Scenario building


Online Foresight Guide

Definition

A scenario is a "story" illustrating visions of possible future or aspects of possible future. It is perhaps the most emblematic Foresight or future studies method. Scenarios are not predictions about the future but rather similar to simulations of some possible futures. They are used both as an exploratory method or a tool for decision-making, mainly to highlight the discontinuities from the present and to reveal the choices available and their potential consequences.

 

Historical notes

The term scenario originates in the dramatic arts. The dictionary offers three definitions:

The scenario method is probably one of the main concepts and most widely used methods in Foresight. The term scenario was introduced by Herman Kahn in the 1950s in connection with military and strategic studies conducted by the Rand Corporation. Kahn used the term for issues related to US public policy, international development and defence.

Scenarios were first used by corporations. They started to be used at corporate level as planning became more complex and sophisticated. The oil company Shell was a pioneer in the field and became the benchmark for corporate scenario planning. Shell's scenario planning enabled it to anticipate the rise and subsequent fall of oil process in 1973. Scenarios have since been used by the financial services industry, banks and insurance companies, given their value as a tool for analysing and understanding key competitive decisions.

Both public and private sector organisations have implemented scenarios for a wide array of functions. The public sector relies mainly on scenario methodologies when it has to define planning activities (e.g. it was used in the past for defence planning) and to delineate alternatives for policies. Almost all industries (especially multinational companies) use scenarios to develop their business strategies.

In Foresight projects, the scenario method is a policy analysis tool that helps describe a possible set of future conditions. At national, regional and local level scenarios can be used to improve planning capacity, to enrich strategic public policy decisions and to guide major capital investments. For example, the development of scenarios allows new insights into the opportunities and risks involved in making decisions about public transport that would have major consequences for the development of a region over the next few decades.

Main characteristics

To be effective, scenarios must be plausible, consistent and offer insights into the future.

"Qualitative scenarios can have a richness that is not bound by quantitative methods. They can explore relationships and trends for which little or no numerical data is available, including shocks and discontinuities; they can more easily incorporate motivations, values, and behaviour; they can create images that capture the imagination of those for whom they are intended." [COST 2002]

When is this method appropriate?

Scenarios can help public sector executives to think in a disciplined way about the future when making public policy decisions. The method helps the decision-maker to consider the range of plausible futures, to articulate preferred visions of the future, to use what is learned during the scenario development process in the formal decision-making process to foster exceptional leadership. It also helps to stimulate creativity and to break from the conventional obsession with present and short-term problems.

Therefore, one of the purposes and uses of scenarios is to help decision-makers acquire knowledge and understanding to anticipate the context in which they have to act. However, for scenarios to be used effectively, the participants must be convinced of the soundness, relevance and value of the process. This is essential as the foundations on which scenarios are built, the structures that they use, and the reasoning they employ, must stand up to highly critical examination. Only then there is a chance that they will contribute to decisions and actions.

Who is this method appropriate for?

Any public or private organisation that wishes to understand the emerging future and its implications. Scenarios are and may be used by decision-makers to simulate the impact of different decisions.

Who is typically involved?

Some of the key decision makers as well as external experts and other who have valuable perspectives:

The direct participation of the decision-makers implies that they truly understand, own, and so more likely act on, the implications of the scenarios.

You can consider hiring a professional facilitator who will define how to run the scenario building process and leads the entire operation.

Approach (Step-by-step-guide)

There are many different possible ways of developing scenarios. We suggest here one possible approach that we could define as a 'walk through the process' divided in six steps with two important elements. One element is the 'decision-focus' of the scenarios, which means that the process begins and ends not with vision of the future, but with agreement on the strategic decision which the scenarios should be designed to illuminate. The second key element is the 'scenario logic' which constitutes the core of the process.

Step 1: Identify the focal issue (The "setting" for the scenarios)

In general when embarking on a process of scenario development it is advisable to start 'from the inside out'. This means starting with a specific decision or question, then building out towards the environment. Scenarios are not an end in themselves; rather they are means to help us make better strategic decisions. A narrow focus will prevent the scenarios from drifting into broad generalisations about the future of society or the global economy. When determining the focal issue it is important to consider the appropriate time-horizon for the scenarios, because it will affect the range of issues to be considered within the scenario development process. It is important when deciding on the focal issue, to deal explicitly with the range of uncertainties that might characterise the long-term future.

In this step it is important to start thinking about the key factors that could play a role. As a tip, you could start this step by asking the question: "What are the key factors we would like to know about the future in order to improve the quality of our decisions?"

Step 2: Identification and analysis of the drivers

The next step is to identify the key drivers that will influence the listed key forces at macro and micro-level. Micro-environmental key forces are those that have a direct influence on the issue you are dealing with. For example, if you are dealing with the future of a specific manufacturing sector, micro drivers can be related to the sector market trends, specific regulations on manufacturing, new technologies, etc.

Macro-environmental key forces are broader and possibly are global. They relate to social, technological, political, economic and environmental forces that might have an impact on the issue considered.

The aim is to start building a conceptual model of the relevant environment that includes critical trends and forces and maps out the cause-and-effect relationship among the forces. It will also be possible to identify what are the major trends and uncertainties, which are the most important in determining the key decision factors and which represent underlying or 'driving' forces for significant change in the future.

At this stage it is possible to sort-out these forces by clustering them and by analysing that not all the identified forces are equally important or equally uncertain.

This step may require some desk research in order to adequately define the driving forces. Research may cover markets, understanding new technology, political factors, economic forces, and so on. The aim is to spell out the main elements of the driving forces by also identifying major trends and break in trends.

The list of the driving factors should include Social, Technological, Economic (macro), Environmental, Political and Values (STEEPV).

These driving forces can be elicited in an extended scenario workshop with the support of a facilitator.

Step 3: Rank by importance and uncertainties

The next step consists in the ranking of the driving forces on the basis of two criteria: the degree of 'importance' of the focal issue identified in Step 1, and the degree of 'uncertainty' surrounding those factors and trends.

One suggestion is to use an impact/ uncertainty matrix with a simple 'High-Medium-Low' scoring system. The aim is to identify the two or three factors or trends that are the most important and the most uncertain.

As outcome of this sorting, it is then possible to focus the attention and the selection of the scenario logics in the next step. Some examples of scenario building focussed on:

Step 4: Selecting scenario logics

The results of the ranking exercise of previous step help identifying the axes along which the scenarios can be constructed, therefore find out the scenario logics. The focus of attention should be on the 'high important/ low uncertainty' and on the 'high important/ high uncertainty' quadrants of the matrix. Determining the axes of the scenarios is the crucial step in the entire scenario-generating process. This is also the step in which intuition, insight, and creativity play their greatest role. The main goal (and challenge) is to end-up with just few scenarios that whose difference make a difference for the decision-maker. If the scenarios have to be used as useful learning tools the lessons they teach must be based on issues basic to the sources of the focal decision. Basically, the scenario logics can be seen as organising dimension around which the scenarios are structured. One trick is also to decide where, in the story, to start the diverging alternative futures.

When you are determining how many scenarios you would like to develop, there is a trick you might want to keep in mind: develop the minimum number of scenarios needed to contain the 'area of uncertainty', usually just three or four.

Step 5: Fleshing out the scenarios

Develop a number of internally consistent story lines which project as much as possible what learned through the process up to now.

The literature on scenario building suggests incorporating elements of both desirable and undesirable futures within the different scenarios. Then there are five useful criteria that can help you in fleshing out the scenarios:

  1. 1. Plausibility: The selected scenarios must be plausible, this means that they must fall within the limits of what might conceivably happen.
  2. 2. Differentiation: they should be structurally different, meaning that they should not be so close to one another that they become simply variations of a base case.
  3. 3. Consistency: They must be internal consistent. The combination of logics in a scenario must not have any built-in inconsistency that would undermine the credibility of the scenario.
  4. 4. Decision making utility: Each scenario, and all scenarios as a set, should contribute specific insights into the future that will allow on the decision focus that was selected.
  5. 5. Challenge: the scenarios should challenge the organisation's conventional wisdom about the future.

Using these criteria it is usually possible to quickly select the few scenarios that are most worthy of development. Some possibilities may be eliminated because their combinations of logics are thought to be implausible or inconsistent. Others can be dropped from consideration because they would not offer any significantly new insights to the decision making.

Once the scenarios have been selected they have to be elaborated. There are many ways to elaborate the description of scenarios, but there are three very important features:

Charts, graphs, and other visual material will help bringing the scenarios to life. In summary, it is important that the elaboration of the scenarios provides as much as is needed to help executives to make their decisions.

Other useful tips include:

Step 6: Implications of scenarios

This is the stage at which we 'close the loop' linking back to the decision focus of the first step, and starting to turn the scenarios into strategy. In this step the scenarios are analysed in details and we ask the fundamental questions:

Having said that, the development of an effective, robust strategy requires far more than having a set of scenarios. Other elements are, for example, a strategic vision, goals and objectives, competitive analysis, assessment of core competencies etc. However, this final step can develop some initial and valuable strategic insights. Some productive approaches are:

Opportunities/ threats assessment: examine the scenarios in detail to determine the opportunities and threats that each poses for the organisation that commissioned them. Two questions can guide phase:

Bringing together the answers to these questions will help defining some strategy options (not an integrated strategy) that deserve more disciplined analysis.

Using scenarios to strategise: This approach is rather sophisticated and difficult. It develops strategy within the framework of the scenarios. It is a highly intuitive process and as one guideline the following questions should be addressed:

This approach makes optimal use of the scenarios in strategy development, provides the widest range of choices, and encourages decision makers to make a careful evaluation of these options in the context of greatly different assumptions about the future.

In order to identify implications from scenarios a way forward is to set aside time to look carefully and analyse each scenario. This could be done within a workshop with the participation of the project team. By discussing each scenario at once it is possible to concentrate on the details of each scenario. It is also possible at the end of this process to identify commonalities and differences across the implications. In order to focus the thinking it is possible to follow a structure that includes the following elements:

  1. 1. Review the scenario description
  2. 2. Assess implications of the scenarios
  3. 3. Identify the best strategy opportunities and threats
  4. 4. Develop a portfolio of strategic priorities

Scenarios have been used widely as a way of developing recommendations for public policy. They demonstrated their usefulness by providing a range of possible plausible futures, which effects of actions can be made explicit in a non-threatening way. Scenarios can be used as a tool to create a framework for a shared vision of the future, to promote discussion and build consensus.

Resources

It is a demanding methodology which can be costly in terms of executive time.

It requires a broad base of strategic intelligence (see Environmental Scanning & Watching) and requires participants to invest considerable effort, thought, and creativity.

In terms of skills having some familiarity with the scenario technique is very valuable.

Outputs

A set of plausible, internally consistent and coherent scenarios which are focused on the most relevant issues and have some decision-making utility.

Pros and cons

Within the description we have tried to provide you with some tips so to make your scenarios successful. Now we would like to highlight some advantages and drawbacks of this method.

Scenario building is

Always in terms of advantages we can sat that a well-crafted (normative) scenario allows an organization to become proactive, working specifically for their desired future, rather than sitting by and passively waiting for what ever the world delivers.

On the other hand the following drawbacks need to be highlighted:

Finally the articulation and presentation of scenarios depends very much upon the intended users. Some scenarios stay at the level of broad generalities lacking supporting analysis and quantification, these are not very operational, and are thus not found useful by policymakers – though they may be appreciated as giving a taste of the future by the general public. Some scenarios are presented in extremely technical and formalised ways, and may be hard for ordinary readers to assimilate.

Variations

Scenario building can be carried out following different approaches. This section describes the difference between normative and explorative scenarios and offers some possible variations on how scenarios could be conducted.

The inductive and deductive methods are the preferred approaches in situations where it is clear that scenario building is the tool to deal with the specific decision and/or question that has to be tackled, or where scenario building is already embedded in the thinking style of an organisation. However, if a client may still have to be convinced that scenario building could offer an improvement over traditional forecasting techniques, the incremental method could be implemented. In general, in these situations the client is attached to what he/ she reckon as 'official future'. The incremental approach uses the 'official future' as starting point. The scenario building team tries to identify flaws in the official future, and to develop alternatives that convincingly challenge the official future. Or the team will develop scenarios as excursions from this.

Complementary methods

Environmental scanning and monitoring and SWOT analysis can be used to obtain input for the scenarios.

The narrative statements often included in a scenario can be given quantitative power if they are derived systematically. Simulation modelling serves this purpose.

Roadmapping can be used to test the consistence and plausibility of the scenarios.

Checklist

Walt Disney "imagineer" Joseph Tankersley shares tips for creating more-powerful scenarios:

SOURCE: "Ten Tips for Creating More Powerful Future Stories" by Joseph Tankersley, FUTURETAKES (Late Fall 2006) the electronic newsletter of the World Future Society's U.S. National Capital Region chapter

References