Scenarios

Many projects include the use of scenarios, and it’s often quite difficult to depict them graphically. Here is a good way to summarize at a high level four different scenarios, based on two key uncertainties.

Of course, the first task is to clearly define the uncertainties and driving forces. The framework is in some ways a good forcing mechanism to make sure that you really do pick uncertainties that are independent of each other. Shell is credited with being one of the first firms to use scenario planning extensively. So let’s use some oil industry examples: Some factors that affect the future are under a firm’s control: Do we want to focus on upstream or downstream operations or both? Do we want to be an industry leader by making acquisition, or a focused mid size player? Other factors can be forecasted with a certain degree of accuracy: What will GDP growth and oil consumption look like in China over the next ten years? But other factors are truly uncertain and present clear either-or outcomes: Will there be political turmoil or stability in key Middle East markets? Those are the critical driving forces and uncertainties to include in scenario planning.

Once you have identified the two most relevant uncertainties and driving forces, fill out the key scenarios in each quadrant. As an additional chart, you may want to add an overview in table format, listing the four scenarios at left, and then a number of columns describing them in more detail: Opportunities, threats, strategic implications, etc.