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What is scenario


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What is scenario

  1. 1. 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 [email_address]
  2. 2. Scenario means simply to think about the problem <ul><li>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. </li></ul><ul><li>Amazingly there are very few accident at sea, maybe very few during the recent 50 years. </li></ul><ul><li>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. </li></ul><ul><li>Through experience, sailors improve their ability to interpret external signals. </li></ul><ul><li>Their brains become better and better at generating ‘sailing scenarios’. </li></ul><ul><li>Just as the football player over time becomes better at football scenario generation. </li></ul>
  3. 3. Introduction <ul><li>For Many years, it was believed obtaining accurate forecasts lay in the development of complex, quantitative models. </li></ul><ul><li>With just a little more time, a few more equations and a lot more dollars, these models would be able to provide forecast. </li></ul><ul><li>Many users have become disillusioned with forecasting models, attempt to predict the future from fancy mathematical manipulations of historical data. </li></ul>
  4. 4. Feedback and feed-forward
  5. 5. Scenario planning is the combination of scenario analysis for strategic purposes and strategic planning based on the outcome of the scenario phase
  6. 6. The relations between possible, probable and desired future
  7. 7. What is not Scenario? <ul><li>Scenario is not a forecast, neither a vision </li></ul><ul><li>It does not seek numerical precision. </li></ul><ul><li>It usually provides a more qualitative and contextual description of how the present will evolve in to the future. </li></ul><ul><li>It is not assured. </li></ul><ul><li>Scenario analysis usually tries to identify a set of possible future, each of whose occurrence is plausible </li></ul>
  8. 8. Definition of Scenario <ul><li>Vocabulary: </li></ul><ul><li>Scenario is an outline of a natural or expected course of events. </li></ul><ul><li>Kahn and Weiner: </li></ul><ul><li>A hypothetical sequence of events constructed for the purpose of focusing attention. </li></ul><ul><li>Porter </li></ul><ul><li>An internally consistent view of what the future might turn out to be </li></ul><ul><li>Ringland: </li></ul><ul><li>That part of strategic planning which relates to the tools and technologies for managing the uncertainties of the future </li></ul><ul><li>Schnaars: </li></ul><ul><li>Identify plausible future environments that the firm might face. </li></ul>
  9. 9. Forecasting and Uncertainty
  10. 10. Differences between scenarios, forecasts and visions
  11. 11. Scenarios versus Forecasts
  12. 12. Crude Oil Rigs in US, (Prediction)
  13. 13. Crude Oil Rigs in US, (Reality)
  14. 14. Future is not continuation of the past necessarily
  15. 15. Scenario in Business <ul><li>22% of “Fortune 1000”, were using scenario analysis in the 1970s </li></ul><ul><li>75% of these firms adopted the approach after the oil embargo in 1973 </li></ul><ul><li>It is essential to keep the number of factors that are considered to a minimum. </li></ul>
  16. 16. Time Horizon <ul><li>Scenario analysis has been used primarily in long-term forecasting. </li></ul><ul><li>Most firms that used scenario analysis employed 5-year horizon. </li></ul><ul><li>But in Xerox 15-year </li></ul><ul><li>Shell, 15-year at least. </li></ul><ul><li>The content of scenario becomes progressively more vague as the time horizon lengthens. </li></ul><ul><li>The ideal time horizon of scenario analysis is specific to the industry, product or market under consideration. </li></ul>
  17. 17. Historical Background <ul><li>Herman Kahn: was writing scenarios as far back as the 1950s. </li></ul><ul><li>“Thinking the Unthinkable” </li></ul><ul><li>Shell in 1970s. </li></ul><ul><li>SRI (Stanford Research Institute) : Future of American Society until 2000. </li></ul>
  18. 18. SRi
  19. 19. History
  20. 20. The Number of Scenarios to Generate <ul><li>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. </li></ul>
  21. 21. Arraying Scenarios <ul><li>Scenarios are inevitably arrayed over some back-ground themes. </li></ul><ul><li>Four background themes: </li></ul><ul><li>1-Favorability to the Sponsor: </li></ul><ul><li>Selecting an optimistic and then an pessimistic. </li></ul><ul><li>“ Surprise-free” or ‘baseline” scenario </li></ul><ul><li>2-Probability of Occurrence </li></ul><ul><li>One of the scenarios is labeled as “most likely”. </li></ul><ul><li>Scenarios are possibilities, not probabilities. </li></ul><ul><li>3-Single, Dominant Issue </li></ul><ul><li>Sometimes there is a single dominant factor whose outcome is </li></ul><ul><li>central to the item being forecast. Like economy, government </li></ul><ul><li>policy. </li></ul><ul><li>4-Themes </li></ul><ul><li>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. </li></ul>
  22. 22. Scenario projects could be used for different purposes and with different focuses
  23. 23. Characteristic of traditional planning compared with the scenario planning approach
  24. 24. Scenario planning is well suited to the task of dealing with paradigmatic, non-linear change
  25. 25. Methods of Constructing Scenarios <ul><li>1-Highly Qualitative Procedures </li></ul><ul><li>2-Practical Procedures </li></ul><ul><li>3-Cross-Impact Analysis </li></ul>
  26. 26. 1-Highly Qualitative Procedures <ul><li>Kahn: -A simplistic intuition or an expression of </li></ul><ul><li>bias rather than a careful synthesis and </li></ul><ul><li>balancing of the analysis with more </li></ul><ul><li>subtle qualitative considerations. </li></ul><ul><li>- “Surprise-free” scenario </li></ul><ul><li>Godet: -”Exploratory Prospective Analysis” </li></ul><ul><li>-Holistic and integrative analysis </li></ul><ul><li>Durand: -Intuitive analysis </li></ul><ul><li>Critic: They rely so heavily on intuitive and subjective analysis that they are difficult to implement. </li></ul>
  27. 27. 2-Practical Procedures <ul><li>More practical means of generating scenarios in business environment: </li></ul><ul><li>-Identifying factors are expected to affect forecasting situation at hand. </li></ul><ul><li>-Postulating a set of plausible future values for each of these factors. </li></ul><ul><li>-Selecting a few plausible scenarios from a large number of possible combinations of the values of these factors. </li></ul><ul><li>Two Approaches on selecting strategies: </li></ul><ul><li>-Deductive </li></ul><ul><li>-Inductive </li></ul>
  28. 28. 3-Cross-Impact Analysis <ul><li>Emerged from early work on the Delphi Technique </li></ul><ul><li>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. </li></ul><ul><li>Cross-Impact attempts to capture these ‘cross-impacts’ from the judgmental estimates of experts. </li></ul><ul><li>Data from experts are then input into a computer simulation or mathematical program. </li></ul><ul><li>Critic: Judgmental estimates are surely not amenable to any mathematical machinations. </li></ul>
  29. 29. Few Comments on Scenarios <ul><li>The most important part of scenario analysis is to think about the problem. </li></ul><ul><li>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. </li></ul><ul><li>Two methods: </li></ul><ul><li>-Inductive: If the number of factors is small ( <5), examine every possible scenarios from this set. </li></ul><ul><li>-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. </li></ul>
  30. 30. Scenarios on Iran’s future to 2006 <ul><li>Three scenarios are written by BMI </li></ul><ul><li>(Business Monitor International) </li></ul><ul><li>Political Scenario </li></ul><ul><li>Economic Scenario </li></ul><ul><li>Business Scenario </li></ul>
  31. 34. Advantages of Scenario <ul><li>Scenario writing is a planning instrument. </li></ul><ul><li>It is also an effective learning tool. </li></ul><ul><li>Thinking in scenarios helps us understand the logic of developments, clarify driving forces, key factors, key players and our potential to exert an influence. </li></ul><ul><li>It proceeds more from the gut than from the computer. Although it may incorporate the results of quantitative models. </li></ul><ul><li>It shows a slight accuracy comparing with other models of forecasting. Specially when uncertainty is high. </li></ul>
  32. 35. Scenario as powerful instrument <ul><li>Brain-compatible format: Scenario thinking matches the way the brain function. Narrative format (images and stories) makes them easily memorable. </li></ul><ul><li>Opening-up of divergent thinking: By forcing your mind to think about qualitatively different directions, you train your capability to think the unthinkable. </li></ul><ul><li>Complexity-reducing format: Complex business or general environments can be reduced to a manageable amount of uncertainty. </li></ul><ul><li>Communicative format: Scenarios are easy to communicate and to discuss. </li></ul>
  33. 36. Weaknesses of Scenario <ul><li>If scenarios are powerful, why haven’t they been more widely used? </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>Secrecy: Most of Scenarios adopted in the companies are arcane and impractical </li></ul>
  34. 37. Bibliography <ul><li>Kahn, Herman & A. J. Weiner, The Year 2000, London: McMillan, 1967. </li></ul><ul><li>Makridakis, Spyros et al., The accuracy of extrapolation (time-series) methods, Journal of Forecasting, 1, 111-153, April-June 1982. </li></ul><ul><li>Schnaars, Steven P.; “How to Develop and Use Scenarios”; Long Range Planning; Vol. 20, No. 1, pp. 105-114, 1987. </li></ul><ul><li>Zenter, Rene D.; “Scenarios in forecasting”; Chemical and Engineering news; October 1975, pp. 22-34. </li></ul><ul><li>-Lindgren, Mats, & Hans Bandhold; Scenario Planning; New York; Palgrave, 2003. </li></ul>