Scenario analysis is both a planning and a management tool for getting a better handle on uncertainty.
By Bruce E. Bale and Barton G. Tretheway
A part of any planning process is some form of environmental analysis to provide the data-driven foundation on which to craft a plan. This was much easier to do in times of relative stability when one could extend trend lines with some degree of confidence. Today we find ourselves in an environment of pervasive uncertainty as social values shift, the economy is in turmoil, and public policy processes are polarized.
The old thinking does not work; new ways of thinking are required to survive and thrive.
Scenario analysis is both a planning and a management tool for getting a better handle on uncertainty. It provides context when looking at possible future outcomes for the organization. And it is not just about the most likely outcome, but more importantly about the most desirable and actionable outcome — one that might be influenced by strategies developed in the strategic plan.
In its simplest form, think of scenario analysis as spinning a story about a future state. It anticipates future directions in key areas relevant to the organization and develops responses accordingly. It is important to note that scenario analysis is not about predicting the future or identifying a “most likely” scenario. Rather, it is about developing several plausible outcomes, monitoring them, and trying to influence the one(s) that are most desirable.
There is no magic in crafting good scenarios. The two basic ingredients are thorough research and good critical thinking. Here are several keys to successful scenario building to keep in mind:
Clarity of purpose. What is driving the need to develop scenarios? For example, if you are a large church with steadily declining membership, attendance, or revenue, what does the future look like?
Clarity of time horizon. A big hurdle to overcome in scenario planning is getting one’s thought process beyond just extrapolating current trends out a couple of years. Using at least a five to 10 year time horizon is a good starting point, but it is also important to realize that different factors require different time horizons. For changing societal values, 10 years is a good time horizon. For issues of declining membership, a one or two year horizon may be more relevant.
Plausibility. Each scenario should have a reasonable likelihood of outcome. Crafting two polar extreme scenarios and one “mid-range” scenario is not appropriate. The art of scenario analysis is blending the known and the unknown into profiles of alternative futures that have equal or similar plausibility.
Evidenced based. Anyone can guess about the future. The key is to eliminate the guessing as much as possible and craft scenarios that take into account the joint effect of the many factors in your environment. Research, both primary and secondary, is the best way to get at this. It is important to recognize, however, that hard data will not be available for all the relevant factors in the environment, and the scenarios should take into account important “soft” variables as well.
Appropriate breadth. It is important to engage all relevant stakeholders in this process. A church should take into account not only members’ needs and expectations, but also linkages to the broader community. The key is to cast a wide net when crafting scenarios.
Actionable. Scenarios can be used passively to simply describe the anticipated environment or used more actively by recognizing that the organization is not powerless in the environment (it is, after all, part of the relevant environment). In the more active use of scenarios, they drive strategies to influence the environment, not just accept it as “a given” with which the organization must cope.
Trackable metrics. Metrics answer the question of how you will monitor the environment over time to determine which of several scenarios is playing out in reality. For each metric you need to clearly define it and then determine the basis for tracking it.
Successful scenario analysis is all about building stories. Ultimately one looks to spin stories that describe plausible future states. Once the research has been completed it is a fairly straightforward process to weave together the interaction of various factors in the environment to construct the story lines. The biggest challenge in the process of weaving together the scenarios is to incorporate behavioral factors that the research does not adequately cover.
Countervailing forces analysis
One of the challenges in developing truly useful scenarios is appropriately taking into account key factors for which sound data is not available. Being data driven as much as possible is important, but often reliable data is not available for certain critical factors that must be considered.
Countervailing forces analysis is a way of taking into account “soft” variables such as likely shifts in societal values, potential public relations impacts of certain trends, political trends, and other behavioral influences that can substantially shift a trend line. It is by its nature more speculative than data-based forecasting, so it is important that countervailing forces methodology be specific and as reality based as possible, and be used in combination with more data-based trend identification.
Who will be affected? — Ask who will be most affected by a trend and include both direct and indirect stakeholders. For a church, direct stakeholders include members, participating non-members, church governing bodies, clergy and church staff. Indirect stakeholders are those affected by or sensitive to the direct stakeholders. These can include the media, community groups (including other churches), non-governmental organizations, the public at large, etc.
How will stakeholders be affected? — Starting with the direct stakeholders, ask how they will be affected by a trend that has been identified. This is, of course, speculative since it involves anticipating human behavior. However, applying the “why” test can help reality test the possible alternatives that are identified. For each potential stakeholder response, ask the question “why” and in response to the answer ask “why” again. Two to three iterations of the “why technique” generally gets the analysis down to some fundamentals that either make sense or don’t.
For each of the direct stakeholder responses that are plausible, then ask whether there are indirect stakeholders that will likely be drawn into the response. Will the direct stakeholder response be strong enough to attract attention among indirect stakeholder groups, and will the indirect stakeholders tend to be supportive or resistant to the direct stakeholders’ responses?
Incorporating countervailing forces into the scenarios. — Once both direct and indirect stakeholder likely responses are identified, look at them and ask whether they collectively constitute a significant force to potentially change the direction or intensity of a key trend. Countervailing forces that are identified as potentially significant can then be incorporated into the alternative plausible scenarios as key factors to be monitored over time to determine which direction the environment is actually tracking
Many organizations and institutions talk about when their specific environment and/or the broader society and economy will “get back to normal.” Back to normal no longer exists; the new paradigm is pervasive uncertainty. Scenario analysis is a great tool to assist organizations in navigating through these uncharted seas. Done properly it can be a very powerful planning tool.
Bruce E. Balfe is a principal and Barton G. Tretheway, CAE, is managing partner of Bostrom Consulting Associates in Chicago, IL. www.bostrom.com
Avoid these pitfalls for successful scenario analysis
Treating scenarios as simple forecasts — Forecasts are too often just extrapolated trends that are internally derived and driven — they are usually a specific prediction. Scenarios generally address shifts in the environment and as such are more externally derived. Scenarios are not about predicting the future, but rather offering multiple distinct plausible outcomes.
Straw Man Trap — Often, scenario analysis does not generate equally plausible scenarios but instead develops one plausible scenario and two or more “straw man” scenarios that simply serve to make the first one seem more plausible. This does not create a useful tool for planning or future environmental monitoring.
The Pendulum Trap — Anticipating a shift in trajectory should avoid the traditional “pendulum premise.” One often hears of “the pendulum swinging back” in discussing trends. This can be limiting and misleading because pendulums swing on a predictable trajectory and, as clergy well know, human behavior almost never moves that way. A stakeholder response strong enough to shift the trajectory of a trend is unlikely to send it back in exactly the direction from which it came. The “why” technique can be useful in reality testing the different alternative trajectories of a trend shift.
Ignoring relevant factors — Scenarios sometimes fail to focus on areas of potential real impact. It is easy to focus on trends for which data is available rather than the ones that really matter. This can be a result of faulty research analysis or simply not interpreting the research correctly.
- Identify multiple relevant factors active in the environment, and for each major factor identify direction, intensity, pace of likely change, and the key players.
- Construct several scenarios around factors that are as equally plausible as possible.
- Identify desirable scenario(s) and develop strategies and action plans to influence outcomes.
- Identify indicators to use in tracking which scenarios are actually emerging over time and adjust strategies accordingly.