Scenario Planning vs. Traditional Forecasting

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Foretelling the future is an impossibility, yet playing out potential futures in an organized and strategic manner can have extraordinary benefits for organizations willing to put in the time and effort in doing so.


Wade (2012) states the future cannot be predicted because there are too many forces (political, economical, environmental, societal, and technological) interacting with each other, creating the uncertainty of the future. 


Scenario planning was developed by the U.S. military to run research and development (R&D) efforts looking out into the future, up to 20 years (Ali & Luther, 2020). It is also known as scenario analysis or scenario thinking, a method that allows organizations to plan for the future by means of formulating different scenarios or events, and developing strategies or responses for each of those events in anticipation of their potential impacts to an organization, whether positive or negative (Tang, n.d.). Wade (2012) explains scenario planning is not the same as making predictions, it is planning and anticipating possible futures along with their threats and opportunities. The process includes the identification of a range of possible outcomes and impacts, evaluating each by visualizing their potential risks and opportunities, and devising an organizational response which incorporates uncertainty, allowing leaders to make decisions in short periods of time (Ali & Luther, 2020). 



Scenario planning helps decision-makers understand the different effects of multiple events (Ali & Luther, 2020); it allows for “expansion of thinking,” meaning organizational readiness to face different future events increases, including an understanding that even if certain events were not planned for, they may still come to pass (anticipate change), and it also protects against groupthink by allowing participants in scenario planning to debate freely, which better prepares decision-makers for the unexpected (Tang, n.d.). Although scenario planning offers many benefits, it also affords some limitations. The process is lengthy and may take several months to create, posing a problem given the different forces organizations face on a daily basis can change fairly quickly (Ali & Luther, 2020). Tang (n.d.) explains scenario planning does not play well with other forecasting and/or planning techniques, yet it is essential that integration takes place as needed among existing systems. 

Wade (2012) states the two kinds of extrapolation that take place in traditional or conventional forecasting are mathematical and mental. Mathematical extrapolation results in the generation of separate forecasts, typically for “best case,” “worst case,” and “most likely.” This method assumes only the variables taken into account to generate a forecast will change, which is a fundamental flaw provided there are forces interacting with each other all the time. This mindset is known as mental extrapolation. 


Traditional forecasting provides organizations with a faint perception of the future, and although it is a much faster process compared to scenario planning, it does not capture the many changes that can happen and the effects to the organizational landscape, like introduction of unexpected new technologies or competitors, or perhaps a new regulation that may negatively impact an organization (Wade, 2012).   



References 

Ali, R., & Luther, D. (2020, May 14). Scenario planning: Strategy, steps and practical examples. Oracle NetSuite. https://www.netsuite.com/portal/business-benchmark-brainyard/industries/articles/cfo-central/scenario-planning.shtml 

Tang, D. (n.d.). An intro to scenario planning: The tool every strategist needs. CoverWallet. https://www.coverwallet.com/business-tips/scenario-planning 

Wade, W. (2012). Scenario Planning: A Field Guide to the Future. John Wiley & Sons. VitalSource Bookshelf Online.

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