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Scenario planning in project management
April 27th, 2005
Scenario planning is a tool that is used a lot in strategy formulation, but can be very useful as part of a project’s risk management process. By producing a series of future possibilities as a result of a structured and logical process, you can identify risks and test strategies for eliminating or mitigating them.
Some of the advantages of scenario planning include reducing the risk of groupthink or concentration on a single most likely outcome. It also helps with contingency planning, because it forces “what if?” considerations of a situation. There’s also value to be gained from the process itself, because there’s a focus on learning and understanding rather than problem solving.
When scenario planning might be appropriate
Some situations lend themselves well to scenario planning - particularly when there is a great deal of uncertainty, or there is a history of costly and unpredicted surprises in the past. It can also be useful in situations of significant change, or where there are strong differences of opinion about how the future may pan out. And it can help to generate alternative ideas about how the future can be tackled if there are a limited number of opportunities currently identified.
How scenario planning works
The idea is to create a range of plausible, internally consistent futures, covering the range of circumstances that the project might have to operate within. The futures can then be used to evaluate how well potential strategies would operate - they are not forecasts as such, but “rich pictures” of possible futures.
A plausible scenario means that there is a coherent set of events leading from the present to the future, rather than the “with one mighty bound Jack was free” leaps of imagination.
An internally consistent scenario doesn’t contain any mutually exclusive assumptions - for example, increased volume of services together with reduced funding might be inconsistent.
The process runs along these lines:
- Define the issues in terms of timeframe, scope and decision variables. Review the past to get a feel for the degrees of uncertainty surrounding these.
- Identify the major stakeholders. Identify their roles, interests and power positions; and how these might change.
- Make a list of current trends that will affect the variables of interest. Explain how and why it exerts an influence. It can be helpful to use other techniques such as causal linkage diagrams etc to clarify this.
- Identify key uncertainties whose resolution will significantly affect the variables. Explain how and why as previously.
- Construct two forced scenarios by placing all the positive outcomes of key uncertainties in one scenario and all the negative outcomes in another. Add selected trends and predetermined elements to these extreme scenarios.
- Assess the internal consistency and plausibility of these two scenarios. Identify any areas where the two scenarios may be internally inconsistent.
- Eliminate combinations that are not credible or are impossible, and create new ones until you have achieved internal consistency. Make sure that the new scenarios cover a reasonable range of uncertainty.
- Assess the revised scenarios in terms of how the key stakeholders would behave in them. Use this to identify topics for further investigation that would support or revise the scenarios.
- After this, reexamine the internal consistencies of each scenario, and see if the interactions can be quantified - for example, with Monte Carlo simulations etc.
- Reassess the ranges of uncertainty of the target variables of interest, and repeat steps 1 to 9 to arrive at decision scenarios that could be used to aid decision making under uncertainty.
Some drawbacks
Although scenario planning can be a very useful tool for considering how well strategies would cope with future events, there are some caveats. By their very nature they’re difficult to evaluate, so there’s not a great deal of hard empirical evidence to prove that they work. There’s a risk of being devisive during the process itself - particularly when considering the “worst case” scenarios. And the range of futures that can be considered is inherently limited - for example, who would have predicted a September 11th-style attack in August 2001?
Further reading:
This process is based on Professor John Maule’s Management Decision Making module at Leeds University Business School, which in turn was based on an article by Paul Shoemaker (Multiple Scenario Development: its conceptual and behavioural foundation, Strategic Management Journal, 1993:14, pp193-213). There’s a good explanation in Decision Analysis for Management Judgement (Goodwin & Wright, Wiley 1998) as well as a range of other decision-making and analysis tools - it’s a very readable and comprehensive book if you’re interested in decision making in the wider sense. A more detailed coverage can be found in Scenario Planning: Managing for the Future (Gill Ringland, Wiley 1998).
Filed under Project Management, Working smarter |3 Responses to “Scenario planning in project management”
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from infosential
Nice summary Tim,
GBN’s scenario planning work (Peter Schwartz, et.al) forms the basis of most of the literature you see now. Maule seems a little different. While the concepts are similar, he seems to come from an individual (read psychologist) background and now applies it to decision making.
There are some, myself included, that think scenario planning will evolve to include other aspects of “opportunity science”, like creativity machines or concept accelerators. Scenarios are that much easier to “define” if you have past experience and computer power behind them.
AND…scenario planning in and of itself, has very little to do with predictability. It is a “what if” scenario. Used to determine what a person or corporation would/will do if something happens that is not expected. An Oil company would not say, “What will we do if a atomic detonation occurs in the Middle East?” They will say “What will we do if there is no longer a viable supply of oil from the Middle East?” (covers many bases, and is plausible, not probable).
Predicting 9/11 shouldn’t be the point. One would hope that someone had a scenario for attack on US soil, or disaster in a major US city, or something similar.
Actually 9/11 is something of a lazy analogy. It’s not that scenario planning wouldn’t have predicted the attack on the WTC - given past history, you could argue that it should have - but that events do come from left field.
I guess the learning from this is that scenario planning is only one of a number of tools that can be used to prepare for possible futures - but that you need contingency plans to deal with the unexpected.