The examples that follow demonstrate some of these uses. Scenario analyses are useful in illustrating the variability and uncertainty of long-term forecasts. An example is the case of natural gas forecasting. Figure 5-1 shows the historical trend in natural gas wellhead prices and forecasts future prices with a reference case and two additional scenarios. The reference case posits 1.7 percent growth per year.
Scenario analysis can be quite instructive if past data are highly variable.
Past variability communicates to the user that the assumption of smooth patterns of change is unwarranted but that volatility may not be predictable. Sometimes scenarios are constructed from statistical confidence bounds on model inputs or parameters, such as confi- dence limits on the future economic growth rate. Usually this final measure is destabilizing, since institutions have difficulty expanding or contracting faculty size in the short term. Forecasters need ways to reassure the users of their forecasts that what they are doing is acceptable, correct, and scientific. They need to describe forecasts more clearly and to describe how they should and should not be used.