To gain any form of competitive advantage, companies from all industries need to accurately forecast demand because without good planning on what needs to be done for growth, the probability to lose clients or that competitive advantage is higher (Qi & Sadowski, 2001). Based on the complexity or uncertainty of the problem, it is not an easy task to come up with the right plans. Planning should be made based on the expected outcomes, considering the uncertainty of the future and the environment. Scenario planning is a planning approach that can help identify these uncertainties and improve the decision-making process.
What is scenario planning?
Scenario planning is a practice through which a group of experts plans for an uncertain future by exploring multiple possibilities of what might happen. This method is usually implemented by decision-makers and planners within an organization (Wade, 2012). In other words, scenario planning is designed to predict uncertainty by developing plans for potential future changes in the environment, personnel, or processes driving your business. It is practically impossible to predict all eventualities with perfect accuracy, but the idea here is to reduce the margin of errors and to build alternative ways to respond to their occurrences.
Driven factors and forces that influence those factors.
Identifying warning signals of a potential problem can only be done with the right processes in place. Before creating your scenario plan, you need to know the environment, personnel, and processes that are driving your business. You also need to have a clear vision of your business within a specific period. Then, identify how changes in one of these business driving factors can impact other opportunities. These changes would need to be categorized into two types of forces: internals or externals. Internal forces include, but are not limited to, market changes and competitive forces. In contrast, internal forces could include incidents within organizations that can affect business revenues. Each of these steps requires a lot of creativity, imagination, and judgment. That is why it is critical to gather the right people, including stakeholders, during your planning. The group of experts should have the skillsets required to identify early indicators of potential changes of directions and evaluate each scenario.
Case Study: Scenario Planning at Shell.
Shell is a multinational oil and gas company headquartered in the Hague, Netherlands. In terms of revenues, it was recorded in 2020 as the fifth-largest company in the world. About three decades ago, Cho Khond was invented to join their team as a senior economist but moved to a different role as their first political analyst. Cho believed in scenario planning and created a small team of analysts to predict pollical decisions that could impact their business. The team investigated different eventualities using their imagination to understand how energy will play out in 20 to 40 years. They came up with a list of scenarios and their indicators to anticipate what might happen next. According to Cho, the team had to perform two tests on each scenario. The first test was to check the feasibility of the event, and the second was a regression test to see if they successfully predicted an event. Cho also emphasized that one of the keys to the success of his team was the analyst group he was able to put in place. He included decision-makers in the planning processes. You can read more about his story as a political analyst here.
References
Scenario planning. What is Scenario Planning? | Adobe Workfront. (n.d.). Retrieved October 31, 2021, from https://www.workfront.com/strategic-planning/scenario-planning.
Daim, T. U., Rueda, G., Martin, H., & Gerdsri, P. (2006). Forecasting emerging technologies: Use of bibliometrics and patent analysis. Technological Forecasting and Social Change, 73(8), 981-1012.
Alon, I., Qi, M., & Sadowski, R. J. (2001). Forecasting aggregate retail sales:: a comparison of artificial neural networks and traditional methods. Journal of Retailing and Consumer Services, 8(3), 147-156.
Khong, C. (2019). Scenario Planning at Shell: Cho Khong.
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