Where the Headlights Dim
Tags: Forecasting, Future, Scenarioplanning, Technology

Source: Tips For Driving at Night. (2018)

Retrieved from https://www.drive-safely.net/driving-at-night/

What are the differences between forecasting and scenario planning? Which of the two provide the best solution for gazing beyond the limits of illuminated predictions of the future? The following essay explores the concepts of scenario planning in contrast to traditional forecasting and seeks to impart a high-level background on their differences, disadvantages, and advantages.

Forecasting

Traditional forecasts use a systematic collection of historical data to determine the future (Armstrong, 2005). Forecasts assume the opportunities and risks of tomorrow will be comparable to today’s; only the extent will change (Wade, 2012). Moreover, forecasting presupposes some individuals are more qualified experts, as seen in the Delphi method, than others in forming forecasts (Van der Heijden, 2011). According to Bradfield et al. (2005), traditional forecasting approaches depend on the extrapolation of historical data without acknowledging the impacts of unusual future events. Unfortunately, regardless of how complex the forecasting, the experts are forming a future based on how the selected parameters manifest and other than these parameters, nothing much else will vary (Wade, 2012). Van der Heijden (2011) finds forecasts can operate well for a time, but forecasters must be wary of parameters which may abruptly disrupt the relationship with the past and produce a break in the trend. The downside of forecasting happens when stakeholders begin to believe the circumstance will continue and fix organizational policies, budgets, and plans based on a structure that will eventually change (Van der Heijden, 2011).

Scenario Planning

The earliest scenario planning definition was described in 1967 by Kahn and Wiener as “a hypothetical sequence of events constructed to focus attention on causal processes and decision points” (Bunn & Salo, 1993). In 1977, MacNulty represented a scenario as “a quantitative or qualitative picture of a given organization or group, developed within the framework of a set of specified assumptions” (Bunn & Salo, 1993). Others have taken a scenario to represent a potential future situation of an organization’s context that examines potential events of related reciprocal circumstances in the situation (Brauers & Weber, 1988). Therefore, scenario planning must address both predetermined factors and ambiguity to consolidate its planning with its risk assessment capacity (van der Heijden, 2011). In scenario planning, there is an initial analysis of the current conditions which is then accompanied by an investigation of various futures with a final strategy formed to address these various futures (van der Merwe, 2008). Hence, scenario planning challenges members to grow the agility of their thinking and cultivate systems thinking and learning within the organization and its strategic capabilities (van der Heijden, 2011; van der Merwe, 2008).

Compare & Contrast

The mechanical basis for most forecasts are assumptions that statistical and mathematical extrapolation of variables extends the past into the future (Wade, 2012). Unfortunately, when a fundamental shift transpires, traditional forecasting fails to predict beyond the ability of the projection that lights the way forward (van der Heijden, 2011). Since forecasts are unable to express uncertainty, they cripple decision makers when a more flexible and dynamic future is required (van der Heijden, 2011). In contrast to forecasting, scenario analysis responds elastically to structural variations which forms a strategic organizational tool encompassing the uncertainty of the future (Bodwell & Chermack, 2010; van der Heijden, 2011). Therefore, organizations increasingly advocate scenarios over forecasts for longer-term strategic analysis and planning (Bunn & Salo, 1993).

According to van der Heijden (2011), scenarios are a method of reasoning through organizational strategy to counter plausible and diverse future representations of the world. After an organization decides on a set of these scenarios, then each will be treated as uniformly probable and accorded equal authority in strategic decisions (van der Heijden, 2011). Since forecasting delivers answers, only a few individuals with the highest intellectual, technical, or experiential capacity are trusted to determine an accurate forecast (van der Heijden, 2011). In contrast, scenario planning is more process orientated and seeks a broader set of individuals to examine crucial issues with the assumption that there is no perfect solution (van der Heijden, 2011). Such an approach allows an organization to set aside the supremacy of the trustworthy, familiar, but potential mistaken forecast of the future (van der Heijden, 2011).

Summary

Forecasting and scenario planning both have strengths and weaknesses. Although forecasting appears to be the more inadequate option for organizations, forecasting’s strength comes from its utility, promptness, and accuracy in predicting the short-term future. When organizations replace or substitute forecasting for the long-term benefits of scenario planning, that organization’s risk of a dangerous accident magnifies. Scenario planning allows an organization to plan for more potential roads to success; analogous to seeing in the daylight while forecasting illuminates the dark road directly ahead. Though experts may enlighten a clear forecast forward in the dark road of night, leadership drivers must be wary of speeding ahead and over-driving the organization’s headlights. When the organization’s goals are distant and clouded with dark uncertainty, slowing down and taking the time and effort to plan a successful journey with many alternative scenarios to success is a prudent strategy.

References

Armstrong, J. S. (2005). The forecasting canon: nine generalizations to improve forecast accuracy. Retrieved from https://repository.upenn.edu/cgi/viewcontent.cgi?article=1011&context=marketing_papers

Bradfield, R., Wright, G., Burt, G., Cairns, G., & Van Der Heijden, K. (2005). The origins and evolution of scenario techniques in long range business planning. Futures, 37(8), 795–812. Retrieved from http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.322.703&rep=rep1&type=pdf

Bodwell, W., & Chermack, T. J. (2010). Organizational ambidexterity: Integrating deliberate and emergent strategy with scenario planning. Technological Forecasting and Social Change, 77(2), 193–202. Retrieved from https://doi.org/10.1016/j.techfore.2009.07.004

Brauers, J., and Weber, M. (1988), “A new method of scenario analysis for strategic planning”, Journal of Forecasting 7, 31–47.

Bunn, D. W., & Salo, A. A. (1993). Forecasting with scenarios. European Journal of Operational Research, 68(3), 291–303. Retrieved from http://paper.shiftit.ir/sites/default/files/article/3GIII-DW%20Bunn-1993.pdf

Kahn, H., & Wiener, A. J. (1967). year 2000; a framework for speculation on the next thirty-three years.

MacNulty, C. A. R. (1977). Scenario development for corporate planning. futures, 9(2), 128–138.

Rogers Concepts, L. (2018) Tips For Driving at Night. Retrieved from https://www.drive-safely.net/driving-at-night/

van der Heijden, K. (2011). Scenarios: the art of strategic conversation. John Wiley & Sons. Retrieved from http://documents.irevues.inist.fr/bitstream/handle/2042/32161/XX_CNE-Prospective_000694.pdf?sequence=1

van der Merwe, L. (2008). Scenario-based strategy in practice: a framework. Advances in Developing Human Resources, 10(2), 216–239. Retrieved from http://www.cil.net/admin/ckeditor/filemanager/userfiles/files/Scenariobased_Strategy_in_Practice.pdf

Wade, W. (2012). Scenario planning: A field guide to the future. Hoboken, NJ: John Wiley & Sons, Inc. Retrieved from https://ebooksbvd.my-education-connection.com/read/9781119464884/chapter01_xhtml