A scenario is a hypothetical future event or series of events that is used as a way to explore and understand potential outcomes. It is a common method used in the field of foresight, which is the study of future trends and developments. Scenarios are not intended to be specific predictions about the future, but rather are meant to serve as a way to consider different possible futures and the choices and consequences that might come with them. The scenario method was developed by Herman Kahn in the 1950s and was originally used in military and strategic studies conducted by the Rand Corporation. It has since become a widely used method in a variety of fields, including public policy, international development, and defense.
Scenarios were first utilized by corporations for planning purposes as a way to navigate increasingly complex and sophisticated business environments. One early pioneer in the use of scenarios was the oil company Shell, which used scenario planning to anticipate changes in oil prices in the 1970s. Since then, scenarios have been adopted by a variety of industries, including the financial services sector and insurance companies, as a tool for analyzing and understanding key decisions. Both public and private sector organizations have also used scenarios in a range of functions, including policy planning and business strategy development. Scenarios are particularly popular among multinational companies across a variety of industries. In the public sector, scenarios have been used in the past for defense planning and to explore policy alternatives.
In foresight projects, the scenario method is a tool that is used to explore and understand potential future conditions that may arise as a result of different decisions or actions. It is often used at the national, regional, and local level to improve planning capacity, inform strategic policy decisions, and guide major capital investments. For example, developing scenarios can provide insights into the potential risks and opportunities associated with making long-term decisions about public transportation, which can have significant implications for the development of a region. To be effective, scenarios must be plausible, consistent, and offer useful insights for decision-making.
- Plausibility: Refers to the idea that a scenario should be within the realm of what could potentially happen.
- Consistency: Means that the logic of a scenario should be free from internal contradictions that could undermine its credibility.
- Decision-making utility: A scenario should be useful for decision-making, providing specific insights into the future that can inform the decision at hand.
Scenarios can be a useful tool for public sector executives as they consider future outcomes and make policy decisions. The scenario method helps decision-makers to consider a range of possible futures, articulate preferred visions for the future, and use what they learn during the scenario development process to inform the formal decision-making process. It can also stimulate creativity and encourage decision-makers to think beyond current and short-term problems.
Involvement of decision makers is key
One of the main purposes of scenarios is to help decision-makers acquire knowledge and understanding about the context in which they will be operating. However, for scenarios to be effective, participants must be convinced of the value and relevance of the process. The foundations, structures, and reasoning used in scenario development must withstand critical examination in order to contribute to decisions and actions. Scenarios can be useful for any organization, public or private, that is interested in understanding the future and its potential implications. They can be used to simulate the impact of different decisions.
It is important to involve a diverse group of key decision-makers, external experts, and others who have valuable perspectives in the scenario-building process. This can include people from different backgrounds, such as science and technology, social sciences, environmental sciences, economics, demography, etc.
Additionally, it may be beneficial to include people from outside of the organization or policy area being considered. This ensures that the decision makers fully understand and are invested in the scenarios, which increases the likelihood that they will act on their implications. It may also be helpful to hire a professional facilitator to guide the scenario building process and lead the overall operation.
Standard scenario method approach
There are various methods for creating scenarios. The following is what Quantumrun Foresight refers to as the standard approach; it involves six steps with two crucial components. The steps can be expanded or shortened depending on a client’s budget, availability of participants, and project deadlines.
The first component is the “decision-focus” of the scenarios, which means that the process should start and end with agreement on the specific strategic decision that the scenarios are intended to inform. The second key element is the “scenario logic,” which is the core of the process.
Focal issue identification
To begin the scenario development process, it is advisable to identify the specific issue or decision that the scenarios will be used to inform. This “focal issue” should be narrow in focus to avoid making broad generalizations about the future. It is also important to consider the appropriate time horizon for the scenarios, as this will influence the range of issues to be considered. To determine the focal issue, it is helpful to explicitly address the range of uncertainties that may affect the long-term future. In this step, it is important to consider the key factors that may influence the outcome of the decision. One way to approach this is to ask, “What are the key factors we would like to know about the future in order to improve the quality of our decisions?”
Driver identification and analysis
The next step in the scenario development process is to identify and analyze the key drivers that will influence the listed key forces at both the macro and micro level. Micro-level drivers are those that have a direct impact on the focal issue being considered, while macro-level drivers are broader and may be global in nature. They may relate to social, technological, political, economic, and environmental forces that could affect the issue.
The goal is to create a conceptual model of the relevant environment that includes critical trends and forces and illustrates the cause-and-effect relationships among them. This will help to identify the major trends and uncertainties that are most important in determining the key decision factors and represent underlying drivers of significant change in the future.
It may be helpful to sort and cluster the identified forces and analyze which ones are the most important or uncertain. This step may involve conducting desk research to adequately define the driving forces and may include researching markets, new technologies, political factors, economic forces, and more. The list of driving factors should include social, technological, economic, environmental, political, and values (STEEPV) elements.
Rank by importance and uncertainties
The next step in the scenario development process is to rank the driving forces based on two criteria: the degree of importance of the focal issue identified in the previous step and the degree of uncertainty surrounding those factors and trends. (On the Quantumrun platform, we rank/score these same criteria but using the terms ‘impact’ and ‘likelihood.’)
One way to conduct this ranking process is to use an impact/uncertainty matrix with a simple high-medium-low scoring system. The goal is to identify the two or three factors or trends that are the most important and the most uncertain. This will help to focus attention on the most relevant scenario logics in the next step. For example:
- High importance/low uncertainty forces are those that are relatively certain in the future and require current planning to be prepared
- High importance/high uncertainty driving forces are potential shapers of different futures that should be considered in longer-term planning.
- (In the Quantumrun platform, this ranking processes can be performed using the Strategy Planner project type.)
Scenario logics selection
The results of the previous ranking exercise can be used to identify the scenario logics, or the axes along which the scenarios can be constructed. The focus should be on the high importance/low uncertainty and high importance/high uncertainty quadrants of the matrix. This is a crucial step in the scenario development process that requires intuition, insight, and creativity to create a few scenarios that are meaningful and useful for decision-making. The scenario logics should be based on the sources of the focal decision and be structured around organizing dimensions. It can be helpful to decide where in the story to start the diverging alternative futures. When deciding how many scenarios to develop, aim for the minimum number needed to contain the area of uncertainty, typically three or four.
Scenario elaboration
To complete the scenario development process, develop a number of internally consistent story lines that reflect what has been learned through the previous steps as much as possible. It can be helpful to incorporate elements of both desirable and undesirable futures within the different scenarios. There are five criteria that can be used to guide the development of the scenarios: plausibility, differentiation, consistency, decision-making utility, and challenge.
- Plausibility: The scenarios should be plausible and fall within the limits of what could conceivably happen.
- Differentiation: They should also be structurally different and not just variations of a base case.
- Consistency: They must be internally consistent, with no built-in inconsistencies that would undermine their credibility.
- Decision-making utility: Each scenario and the set as a whole should provide specific insights into the future that will be useful for the selected decision focus.
- Challenge: The scenarios should challenge the organization’s conventional wisdom about the future.
The goal of scenario planning is to provide a nuanced and detailed understanding of how different events and trends might play out in the future. To this end, scenario planning involves selecting a few scenarios that are most likely to be relevant for making decisions, and then elaborating on those scenarios to provide more detail. To elaborate on a scenario, it is important to give it the following:
- A descriptive title that conveys the essence of the scenario
- A compelling narrative that outlines how events might unfold over time
- A table that compares key trends or factors in each scenario. This table should include details on how each key driver will be affected by the scenario.
- Visuals in the form of product mockups, location sketches, graphs, and/or infographics that can help communicate key themes efficiently.
Scenario implications
In this step, we review the scenarios in relation to the original decision focus and begin to develop strategies. We examine the scenarios in detail and consider how they impact the chosen decision and what options they suggest for moving forward. This is the point at which we “close the loop” and connect back to the initial decision-making process. The following are some approaches to extracting quality insights from these scenarios:
Opportunities and threats assessment
For this approach, we carefully evaluate the scenarios to identify the opportunities and threats they present for the organization. We consider which opportunities and threats are shared by most or all of the scenarios and prioritize our strategic thinking accordingly. We also assess our readiness to take advantage of opportunities and mitigate threats, identifying any gaps in our current capabilities or resources. By answering these questions, we can identify potential strategy options that require further analysis and development. This phase helps us define a strategic direction, although it does not result in a fully integrated strategy.
Scenarios for strategy development
This approach to strategizing involves developing a strategy within the context of the scenarios. It can be a complex and challenging process that relies on intuition and involves answering key questions such as:
- What are the key elements of strategy that emerge from the scenarios?
- For each element, what would be the best option for each scenario? For example, what technologies would be needed in Scenario A?
- Which options appear to be the most robust and resilient across the scenarios?
- Is it possible to integrate these resilient options into a cohesive overall strategy?
This approach is designed to help organizations navigate the uncertainty of the future by considering a range of potential scenarios and developing strategies that can adapt and respond effectively to changing circumstances.
Alternate approaches to scenario development
There are several approaches to scenario building, which involve creating potential futures to help organizations plan and prepare for a range of possible outcomes. These approaches can be grouped into two main categories: normative and exploratory scenarios.
- Normative scenarios start with a preliminary view of a potential future and then consider how it might evolve from the present.
- Exploratory scenarios, on the other hand, begin with the present and use “what if” questions to consider the implications of possible events that might occur outside of familiar trends. They use data about the past and present to consider the possible, probable, and desirable outcomes.
Within these categories, there are two main methods for building scenarios: The inductive method (or bottom-up approach) and the deductive method (or top-down approach).
- The inductive method involves building the scenarios step by step based on the data available, allowing the structure of the scenarios to emerge naturally.
- The deductive method, on the other hand, involves attempting to infer an overall framework and then fitting pieces of data into it wherever they fit best.
The inductive and deductive methods are typically used in situations where scenario building is already being employed or is seen as the most appropriate tool for addressing a particular decision or question. However, if the client is unsure about the benefits of using scenario building over more traditional forecasting methods, the incremental approach can be used to gradually introduce the idea and show its value. This approach involves starting with the client’s current understanding of the future (the “official future”) and then identifying potential weaknesses or flaws in that understanding, as well as developing alternative scenarios that diverge from it.
