Scenario Planning vs Forecasting

Scenario planning is a method in which multiple future narratives are constructed from a set of variables, conditions, or factors all of which are related to the challenge or problem under focus (Bowman, 2016). By constructing a matrix or table in which the different values are assigned to the variables, the researchers can begin to develop and understanding of how a specific future may come to fruition and gain insight into which of the variables would be the strongest factor in it occurring. The validity of the generated scenarios is dependent on the researchers understanding of the variables, the relationships between them and their accuracy in predicting the likelihood of specific events or circumstances occurring which means it can be a rather subjective exercise Frum, 2013).

Forecasting is different from scenario planning in that the intent is to arrive at one accurate future narrative through careful research and analysis of all factors. There are multiple methods of forecasting including qualitative, time series analysis, and casual models (Chambers et. al., 1971). The method utilized will change based on the amount of hard facts (numbers, quantitative data) available, examples or history which can be cross-referenced, or how deep of an understanding is available on the factors on conditions which can impact the outcome. Compared to other castings such as backcasting or nowcasting, forecasting can be effective with less variables or factors under consideration (Kim, Swanson, 2018). To construct the forecast, researchers will look at multiple factors and weigh them on their perceived impact on altering the future state and when all of the factors have been analyzed with regards to their impact, a conclusion can be drawn. As an example, if manufacturer of products which relies on aluminum begins to see the factors related to supply issues beginning to appear, they may forecast an impending shortage and pre-emptively order more supply to get ahead of their perceived future.

Scenario planning is an excellent exercise when an organization wants to explore multiple possibilities and consider how they would react or adapt to those potential futures. The time horizon for these exercises may be slightly further out than the timeframes forecasting is typically utilized in. Forecasting is better suited for trying to identify how a business needs to respond today to the most likely future state and the analysis of current data and environmental factors is essential to an accurate prediction.

References

Bowman, G. (2016). The Practice of Scenario Planning: An Analysis of Inter- and Intra-organizational Strategizing. British Journal of Management, 27(1), 77–96. https://doi-org.coloradotech.idm.oclc.org/10.1111/1467-8551.12098

Chambers, J. C., Mullick, S. K., & Smith, D. D. (1971). How to choose the right forecasting technique. Harvard Business Review, 49(4), 45–70.

Kim, H. H., & Swanson, N. R. (2018). Methods for backcasting, nowcasting and forecasting using factor‐MIDAS: With an application to Korean GDP. Journal of Forecasting, 37(3), 281–302. https://doi-org.coloradotech.idm.oclc.org/10.1002/for.2499

Frum, R. (2013, August 6). World association of newspapers scenario planning. Personal Expert System. https://personalexpertsystem.blogspot.com/2013/08/world-association-of-newspapers.html