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Financial insecurity, the unpredictability of regional and global situations, environmental threats, and advancements in technology have caught organizations off guard.  Consequently, many leaders have ended up turning to Scenario Planning to generate potential possible scenarios, in contrast to planning and devising strategy for a single possible circumstance.

Scenarios include plausible, yet unforeseeable situations and challenges.  They encompass various permutations of facts and anticipated social changes. In Scenario Planning, teams of subject matter experts with differing perspectives on possible future outcomes create potential scenarios.

During the 1960s and 1970s, Scenario Planning grew in popularity as a Strategic Planning tool.   It is, today, employed across industries to develop effective, long-standing Strategic Plans. The conventional approach to Scenario Planning permits analysts to generate simulations that senior management can utilize to make essential decisions. The method correlates data (such as political, geographical, and demographic) with trends to identify key drivers, such as financial, environmental, social, and technical facets impacting the organization.

By preparing in advance for anticipated scenarios, organizations can prevent vulnerabilities or mitigate their negative effects more effectively than if they had to deal with actual problems during an emergency. The 1973's oil crisis prompted Royal Dutch/Initial Shell to initiate Scenario Planning. The technique entails identifying factors that interact in multiple ways to produce unanticipated outcomes. It takes into account factors such as new regulations, technology innovation, forward-looking perspectives, and values. The combination of Scenario Planning and Systems Thinking leads to the development of logical scenarios.

Since the late 1960s, a number of types of Scenario Planning have surfaced.  The most widely used are:

• Probabilistic Perspective — Predictions are made in percentage terms or as best- and worst-case scenarios.
• Normative Perspective—Entails imagining how the future is likely to unfold.
• Plausibility Perspective—Recognizes the unpredictability of uncertainty and investigates the sources of turbulence and ambiguity.

The Oxford Approach to Scenario Planning is increasingly utilized on a global scale to examine a variety of scenarios. The technique focuses on two levels:

• Immediate Business Environment: Comprises a business's suppliers, customers, competitors, partners, and other stakeholders.
• External Environment: Encompasses elements beyond the organization's direct control.

Organizations use the Oxford Scenario Planning Approach in a variety of ways to analyze different situations. The Oxford Approach focuses on perceiving and creating practical, rational, and thought-provoking scenarios rather than assigning probabilities to them. Each scenario in the Oxford Approach is a description of potential variations in the organization's external and internal environment, regulations, and trends.

The Oxford Approach to Scenario Planning exhibits 5 key characteristics:

1. Scenario Planning should clearly address the constituents of organizational strategic framework.
2. A minimum number of potential realistic scenarios should be suggested.
3. Scenario Planning counts on redrafting frames and perceptions.
4. The Scenario Planning initiative calls for dedicated resources.
5. Scenario Planning is aimed at assessing various subtle signals.

Now, let's delve deeper into a few of the defining characteristics.

1. Scenario Planning should clearly address the constituents of organizational strategic framework.

In Scenario Planning, the framework around which the organization's strategy is devised is more important than the strategy itself. This framework includes the underlying assumptions that define the strategy's composition, such as the time period under consideration. Other essential components of the framework pertain to the Scenario Planning process itself, including:

• Should the process be cooperative or competitive?
• Should it be a one-off undertaking performed during the annual planning cycle?
• Should the strategy be openly disclosed to all the ranks and files of the organization or kept confidential?

2. A minimum number of potential realistic scenarios should be suggested.

The number of plausible potential scenarios developed using the Oxford Approach to Scenario Planning should be kept to a minimum—ideally not more than 3.

Interested in learning more about the Oxford Approach to Scenario Planning's other characteristics? You can download an editable PowerPoint on Oxford Scenario Planning Approach here on the Flevy documents marketplace.

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