Practices:Scenario Building
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Revision as of 21:33, 8 February 2010
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This article on Scenario Building is a stub. You can help the Foresight Wiki by expanding it with new sections on the usage of this method in foresight exercises. |
Scenario Building is a process designed to improve decision-making by analyzing possible future events – trends, cycles, opportunities and risks, "wild cards" – and considering alternative possible outcomes, as well as their implications. A scenario is not a prediction about the future, but a narrative that underlines discontinuities, reveals choices, and illustrates aspects of a possible future. Scenario Building stimulates strategic thinking, creativity, communication and organizational agility, allowing individuals and organizations to become proactive, and work towards a desired future. However, building credible scenarios is a difficult process, as they always undergo the risk of being either too general and lacking in-depth analysis and quantification, or extremely technical and formalized.
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The FOR-LEARN Guide to Scenario Building
This is a summary of the article on the Scenario Building method from the FOR-LEARN guide. To read the full article go here.
According to the FOR-LEARN guide, both public and private sector organizations have used scenarios in the past, as a tool for understanding critical decisions, and developing alternatives for policies or business strategies. Deploying the scenario building method improves planning capacity, enriches the strategic decision-making process, and allows new insights into opportunities and risks. An effective set of scenarios must be plausible (i.e., all scenarios fall within the limits of what might conceivably happen), consistent (i.e., they don’t have built-in, logical inconsistencies), and instrumental (i.e., bring insights into the future of the focal issue at hand).
Using the method
Scenarios can be used by any organization that wishes to understand implications of possible future events. One main reason for scenario building is to help decision-makers acquire the kind of knowledge that will allow them to understand and anticipate future contexts. Therefore, effective scenarios must be credible, and resist critical examination when it comes to the conceptual foundation on which they are built, as well as the reasoning they employ. Building scenarios usually involves key decision makers, external experts with different backgrounds (science and technology, social sciences, environmental sciences, economics, demography, etc), as well as people from outside the organization or policy areas that make the object of the scenario. Direct participation of decision-makers offers them a sense of ownership over the scenario building process, and makes it more likely that they will act on the implications.
Step-by-step
The FOR-LEARN guide suggests one possible approach to scenario building, with six steps and two important elements. First, scenarios need to be decision-focused; the process should not end with a vision, but with “agreement on the strategic decision which the scenarios should be designed to illuminate”. Second, the scenario logic is that which constitutes the core of the process.
Step 1: Identify the focal issue
The first step in this process of developing scenarios is to identify a specific question or a set of inter-linked decisions. The scenarios will provide support for these decisions; hence, they must be prevented from drifting into broad generalizations. It is important to consider the appropriate time-horizon, determining thus the range of issues that need to be considered. It is also important to determine uncertainties that characterize this long-term future, while thinking about key factors that might play a role.
Step 2: Identify and analyze the drivers
In the next step, key drivers are identified as possible/probable influences on the key factors at micro-environmental level (key forces that have a direct influence on the issue you are dealing with) and macro-environmental level (key forces that are broader and possibly global). The goal is to start building a conceptual model of the relevant environment that includes critical trends and maps out the relationship between forces.
Major trends and uncertainties - which represent the 'driving' forces for a significant change in the future - are identified, sorted-out and clustered. The list should include social, technological, economic (macro), environmental, political and values-driven forces. This step requires desk research that may cover markets, new technologies, political factors, economic forces, and so on.
Step 3: Rank by importance and uncertainties
During the third step, driving forces are ordered on the basis of two criteria: the degree of importance for a focal issue identified in the first step, and the degree of uncertainty. The FOR-LEARN guide suggests that an impact/uncertainty matrix can be a useful tool. The goal is to identify the two or three factors, most important and most uncertain, on which the attention will be focused further during the following steps of the process.
Step 4: Select scenario logics
This is a crucial step, in which intuition and creativity become instrumental in an effort to produce a relevant set of just a few scenarios. Scenario logics represents the organizing dimension for the entire process of scenario building, as results from the previous step help identify axes along which scenarios are to be constructed. Usually, only three or four scenarios will be developed, as models of alternative futures starting from the point where the story is starting to diverge.
Step 5: Flesh out the scenarios
Internally consistent story lines are to be developed at this step, incorporating elements of both desirable and undesirable futures. The FOR-LEARN guide suggests five criteria that can help flesh out the scenarios: (1) plausibility (i.e., the selected scenarios must fall within the limits of what might conceivably happen); (2) differentiation (i.e., they should not be so close to one another that they become variations of a base case); (3) consistency (i.e., they must not have any built-in logical inconsistency); (4) utility (i.e., each scenario, and the entire set should contribute with specific insights about the future, informing the decision focus that was selected); (5) challenge (i.e., the scenarios should challenge the organization’s conventional wisdom about the future). There are many ways in which one might elaborate the description of scenarios, but three important features must always be considered: a highly descriptive title, compelling 'story-lines', and a table of comparative descriptions. It is advisable not to assign probabilities to the scenarios or to designate a ‘most likely’ plot, and also to budget sufficient resources for communicating the scenarios and their operational implications.
Step 6: Identify Implications
At this final step, scenarios turn into strategy after evaluating the implications for the particular decision we have selected at the beginning of the scenario building process, as well as the options suggested by the set of scenarios. However, developing an effective strategy requires far more than a robust set of scenarios; other important elements are the vision/mission of the organization, an assessment of core competencies, or a competitive analysis. But building scenarios allows, for instance, for a better assessment of opportunities and threats. In a more sophisticated approach, the strategy is developed within the framework created by the scenarios. The set of scenarios is used to identify key elements of the strategy, best option for each element across the range of scenarios, possibilities for integrating them in coherent strategies. Anyway, it is important to look carefully and analyze each scenario, possible within a workshop with wider participation, and identify commonalities/differences across the implications.
Pros and cons
The FOR-Learn guide highlights the advantages of using Scenario Building in respect to other methods where the degree of uncertainty is high, as this is a tool that stimulates strategic thinking, creativity, communication and organizational agility, allowing individuals and organizations to “create their own future”. A robust set of scenarios helps organizations become proactive, working towards a desired future. Among the drawbacks of the method there are listed the difficulty to produce credible and useful scenarios, and the limited range of approaches and dynamics which we can be consider during the process. Scenario building always undergoes the risk of staying at the level of broad generalities, without in-depth analysis and quantification, thus becoming useless to decision-makers. On the other hand, scenarios can be extremely technical and formalized, making them hard to assimilate by ordinary readers.
Variations
There are different approaches towards building scenarios. For instance, constructing normative scenarios starts with a preliminary view of a possible future and looks backwards to see how it might grow out from the present, while exploratory scenarios are mostly based on counterfactual reasoning (“what if?”). In a different approach, an inductive technique for building scenarios starts with the available data and allows the structure of scenarios to emerge by itself, while in a deductive technique one begins with the overall framework and pieces the data into his framework. An inductive/deductive approach is preferable when it is clear that scenario building is the proper tool for dealing with the uncertainty of decision-making, or when the method is already embedded in the organizational culture. However, when participants to the process have doubts about the utility of the method, an incremental approach is more suited. The incremental approach uses the official future as starting point, and tries to highlight flaws and develop alternatives.
See also
Environmental Scanning & Monitoring
System Dynamics
Structural Analysis
Agent Modelling
SWOT Analysis
Trend Intra & Extrapolation
Modelling & Simulation
Gaming
Creativity Methods
Expert Panels
Delphi survey
Backcasting
S&T Roadmapping
Critical & Key Technology Study
Morphological Analysis & Relevance Trees
Cross-Impact Analysis
Multi-Criteria Analysis
