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Academic Reflection: The Difference between Forecasting and Scenarios

Forecasting

Forecasting is the method that was used in the history to predict the future. Depending on what is already known about the present, a model in the future is being forecast by the use of standard methods.
Forecasting results in only one possible future; management will then take that future model in consideration, when making strategic decisions.

Scenario thinking

While forecasting is planning for only one future, scenarios are about planning for any future. Scenarios are possible maps, alternative descriptions of the future.
Nowadays scenarios are used more often than forecasting. Scenarios are most useful when the external factors influencing the strategic planning are complex, dynamic and uncertain.

Differences between forecasting and scenario-thinking

External factors: Industrial Age vs. Information Age

In the 1960-1970 the world was in the industrial age; back then people used a forecast to base their strategic planning upon. Back then that was a good approach because back then the future was more certain; not completely certain, but more certain than nowadays. And based on those certainties a possible feature – forecast – would be developed using standard methods. Starting in the 1980-1990, the world changed into an information age. Everything was developing much faster, the future became more and more uncertain; as it was depending on much more factors now (ex. as a result of globalization). The future is now a moving target. People were also planning more for a long term, using assumptions (because no-body can predict the future. Based on those assumptions, different scenarios developed.

Scenario-thinking overcomes biases

If there is only one possible future, as is the case with forecasting, the human mind will be tempted to develop this forecast according to their own biases. With the use of scenarios, we will be more open-minded and think outside the box. Take for example the gorilla-basketball video we saw during the first class on ICT Planning; we were concentrating on how many times the white team passes the ball, that we did not even see that a black gorilla came on screen. This is the same with forecasting, the management will be so much focused on the forecast, that he will oversee other factors that may influence his planning.

Solving Uncertainty vs. Revealing Uncertainty

“Solving uncertainty: Researching, forecasting, predicting, system analysis, aligning constituents.”[1]
“Revealing Uncertainty: Dialoging, conversing, learning, imagining, finding unique perspectives”[1]
We can see that forecasting is more about solving the uncertainties and scenarios are more about revealing the uncertainties. Because the world has become more dynamic now, it is impossible to solve all uncertainties about the future, which is why scenarios are becoming more and more popular now; scenarios are based on uncertainties about the future. By revealing uncertainties scenarios allow companies to experiment (with different scenarios) rather than putting much effort, time and money in one bet (with single forecast) – bet, because we do not know for sure yet if that will be the future.

Cultural reluctance to use scenarios

Scenarios are not and end-product. If the scenarios are developed, they must be used in the strategic planning process. A lot if times scenarios failed because of the wrong usage in the strategic planning process, rather than being the wrong scenarios.
Partly, this is an administrative heritage problem. Companies are used to work with forecasting, they are used to work towards one possible future and managers are supposed to know where they are, to know where they are going. But with the use of scenarios, there are more than one possible future, which makes it more difficult to plan a good strategy, and now managers are must take into consideration different future possibilities, thus they do not know where they are going.

Differences in usage of scenarios and forecast for strategic planning

With forecast, we develop only one strategy to meet that forecast and stick to that strategy.
With scenarios it is much more difficult, we cannot develop strategies for all different scenarios and than when we are moving towards the future, find out which strategy is more useful at that time; because it is in-efficient. Neither can we assign probabilities to the different scenarios and then only develop a strategy for the scenario with the most certainty. Because the whole meaning of the scenarios is to deal with uncertainty and if we develop one strategy based on only one scenario, we are not dealing with uncertainty. Using scenarios to determine strategic planning decisions requires skill and sophistication. This takes time to acquire, which is why in the beginning organizations can use step-by-step methods to work with scenarios. But when they have more and more experience, it will become a more and more intuitive process that is based on intelligent discussions.
There are several ways to use scenarios in the strategic planning process; those ways are obviously more difficult than the usage of forecast. But the usage of scenarios will provide the management with more choices, more feasibility, and will finally more plausible.

References

[1]"Planning for the future of uncertainty: Scenriothinking"; presentation by Doug Randell, Global Business Network [2]"Introduction to Scenarios"; Arden Brumeel, GBN Canada [3]"Strategic Thinking in the Information Age and the Art of Scenario Designing";Ivan Klinec, Institute for Forecasting ,Slovak Academy of Sciences