Scenario analysis

We talk about scenario analysis, or scenario mapping, especially in our series of articles S&T Happens: Surviving and Thriving in a VUCA World.

Let’s describe our understanding of scenarios.

Teal Unicorns at work

This page is a work in progress

Note that “scenario” is ambiguous.  It is also used to refer to customer persona journeys in user interface design.  We don’t mean that.  We mean future business scenarios.

Scenarios are what might happen, not trying to predict what will happen. Tell stories. Imagine a time traveller from the future. 

Use your strategic radar to identify incoming influences.

Do a PESTLEE analysis (Political, Economic, Social, Technological, Legal, Environmental, Ethical).

Use other tools to generate scenarios, to stimulate ideas.  E.g. look for these types of scenarios[1]

1. 1. Evolution: all trends continue as expected. Things gently move toward a predictable end point.
   2. Revolution: a new, disruptive, factor fundamentally changes the situation.
   3. Cycles: what goes around comes around. Boom follows bust follows boom follows bust.
   4. Infinite Expansion: exciting trends continue. Think of the computer industry in the 1950s. 
   5. Lone Ranger: the triumph of the lone hero against the forces of inertia.
   6. My Generation: changes in culture and demographics affect the situation.
   7. The Infinite Game: change the rules to benefit all stakeholders.
   8. The Null Hypothesis: nothing changes in the world
   9. Option Zero: we do nothing, just coast.
   10. The Ghost Scenario

       Our prevailing narrative, whatever it is, frames the situation for us. This is sometimes called the “ghost scenario.” If scenarios are stories about the future, the ghost scenario is the assumed future in which the existing strategy would be successful; but it’s only one of many possible futures. There is always then at least one ghost scenario, replete with its underlying—and typically unaccounted for—assumptions.

       – Charles Lambdin

   11. The Black Swan
   12. Total catastrophe

   

   © Copyright Calvin and Hobbes, extract as fair use

2.  

   Diverge then converge. First we generate as many scenarios as we can, then we focus on the most important. We will have a set of scenarios from the last time we did this, because we will do it regularly. Put them aside for now, and imagine afresh. Starting with a prior list stifles thinking.

    

   Ensure a diverse group is thinking about it. Make it management-light (or at least proportionate to their overall numbers). If conventional people are startled by those participating, you’ve got it about right. Interns. The Board. The oldest staff. Vocal critics. From other business divisions. Suppliers. Ex-employees. Industry analysts. Competitors. The gardening staff.  Someone’s kids.

    

   We use OpenSpace and other workshop techniques: Future Backwards, pre-mortems, role plays, hypotheticals, red teams, ….  try to identify as many scenarios as possible

   Only then, check against our previous list and decide which ones to carry over, which ones we missed this time, and which ones are no longer possible. (note, not which ones are no longer likely.  We consider all scenarios.)

   Unpack the scenarios with many tools: likelihood/impact, framing, Wardley Maps, Impact-Uncertainty Matrix, Four Quadrant Scenario Grid, Trigger Tracking Map…

   upboard.io/scenario-planning-digital-online-tools-…

   charleslambdin.wordpress.com/2020/04/07/strategy-a… 

   Reject certainty, surface uncertainties, look for cognitive biases, and identify assumptions.

   Unravel multiple factors. People tend to think a conjunction of factors is more likely than individually [2]. Peel them apart and consider the separate scenarios.

    

   Once we have generated scenarios, rank their priority for our attention, probably by an index based on both likelihood (probability, plausibility) and impact (risk: ethical, financial, operational, reputational, compliance/legal). This ranking guides us in which scenarios to invest more time and effort considering.  But we should still consider them all.

    

   Looking at the suite of scenarios, conduct more exercises to identify as many of our future options as possible for responding to scenarios.  They’re not one-option-for-one-scenario.  Map out the many-to-many relationship between scenarios and the potential options to respond to them. Options are similar to contingency plans, though broader. Contingency implies a crisis, which is only one kind of scenario. Options are planned – or a better word is considered – responses to all sorts of scenarios, good and bad. 

    

   We want to build a set of options like a hand of cards, which we can play when the opportunity presents itself, usually in response to one of our scenarios coming true, or something like it.

    

   Options attempt to influence, avoid, prepare for, and/or exploit scenarios. We can test the completeness of our options for each scenario by checking each of these categories.

    

   Rank the options by priority for our attention. E.g. value the options.  

   Real Options is much in vogue instead of discounted cash flows, but a hybrid is better hbr.org/2004/12/making-real-options-really-work 

   (Real Options are alternatives or choices that may be available for the business when appraising work items. When a decision maker has the right (but no obligation) to take a specific action, we say the option exists. www.kanbanmaturitymodel.com/2020/09/01/real-option…)

    

   The resulting ranked lists of scenarios and options, and the mapping between them, is our scenario map.

   Visualise it in multiple ways. Put the smart kids on this.  E.g. 

   • bubble charts for multidimensional views of the scenario portfolio.
   • causal analysis: herringbone charts, causal state/loop diagrams for each scenario (and how they may be inter-related)
   • strategic radar or timeline
   • relationship maps of which options relate to which scenarios
   • Wardley Maps
   • overlaid on other models e.g. Cynefin

    

   The final step is to draw up a list of actions we can take now to start preparing for each and every option, and add these to our backlog(s) for prioritisation with other work. E.g.

   • Research
   • Reduce risks
   • Build resilience
   • Stockpile
   • Prepare to exploit

    

    

   [1] Some come from “The Art of the Long View” by Peter Schwartz. © 1991 Peter Schwartz.
   [2]Scenario Planning: A Tool for Strategic Thinking, Paul J.H. Schoemaker sloanreview.mit.edu/article/scenario-planning-a-to…