful or dominant events from events which are subordinate to them. In most cases, this is done hy estimating the variation AP(j) of the probability P(j) of the event j consequent on a variation AP(é) of the probability P(i) of event i, The results are displayed in the form of an elasticity matrix [¢y], where ey = POAPG) 4 PG)APG) Scenario construction is usually based on random selection, from which the most probable chain of events can be generated. In practice, when we consider a system of n events (¢,, ¢, +. , én), that system implies that 2" combinations or scenarios are possible. For example, if we say that at a given date events ¢, ¢, ¢ .--» én Will have occurred, but not ¢,, this corresponds to one of the 2" possible scenarios. FUTURES August 1975 304 SMIC 74 for Constructing and Ranking Scenarios The sum of the probability ratings for all the scenarios is unity, since they are exclusive in relation to each other and one of them is bound to occur. Examples of cross-impact applications to date show that the most probable scenario has a probability rating of around 0-1. The exact figure depends on the number of events considered and the size of the initial probabilities. There are usually other quite different scenarios with probabilities which are only slightly lower than this and which form part of the hard core of probabilities. Consequently, we can say that the future trend cannot be identified simply by taking the most probable scenario. For cross-impact analysis to overcome this drawback, the methods employed would have to produce an order of ranking of all the possible scenarios. With a view to developing a method which complies with both these require- ments, we decided to rethink the problem in all its aspects. None of the cross- impact formulas developed so far seems satistactory. ‘The results are not con- sistent with probability theory, nor do they give probability ratings for cach scenario evolved. A new method The principle underlying the method is extremely simple and is based on the assumption that the experts consulted are able to give opinions concerning: © The list H of the n separate events which are considered relevant to the exercise in hand: He (eye + @)- The probability P(i) of the separate event ¢, ie the probability of the occurrence of ¢ within the period considered. When a person says “I estimate at 0-75 the probability of a given event” we subscribe to the opinion of Professor Villet in interpreting this assessment as meaning “if you consider all the events whose probability I rated as 0-75, and record for a long series of cases the frequency of the events actually occurring, I forecast that that frequency will be in the region of 0-75”. @ The conditional probabilities of the separate event taken in pairs: P(i{j)is the probability of i if j occurs, P(ajj) is the probability of 2 if 7 does not occur. In practice, the opinions given in response to certain specific questions about non-independent events disclose some degree of inconsistency with the overall opinion (which is implicit although not expressed) revealed by the answers given to all the other questions, These “raw” opinions thus have to be corrected so that the “finished” probabilities conform with the following constraints: 0

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