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What Happens Next -- Shell Oil's Use of Scenario
Planning
You’ll recognize the familiar
way to tell an optimist from a pessimist. Give each a glass of water
filled to the halfway point and ask them to describe it. The optimist
says the glass is ‘half full’, the pessimist says it’s ‘half empty’.
From this you can extrapolate their answers to the question: “What
happens next?”
Trying to determine what’s going to happen is something we have to do in
business. Given the same set of circumstances the optimist will conclude
that things will improve whereas the pessimist might say things will get
worse. Both perspectives assume that a previous trend will continue.
Looking backwards is how we usually begin to create a forecast of what’s
going to happen next, telling ourselves that the past is a guide to the
future. Unfortunately the future can differ greatly from our imaginings
and for businesses the differences can be costly.
A valuable tool for equipping business planners to cope with the
potentially expensive unknowns lurking in our futures is called scenario
planning. Instead of just projecting the past into the future it uses a
scenario-based process to create possible future events that will affect
our businesses, thereby giving us a chance to prepare for them.
Although storytelling is our earliest form of scenario creation, the
origins of scenario planning in business are said to go back to the
1980s when Royal Dutch Shell created a scenario based on a seemingly
impossible ‘what if?’ – What if oil prices were to drop by 50%? Because
they worked through this question they were prepared for it when it
actually happened in 1986.
Shell is still a strong advocate of using scenarios to plan for the
future. The Shell.com website says:
“Scenarios are carefully crafted stories about the future embodying a
wide variety of ideas and integrating them in a way that is communicable
and useful. Scenarios help us link the uncertainties we hold about the
future to the decisions we must make today.”
The objective of scenario planning is to create a number of diverging
outcomes by extrapolating from the forces that drive them. This is done
using the collective power of a group of interested people.
An example of how the scenario planning process can work is:
1. It begins with a comprehensive group discussion about what its
members feel are major developments about to happen in areas such as
technology, society, economics and politics.
2. The group then evaluates these developments and prioritizes them –
which are the most likely to happen first?
3. Outlines of possible futures based on these priorities are created.
These are the scenarios on which the later planning will be made.
4. The group then works through how each of these possible futures will
impact on the business.
5. Identifiers are created so that the arrival of each possible ‘future’
will be recognized and the appropriate response can be applied.
6. It is now possible to create strategies to deal with each of these
scenarios – in other words, to plan for them.
Scenario planning is definitely a broad process, not limited by what has
happened in the past. The participants should ideally possess a wide
knowledge of topics relevant to the process and not be too highly
specialized in one field.
Because each scenario is explored even the ones most unlikely to happen
are considered and available for strategic creation. An awareness of
forthcoming changes is created, whether they are likely to happen or
not.
Scenarios are useful planning tools because the future is unpredictable.
Unlike more familiar ‘scientific’ means of forecasting such as market
research, scenarios are largely the products of imagination. The
objective is not to forecast precisely what will happen. It’s to say
what might happen and create a response based on that.
Big corporations like Shell incorporate possible shifts in global forces
in their scenario planning, but the process can work just as well for a
small business. The shifts are more local in nature and the group doing
the planning will be smaller, but the future will be just as unknown and
the need for planning will always be just as important.
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