Decision making and planning under low levels of predictability: Enhancing the scenario method

Abstract

Publisher's copyright statement:Additional information: Use policyThe full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. In this paper we review and analyse scenario planning as an aid to anticipation of the future under conditions of low predictability. We examine how successful the method is in mitigating issues to do with inappropriate framing, cognitive and motivational bias, and inappropriate attributions of causality. Although we demonstrate that the scenario methods contain weaknesses, we identify a potential for improvement. Four general principles that should help to enhance the role of scenario planning when predictability is low are discussed: (i) challenging mental frames, (ii) understanding human motivations, (iii) augmenting scenario planning through adopting the approach of crisis management, and (iv), assessing the flexibility, diversity, and insurability of strategic options in a structured option-against-scenario evaluation.3

Extending the use of scenario planning and MCDA for the evaluation of strategic options

“…Finally, this paper has focused on the selection of robust options. However, assessments on whether options are flexible (ie option can easily transform to accommodate new conditions) (Mingers and Rosenhead, 2001) and diversified (ie facilitates investment in a range of different areas relative to the organisation's current major offering(s)) (Wright and Goodwin, 2009) may improve the quality of options entering the evaluation process.…”

The limits of forecasting methods in anticipating rare events

“…"I think that there"s a good chance that the economy will perform well"). Based on this assumption, Wright and Goodwin [2] argue that the term, predictability, can be interpreted on two levels. First, predictability can relate to the capability of forecasters to produce a well-calibrated probability distribution.…”

“…Wright and Goodwin [2] argue that if well-calibrated probabilities can be obtained, decision theory can be used to make rational decisions on the basis of them, even if the predictability (in the second sense) is low [3]. If we have a reliable probability estimate for the occurrence of an earthquake in a particular county in the next ten years we can use a rational process to assign an appropriate level of resources in anticipation of that event, even if this probability is very low.…”

“…In the sphere of scenario planning, Wright and Goodwin [2] argued for an enhancement of the scenario planning process by creating a range of more extreme scenarios than those that result from use of the intuitive logics scenario development methodology, described earlier. Wright and Goodwin argued that scenarios should encompass a wider range of uncertainties in order to anticipate rare high-impact events.…”

“…Thus, maximising redundancy, although increasing costs and restricting the possibility of leveraging resources, enables survival in difficult times. In a similar vein, Wright and Goodwin [2] argued that the decision maker should be alert to the degree to which any major strategic option is: (i) flexible -i.e., investment can be upscaled or down-scaled at any point in the future; (ii) diversified -i.e., following the option that diversifies the firm"s current major offering(s) by providing either a different technology base, a different production base, or a different customer base; (iii) insurable. This prescription can be implemented as a necessary check-list that must be completed in any option evaluation or as part of a more formalised, multi-attribute, evaluation of options against scenarios [52].…”