Scenario Analysis: Planning for Uncertain Futures
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Scenario analysis is a method for creating strategic foresight that overcomes the shortcomings of traditional forecasting methods. It helps strategists and decision makers create a shared vocabulary and baseline for quality strategic planning. I delivered this presentation to the Society of Competitive Intelligence Professionals DC chapter on January 14, 2010.
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Scenario Analysis: Planning for Uncertain Futures
- 1. Scenario Analysis August Jackson Global Market & Competitive Intelligence #scipdc
- 2. It's tough to make predictions, especially about the future.
- 3. Human Cognition, Systems Complexity and Fate Conspire to Thwart Our Efforts at Prediction
- 5. "This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.” Western Union internal memo 1876
- 6. Lehman Brothers bankruptcy leads to a near collapse of global finance.
- 7. Scenario Analysis Overcomes Limitations of Traditional Forecasts High Uncertainty Unlikely, Impactful Events Differences of Opinion
- 8. Scenario Analysis Does NOT Predict the Future!
- 9. Ingredients and Outcomes of a Good Scenario Exercise
- 10. Scenario Analysis Gives us a View of Multiple Possible Futures Extreme Positive State Critical Uncertainty 2 Extreme Negative State Extreme Negative State Extreme Positive State Critical Uncertainty 1
- 11. Stages to Scenario Analysis
- 12. Use KITs to Define Your Scope
- 13. Example: Rural Wireless Broadband
- 14. Diversity of Expertise and Opinion Are Key to Identifying Critical Factors Internal Experts Technical, Engineering, R&D Marketing & Sales Management External Experts Academics Customers
- 15. Use Delphi Method to Engage Experts
- 16. STEEP Framework Captures External Factors
- 17. An Example: STEEP for Rural Wireless Broadband
- 22. Municipal fiber in larger rural communitiesUSF Limited to Fixed Line License Regime Unlicensed Use for WAN Availability of “White Space” Spectrum
- 25. Sell fixed-line assets in rural marketsUSF Limited to Fixed Line License Regime Unlicensed Use for WAN Availability of “White Space” Spectrum
- 26. Use Scenarios to Create Early Warning Event A Event Z Scenario 1 Event B Event X Scenario 2 Event C Event Y Event D Event W Scenario 3 Event E Event V Scenario 4 Event F Event U
- 27. Other Applications for Scenario Analysis? Valuation model for early stage companies? What do you think?
- 28. Thank you! August Jackson +1 703 348 7337 august (at) augustjackson (dot) net http://augustjackson.net http://www.twitter.com/8of12
- 29. Sources on Scenario Analysis Bensoussan, Babette and Craig Fleischer. Analysis Without Paralysis: 10 Tools to Make Better Strategic Decisions. New York: FT Press, 2008. Blenkhorn, David, and Craig Fleischer. Managing Frontiers in Competitive Intelligence. New York: Quorum Books, 2000. Dewar, James. Assumption Based Planning: A Tool for Reducing Avoidable Surprise. New York: Cambridge University Press, 2002. Day, George. "Looking in to Marketing's Future.” Marketing Management September/October 2009: 12-17.
Editor's Notes
- Challenges to effective prediction:1. Predict a faster pace of change (flying cars and jet packs predicted in the 1930s to be available in our present time)2. Under-predict the impact of small changes on economy and culture (Internet)3. Over-reliance on past experience in anticipating future trends and events4. Opacity of interplay of changing factors in a system-- thinking in silos or focusing on few variables in isolation5. Inability to foresee "Black Swans" -- the unexpectedly impactful nature of unlikely events. The most benign might influence fundamental structures that change the correlation of some category of economic activity or food production to population growth, the relationship of which is changed by introduction of new technology. The unexpected collapse of the Soviet Union, Hurricane Katrina and 9/11 are all examples of even more impactful black swans.
- We forecast and plan, and also work to maintain a healthy degree of skepticism and strategic flexibility related to possible futures.
- Scenario analysis allows us to build a shared baseline for strategic thinking and develop strategic early warning. This exercise is particularly useful when:Uncertainty is high relative to our ability to forecast or predictA firm or industry has faced a recent history of impactful, unanticipated change or eventsA firm has clearly missed new opportunitiesQuality of strategic thinking is low (who will admit to this, though?)There is a lack of a common language to describe uncertainty-- no shared strategic vocabularyVery strong difference of opinion of equal merit