What is Scenario?

-Engage in systematic conjecture

-Human beings are constantly writing

scenarios, interpreting signals in the
environment and reframing them into
meaningful images and trajectories in to the
future.

Abbas Maleki
maleki@sharif.edu
Scenario means simply to think about the problem
 When a sailor is sailing I n Persian Gulf, he must aware
of the numerous winds, different in direction and speed.
He must also be very alert to not lose the wind and also
to another boats.
 Amazingly there are very few accident at sea, maybe
very few during the recent 50 years.
 The reason for this is the brain’s extreme capacity to
interpret huge amounts of information intuitively, to
calculate the speed and direction of other boats, keep
track of one’s own direction and the position of
surrounding banks, rocks and buoys and at the same time
prepare for alternative actions if an oncoming boat
changes direction earlier than expected.
 Through experience, sailors improve their ability to
interpret external signals.
 Their brains become better and better at generating
‘sailing scenarios’.
 Just as the football player over time becomes better at
football scenario generation. 2
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Introduction
 For Many years, it was believed obtaining
accurate forecasts lay in the development of
complex, quantitative models.
 With just a little more time, a few more equations
and a lot more dollars, these models would be
able to provide forecast.
 Many users have become disillusioned with
forecasting models, attempt to predict the future
from fancy mathematical manipulations of
historical data.
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Feedback and feed-forward

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Scenario planning is the combination of scenario
analysis for strategic purposes and strategic planning
based on the outcome of the scenario phase

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The relations between possible,
probable and desired future

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What is not Scenario?
 Scenario is not a forecast, neither a vision
 It does not seek numerical precision.
It usually provides a more qualitative and
contextual description of how the present will
evolve in to the future.
 It is not assured.
Scenario analysis usually tries to identify a
set of possible future, each of whose
occurrence is plausible

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Definition of Scenario
 Vocabulary:
Scenario is an outline of a natural or expected course of events.
 Kahn and Weiner:
A hypothetical sequence of events constructed for the purpose of
focusing attention.
 Porter
An internally consistent view of what the future might turn out to be
 Ringland:
That part of strategic planning which relates to the tools and
technologies for managing the uncertainties of the future
 Schnaars:
Identify plausible future environments that the firm might face.

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Forecasting and Uncertainty

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Differences between scenarios,
forecasts and visions

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Scenarios versus Forecasts

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Crude Oil Rigs in US, (Prediction)

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Crude Oil Rigs in US, (Reality)

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Future is not continuation of the past necessarily

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Scenario in Business
 22% of “Fortune 1000”, were using
scenario analysis in the 1970s
 75% of these firms adopted the approach
after the oil embargo in 1973
 It is essential to keep the number of factors
that are considered to a minimum.

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Time Horizon
 Scenario analysis has been used primarily in
long-term forecasting.
 Most firms that used scenario analysis employed
5-year horizon.
 But in Xerox 15-year
Shell, 15-year at least.
 The content of scenario becomes progressively
more vague as the time horizon lengthens.
 The ideal time horizon of scenario analysis is
specific to the industry, product or market under
consideration.

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Historical Background
 Herman Kahn: was writing scenarios as far
back as the 1950s.
 “Thinking the Unthinkable”
 Shell in 1970s.
 SRI (Stanford Research Institute): Future of American
Society until 2000.

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SRi

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History

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The Number of Scenarios to Generate

 Consensus is that three scenario are best.

Although two tend to classified as “good-
and-bad”, while more than three become
unmanageable in the hands of users.

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Arraying Scenarios
 Scenarios are inevitably arrayed over some back-ground
themes.
 Four background themes:
1-Favorability to the Sponsor:
Selecting an optimistic and then an pessimistic.
“Surprise-free” or ‘baseline” scenario
2-Probability of Occurrence
One of the scenarios is labeled as “most likely”.
Scenarios are possibilities, not probabilities.
3-Single, Dominant Issue
Sometimes there is a single dominant factor whose outcome is
central to the item being forecast. Like economy, government
policy.
4-Themes
In most business applications there is more than a single unknown.
There are many issues which compete, combine and interact with
one another to characterize the future. Three scenarios as: Economic
expansion, Environmental concern, and Technological domination.
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Scenario projects could be used for different
purposes and with different focuses

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Characteristic of traditional planning compared
with the scenario planning approach

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Scenario planning is well suited to the task of
dealing with paradigmatic, non-linear change

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Methods of Constructing
Scenarios
1-Highly Qualitative Procedures
2-Practical Procedures
3-Cross-Impact Analysis

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1-Highly Qualitative Procedures

 Kahn: -A simplistic intuition or an expression of

bias rather than a careful synthesis and
balancing of the analysis with more
subtle qualitative considerations.
-“Surprise-free” scenario
 Godet: -”Exploratory Prospective Analysis”
-Holistic and integrative analysis
 Durand: -Intuitive analysis

Critic: They rely so heavily on intuitive and subjective

analysis that they are difficult to implement.

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2-Practical Procedures
 More practical means of generating
scenarios in business environment:
-Identifying factors are expected to affect
forecasting situation at hand.
-Postulating a set of plausible future values for
each of these factors.
-Selecting a few plausible scenarios from a large
number of possible combinations of the values of
these factors.
 Two Approaches on selecting strategies:
-Deductive
-Inductive
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3-Cross-Impact Analysis
 Emerged from early work on the Delphi
Technique
 It’s Basic philosophy of Cross-Impact is that no
development occurs in isolation. Rather, it is
rendered more or likely by the occurrence of
other events.
 Cross-Impact attempts to capture these ‘cross-
impacts’ from the judgmental estimates of
experts.
 Data from experts are then input into a computer
simulation or mathematical program.
Critic: Judgmental estimates are surely not amenable to any
mathematical machinations.

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Few Comments on Scenarios
1. The most important part of scenario analysis is to think
about the problem.
2. The most difficult in scenario analysis is how to reduce
a large number of potential future outcomes to a few
plausible scenarios. The number of possible scenarios
grows quickly as the number of factors increases.
3. Two methods:
-Inductive: If the number of factors is small (<5),
examine every possible scenarios from this set.
-Deductive: When many factors are considered, rather
than examining every possible combination, set the
tone of scenarios. It means to decide whether the
scenarios will represent an optimistic and pessimistic
views of the future, or characterize some dominant
themes.
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Scenarios on Iran’s future to 2006
 Three scenarios are written by BMI
(Business Monitor International)
 Political Scenario
 Economic Scenario
 Business Scenario

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Advantages of Scenario
 Scenario writing is a planning instrument.
 It is also an effective learning tool.
Thinking in scenarios helps us understand the logic of
developments, clarify driving forces, key factors, key
players and our potential to exert an influence.
 It proceeds more from the gut than from the
computer. Although it may incorporate the
results of quantitative models.
 It shows a slight accuracy comparing with other
models of forecasting. Specially when
uncertainty is high.

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Scenario as powerful instrument
 Brain-compatible format: Scenario thinking
matches the way the brain function. Narrative format
(images and stories) makes them easily memorable.
 Opening-up of divergent thinking: By forcing
your mind to think about qualitatively different
directions, you train your capability to think the
unthinkable.
 Complexity-reducing format: Complex
business or general environments can be reduced to a
manageable amount of uncertainty.
 Communicative format: Scenarios are easy to
communicate and to discuss.
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Weaknesses of Scenario
If scenarios are powerful, why haven’t they been
more widely used?
 Uncertainty in conclusions: It does not give one single
answer about the future. Therefore it does not provide the security
that is often required in decision making.
 Counterintuitive to managerial simplicity: It does
not accord with the managerial simplicity that says that there is one
right answer to every question. Scenario planning is a more holistic
or systemic approach to planning than traditional methods.
 Soft methods and soft answers: Scenario techniques are
usually qualitative, the results are often presented in qualitative
terms that fir poorly with traditional numbers-oriented cultures.
 Time consuming: Workshop-based methods are time
consuming in terms of the number of hours and days the participants
need to spend to get thorough results.
 Secrecy: Most of Scenarios adopted in the companies are arcane
and impractical
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Bibliography
 Kahn, Herman & A. J. Weiner, The Year 2000, London: McMillan,
1967.
 Makridakis, Spyros et al., The accuracy of extrapolation (time-
series) methods, Journal of Forecasting, 1, 111-153, April-June
1982.
 Schnaars, Steven P.; “How to Develop and Use Scenarios”; Long
Range Planning; Vol. 20, No. 1, pp. 105-114, 1987.
 Zenter, Rene D.; “Scenarios in forecasting”; Chemical and
Engineering news; October 1975, pp. 22-34.
 -Lindgren, Mats, & Hans Bandhold; Scenario Planning; New York;
Palgrave, 2003.

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