Using Scenarios Effectively Requires Asking the Right Questions
Updated: Jul 2, 2019
In a previous post, I wrote about the value of using scenarios to inform decision making. Scenarios can be used as a tool to think creatively about sources of risk that might disrupt your long-term objectives. Well-developed scenarios can help managers to adaptively plan for the future.
However, not all scenario content is appropriate for every problem, and the process of thinking about scenarios should be adapted to different situations.
One way to think about scenarios is to ask yourself, “what are the type of answers I am looking for?” through the scenario building process.
One group of researchers categorized scenarios based on the nature of the questions they are meant to answer (1):
-What will happen? (what is probable)
-What can happen? (what is possible)
-How can a specific target be reached? (what is preferable)
In situations where you have a fair amount of historical data, and the uncertainty surrounding the decision is relatively clear, then it may be appropriate to ask “what will happen”. Tools like forecasting can be used to extrapolate trends into the future if we assume that the future will be like the past. The use of “what-if” scenarios can also be used to assess the impacts of uncertain future events on some goal. For example, what if our shipment gets delayed, or what if demand is much higher than expected. These questions can usually be answered through modeling.
In other situations where the future cannot be easily modeled, it may be helpful to think in a more exploratory manner and ask questions about “what can happen”. These types of problems are usually on long-term time horizons, and benefit from a variety of stakeholder perspectives. These scenarios are usually formulated as qualitative narratives or stories about what the future might look like under different conditions. They may investigate one or two main themes, and could include factors outside of the decision maker’s control (e.g., what should we do if this new legislation is passed) or within the scope of the decision maker’s strategic decision making authority (e.g., how might our competitors respond if we make this acquisition).
Finally, in situations where a specific target is to be reached, we can ask questions about how to get there. Some situations just require the efficient allocation of resources to achieve a particular target – such as reducing production costs to a certain level. This type of decision making can be achieved through optimization techniques. The other type of target-oriented scenario is when certain obstacles must be overcome. In this case, it is helpful to start by thinking about a future where the goal has been achieved, and working backwards through the series of actions necessary to bridge the gap between the current reality and the future goal.
Regardless of the particular problem facing your company, there is probably a scenario that is right for you. The trick is to know how to ask the right questions.
Collier Research Systems offers consulting services to help your company navigate through the uncertainty that fogs decision making – whatever the future may hold. To learn more, visit www.collierresearchsystems.com.
(1) Börjeson, L., Höjer, M., Breborg, K.H., Ekvall, T., and Finnveden, G. (2006). “Scenario types and techniques: towards a user’s guide.” Futures, 38: 723-739.