Scenario planning vs. prognosis: 6 questions to prepare for a post-pandemic future
As we finally see the light at the end of the tunnel of the catastrophic COVID-19 pandemic, many leaders are looking for ways to better anticipate future disruptions and prepare for the uncertainty ahead.
There is often confusion between scenario planning and forecasting, with the terms being used interchangeably and inconsistently. However, these are different methods that involve certain activities, results, and value creation.
The scenario planning is oriented towards the future and includes the definition of different stories behind different paths that lead to that future. You could also say that it is based on a dynamic sequence of interacting events, causal processes, and critical decision points. It offers more flexibility and willingness to deal with risks and uncertainties instead of making purely quantitative forecasts. It’s about understanding multiple plausible futures without blinking, identifying what could happen, and describing that outcome in a compelling, engaging narrative. Scenarios are also collaborative – usually teams of people are involved, often from different levels within a company – and there is often a creative dimension instead of just being based on quantitative calculations. Scenarios offer longer-term, multiple futures based on unknown risks and uncertainties (e.g. the results of a US election).
Forecasts, on the other hand, are based on the assumption that the future will look similar to what it does today. Forecasting is a less creative process and does not anticipate significant changes in the business environment that could seriously challenge a company’s organizational strategy and performance. Forecasts also do not take into account risks and uncertainties in the context of a broader stakeholder dialogue or broader research exercise. Instead, forecasting uses quantitative inputs and methods to predict what will or should happen in the future, primarily by interpreting historical data. Forecasting is a short-term tool that provides security based on known variables in the system (e.g. passenger traffic for airlines).
To put it more clearly:
Forecasts offer one possible future, while scenarios offer several possible futures. No tool is better than the other; They simply offer different approaches and should be used in a complementary way.
The following table provides a more detailed contrast between scenario planning and forecasting, compares various functions and explains the differences:
When deciding which tool to use on a problem or opportunity, you can ask six typical questions to determine whether scenario planning or forecasting is more effective:
- Is the future uncertain and unpredictable or safe and predictable?
- Are one or more futures more likely?
- Is the focus on qualitative or quantitative analysis?
- Is the organization looking for an objective, fact-based discussion with stakeholders or a subjective, more comprehensive discussion?
- Is the organization looking for a short-term (within a year) or longer-term (multi-year) perspective for the future?
- Can the analysis results be continuously replicated or is it a one-off presentation of unique information?
Paul Saffo, a Silicon Valley-based technology forecaster, said, “The goal of forecasting is not to predict the future, but to tell you what you need to know to take meaningful action in the present.” In a world like this With the many different management tools available to executives, it is important to ensure that you choose the right one to get the results you need to be successful.
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Lance Mortlock is strategy partner of Ernst & Young, visiting professor at the Haskayne School of Business and board member of the Canadian Energy & Climate Nexus. Mortlock distills cutting-edge research, high-level management theory, and real-world examples to show how scenario planning can help any business build resilience, build shock absorbers, and take control of their fate in Disaster Proof: Scenario Planning for a Post – Pandemic future. Connect with Lance on LinkedIn and his website * * *
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Posted by Michael McKinney at 11:11 am
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