In the earlier post, “The Delphi Method – Interactively Forecasting the Future,” the topic of scenario development illustrates a technique for forecasting. Scenario development applies to situations where the final objective is understood, but the pathways to achieve the outcome are less clear. However, a second definition indicates scenario development is a method for exploration and discovery where an expected outcome might not exist (Tidd & Bessant, 2005). In the case of exploration, scenario planning, a precursor to scenario development, is much different from forecasting.
Forecasting is a statistical technique using quantitative historical data to predict a future trend or outcome. Through statistical analysis, forecasting is a planning tool providing corporations with potential risks and uncertainties in preparation for change. Forecasting initiates through experience and shared knowledge and often requires obtaining qualitative data as the initial step in the process. The data maps to a structure that statistical algorithms can process for prediction. Examples of where forecasting is commonplace include resource efficiency, business plans, performance management, adjustments to business models, and strategic decision making (Diebold, 1998).
Forecasting depends on historical data, information, and knowledge from past experiences. Forecasting is valuable in understanding how current trends will extend into the future. The understanding of upcoming change enables organizations to plan and, in many cases, become nimble and adaptive to that change. Organizations that adapt well to change typically see benefits in resource allocation, improvement in decision-making, and success in the marketplace. Forecasting is a repeatable and continuous process, focusing on the most critical data elements (Diebold, 1998).
As opposed to forecasting, scenario planning focuses on developing a strategy for anticipating change where little to no historical data exists. Scenario planning leverages different discovery methods to develop multiple scenarios that could occur in the future. The objective of scenario planning is not to emerge on a single scenario but rather envision possibilities for multiple scenarios, including realizing that a future might not even exist! The scenario planning product is a collection of future scenarios, each accounting for differences in how the landscape and culture might change. A scenario accounts for the change in competition, customers, employees, products, and emerging stakeholders. While scenarios might be drastically different, the underpinning attributes are absolute, yielding a possibility based on current knowledge (Wade, 2012).
Scenario planning enables organizations to develop flexible strategies and advance agile engineering processes that enable even the most influential organizations to pivot direction. While scenario planning does not reveal future unknowns, it does position the organization to understand the possibilities of future outcomes, enabling more thoughtful proactive planning. In contrast, organizations that focus on the present and postpone future considerations are vulnerable to always being reactionary and susceptible to change outcomes. Scenario planning requires a new mental model, where the future is unknown, but planning must occur. Under this new model, exploration of future possibilities enables the organization to consider various outcomes and prepare pathways for opportunities or threats that might evolve (Wade, 2012).
Forecasting and scenario planning are two techniques addressing different problems. Advantages for forecasting include the basis of historical data and extrapolations leading to likely outcomes. Forecasting is a tangible, continuous process that organizations can realize and take action on. However, forecasting has disadvantages in that it is a singular model that does not account for other possibilities. While the organization can adopt the forecast and prepare, it does nothing to enable the organization for other possibilities (Diebold, 1998).
Scenario planning has advantages in that the process identifies alternative future scenarios, providing an organization to prepare for different circumstances. Scenario planning is multi-dimensional, using SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis to identify what the landscape and future might contain. Disadvantages of scenario planning include the “unknowns of unknowns,” meaning there is no guarantee into what the future will actually consist of. Lastly, scenario planning is a qualitative exercise demanding time and attention from an array of stakeholders (Wade, 2012).
References
Diebold, F. X. (1998). Elements of forecasting. Citeseer. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.571.5408&rep=rep1&type=pdf
Tidd, J., & Bessant, J. (2005). Managing Innovation: Integrating Technological, Market, and Organizational Change. Wiley.
Wade, W. (2012). Scenario Planning: A Field Guide to the Future.
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