Scenario Planning versus Traditional Forecasting

Unit 3 Discussion Board

Planning & Forecasting

Primary Response

ThienSi (TS) Le

CS875-1602C-01

Futuring & Innovation

Dr. Imad Al Saeed

 (03-May-2016)

In Unit 3 Discussion Board on the topic of “Planning & Forecasting”, students are required to do research about the concepts of scenario planning versus traditional forecasting. This short piece of writing will fully explain both concepts, then compare and contrast them for their differences, advantages, and disadvantages.

Recently, the dynamic and energetic world has changed and intertwined rapidly with full uncertainty and chaos. It is almost impossible to predict the different future from the known present. In an aggressively competitive business environment, many organizations realize that it is very important to identify and be ready for potential changes for survival. Alternative to traditional forecasting that no longer responds properly to the gradual and sudden changes, scenario planning becomes an appropriate approach in business.     

1. What is traditional forecasting? 

            Traditional forecasting is a technique trying to predict outcomes of an event or future state that has not been observed. It establishes a framework and processes for vision in many areas such as healthcare, weather, economics, business, education, etc. According to Daniel Research Group (2011), traditional forecasting techniques include qualitative (Ql) or quantitative (Qn) forecasting methods. While Ql method bases on surveys or interviews for individual or group opinions and judgements, Qn method uses experiments for empirical data, extrapolation, curve fitting techniques, adoptions, penetration model, causal and multivariate techniques, time-series analysis, agent-based model, etc. (Daniel Research Group, 2011). For example, weather forecasting is predicting the climate in a certain area, or business forecasting is an attempt to use empirical relationships established from observations of consistent patterns to forecast for revenue of an organization in coming years (Seemann, 2002).

2. What is scenario planning?

(Source: Adapted from Ogilvy, 2015)

            According to Wade (2014), scenario planning is a strategic planning method that some organizations use to make flexible long-term plans for the future by studying possibility and plausibility that addresses the shortcomings of the conventional forecasting techniques. It, also known as scenario thinking or scenario analysis, is in large part an adaptation and generalization of classic methods used by military intelligence (KaufmanHall, 2016). The Global Business Network (2008) defines scenarios as rich data-driven stories about tomorrow that can assist organizations better decision-making today where hypothesis indicates a range of possibilities for the future. Scenario planning method that is not a prediction method has a process that can simulate alternative views of future against strategies, tactics, and budgets that assist organizations managing uncertainty and risks, and seizing market opportunities. Notice that scenario planning’s objective is to develop and test strategic choices under a variety of plausible futures by rehearsing for multiple futures (GBN, 2008). Scenario planning intends to strengthen an organization’s ability to recognize, adapt to and advance changes in industry over time (Frum, 2013).  

(Source: Adapted from Monitor Group, GBN, 2008)

3. Comparison and contrast between scenario planning and traditional forecasting

Even though both scenario planning and traditional forecasting methods address, prepare for potential changes, and project organizational business in the future, they have the sharp differences as follows:

    a. Prediction versus projection

Traditional forecasting predicts the potential changes in one future. The traditional forecasting projection today for future change may be in the range of +/-10% in 2D (2 dimensions like the mathematic plane) while scenario planning does not predict but rather projects the potential changes in multiple futures in 3D (3 dimensions such as a space funnel). For example, it can provide official future along with multiple alternative futures.

(Source: Adapted from quesucede.com)

     b. Techniques

Traditional forecasting uses the conventional Ql technique such as time series, exponential smoothing regression, etc. and Qn technique such as experiments, empirical data, curve fitting model, etc. Scenario planning uses two common techniques: the 2x2 matrix with four quadrants and the Wilson matrix to seek to uncover potential future environments and understand the impact of today’s strategic decisions on the organization from the found and known facts.

     c. Outcome

            The traditional forecasting method tends to be somewhat rigid, and almost always fails to predict significant changes in market conditions, particularly in very dynamic real world environments today (Garett, 2013). On the other hand, the scenario planning methodology provides flexibility, allows exploration and pre-policy research. Exploration enables supervised learnings and creative thinking while pre-policy research enables concrete options for strategic decision-making (Amer, Daim, & Jetter,  2013). Since scenario planning manages uncertainty and risks effectively and seizes market opportunities appropriately, the organization has more chance to succeed in business than traditional forecasting.     

4. Advantages and disadvantages

            Both scenario planning and traditional forecasting methods have some advantages and disadvantages as shown below:

     a. Traditional forecasting method

          - The traditional forecasting has an advantage with the mathematical and scientific approach. The output prediction is independent of the human involved in predicting the forecast.

          - Its primary disadvantages are that the technique is rigid, and it does not allow flexible changes in a gradual and/or sudden environment. The traditional forecasting’s outcome has a high rate of failure.

     b. Scenario planning method

            The scenario planning has several advantages:

- The scenario planning allows flexibility and plausibility, particularly logicality

-  A set of scenarios can form an organizational framework that can make sense of conflicting or ambiguous market signals more holistically (Ogilvy, 2015).

-  The scenario planning’s outcome has a high rate of success.

The disadvantages of the scenario planning are:

- The range of future uncertainties may cause high stress to employees who have working habits concerned with controllable factors.

-  Method requires both art skill and scientific tool, but it is more an art than science.

(Source: Adapted from Monitor Group, GBN, 2008)

In summary, the writing introduced both scenario planning and traditional forecasting concepts then explained both methods in details. It distinguished and contrasted their differences then discussed advantages and disadvantages in its method’s applications in the rapid changing and intertwining world.

REFERENCES

Amer, M., Daim, T.U., & Jetter, A. (2013). A review of scenario planning. Futures, 46, 23-40.

Daniel Research Group (2011). Traditional forecasting and modeling methods. Retrieved May 2, 2016 from

http://www.danielresearchgroup.com/WhatWeDo/ForecastsandMarketModels/TraditionalForecasting.aspx

Frum, R. (2013, August 6). Word association of newspapers scenario planning. Retrieved from the Personal Expert System Web site: http://personalexpertsystem.blogspot.com/2013/08/world-association-of-newspapers.html

Garett, M. (2013). Traditional forecasting leads to traditional results...failure. Retrieved May 1, 2016 from http://www.forbes.com/sites/matthewgarrett/2013/08/22/traditional-forecasting-leads-to-traditional-results-failure/#64836177c401

Global Business Network (GBN, 2008). Introduction to scenario planning. Retrieved May 2, 2016 from

            https://www.mwcog.org/uploads/committee-documents/aV5eWFtX20080731094534.pdf

KaufmanHall (2016). Scenario planning. Retrieved May 2, 2016 from

            http://www.axiomepm.com/solutions/core/budgeting/scenario-planning?gclid=CjwKEAjw9Zu5BRCS_OuVibujhQ0SJAD7t4KrtylNeDnd_IB5syWMOeRBDl2QziIjc99IxeUyEQWyqRoCUt3w_wcB

Ogilvy, J. (2015). Scenario planning and strategic forecasting. Retrieved May 2, 2016 from http://www.forbes.com/sites/stratfor/2015/01/08/scenario-planning-and-strategic-forecasting/#661a1e006b7b

Seeman, S. (2002). Traditional forecast techniques. Retrieved May 2, 2016 from

            http://speedy.meteor.wisc.edu/~swetzel/winter/methods.html

Wade, W. (2014). "Scenario Planning" - thinking differently about future. Retrieved May 1, 2016 from http://e.globis.jp/article/000363.html