Scenario Planning at The Mandarin: Prediction vs. Plausibility

My December 2019 article in Australia’s publication for public sector leaders, The Mandarin, is available here on my site and can be republished freely.

Here’s the full text of “We Can’t Predict the Future, but Scenario Planning Can Identify What It Might Look Like“:

File:Parliament House Canberra NS.jpg
Australia’s Federal Parliament house, by Wikipedia user JJ Harrison – (CC BY-SA 3.0)

What would it mean to prepare for a future that you didn’t see coming?

Whether it’s the Brexit vote, Trump’s presidency, the global financial crisis, or the changing climate, we increasingly face what some foresight experts call “TUNA” conditions, characterised by turbulence, uncertainty, novelty, and ambiguity. In such circumstances, old models of the future lose predictive power, and our expectations are thwarted.

Scenario planning is a foresight methodology that seeks not to predict the future but to usefully challenge our assumptions about what’s coming next. The pioneering scenario planner Pierre Wack was among the figures who developed the approach in the mid-20th century and gave it credibility through successful strategic counsel at the oil firm Royal Dutch Shell.

For Wack, scenario planning supplemented traditional forecasting by challenging users to reframe their vision of the context in which they might be operating. This process helped to identify major changes and shifts that would render existing models of the future invalid.

Shell’s scenarios became famous in the 1970s when the company successfully anticipated the oil crisis that followed the Yom Kippur War. Wack and his colleagues hadn’t predicted the conflict, but had imagined scenarios where oil producers worked as a cartel to control the global supply. When OPEC did start an oil embargo, scenario planning meant Shell had already thought through this possibility ahead of its competitors.

One of the organisations that employs the approach in today’s public sector is the OECD. Their strategic foresight analyst and facilitator Joshua Polchar says, “There are more ways to look at what’s coming than just prediction. Reflecting on the recent past, on unexpected election outcomes, or confident economic forecasts that have not come to pass, we ask: ‘Is it enough to only focus on what’s probable?’”

Plausibility versus prediction

In Australia, Stefan Hajkowicz leads strategic foresight for Data 61, the data science arm of CSIRO. Their futures work ranges across topics from the digital economy and digitalised public services to sectors including transport, agriculture, and renewable energy.

Hajkowicz’s early career was spent advising governments on ensuring that their environmental expenditure delivered value for money. Computational models helped to answer questions of resource management, but increasingly he came to see that the fuzzier, more qualitative question of how decisions were defined was more important than the numbers fed into any given model.

“Both reason and intuition have a part to play,” he explains, “and the best decisions combine both — although no model is 100% perfect. If we can gain the ability to look ahead 20 years, and bring the future forward to now, we can make better informed choices.”

Joshua Polchar acknowledges that this intuitive aspect can cause discomfort:

“Foresight teams can sometimes seem like crystal ball gazers, practising esoteric methods; and people sometimes confuse foresight with probability, prediction, and forecasting.”

The criterion for good scenario work is plausibility rather than prediction. Scenarios are considered for whether they challenge our assumptions in a way that is useful for strategic choices, not whether they come to pass.

Yet the speculative quality of scenario work doesn’t mean it lacks an empirical base. For Wack, scenario planning was not about science fiction, but understanding the implications of events already occurring in the present. A scenario planner’s work is like looking at rain on a mountaintop today and knowing this could mean floods next week in the river below.

For Hajkowicz and his colleagues at Data 61, “History is our dataset for the future”. While scenarios are still built on evidence of potential emerging futures, they look ahead in a broad way that helps to identify strategic blindspots rather than take the risky course of betting on the one future that will actually transpire.

In Joshua Polchar’s words, “Do you expect to successfully find the signal which will come to pass, or should we look at a range of signals which represent the futures which might be most surprising and significant for you strategically?”

Megatrends and tales of the future

There are a range of methods associated with scenario planning, but most involve convening a group of stakeholders willing to challenge their understanding of what the future holds. Participants identify driving factors affecting the context in which they operate, and these factors are used to devise stories of the futures that would most test their assumptions. This process helps those involved to identify both risks and opportunities that might currently be untapped.

The driving factors that feed scenarios can be understood in terms of megatrends, as Hajkowicz explains:

“Megatrends come into being when multiple trends and drivers combine for a trajectory which builds gradually to profoundly transform our setting. We can be especially vulnerable to them when they haven’t been fully perceived or understood.”

Examples of megatrends include the ever wider use of increasingly ‘smart’ technologies, rapid global urbanisation, and changes in working life, such as the move to a gig economy.

Hajkowicz compares megatrends to an ocean rip, invisible yet powerful:

“The instinct is to fight against it, and there lies the danger. You have to relax, let yourself go with it, and then think about how to get where you wish to go. Surfers even use rips positively to take them out from the shore. Researchers at the University of New South Wales put purple dye in seawater to make rips visible — this is analogous to foresight work uncovering megatrends.”

When megatrends interact, they can play out very differently depending on human responses to these vast trajectories. Scenarios can locate stories at the intersection of megatrends and help us to imagine how these responses might evolve.

Polchar explains:

“I sometimes compare scenarios to instructional fables like the Tortoise and the Hare. These stories aren’t true, but you can still learn something from them.”

Storytelling fleshes out the diverse futures that might await, helping users to understand how it might feel to inhabit them and what choices other actors might make in those potential futures.

“On an issue like climate change,” Hajkowicz says, “the science might be well and truly settled, but the social and cultural aspects of our response to the issue are still uncertain — and depending on these choices, we’ll come to inhabit very different futures. Scenarios help us to think through these outcomes.”

Putting scenario planning into practice

“Public bodies around the world increasingly turn to tools and techniques that were once the province of military planners and big business.”

The disruptions of the early 21st century have encouraged more institutions to explore their strategic blindspots using scenario methods. The OECD convenes a global foresight community that gathers government foresight practitioners to explore questions of future uncertainty; public bodies around the world increasingly turn to tools and techniques that were once the province of military planners and big business.

The auditor-general of Finland, Tytti Yli-Viikari, has used scenario planning in the National Audit Office for both internal planning and as part of a performance audit toolkit. For her, the benefits of scenario work include “a more structured common understanding of key questions and considerations that the organisation faces, helping prioritise actions in view of longer-term developments and possible futures, inspiring co-workers to share their views and visualise their thinking.”

Yli-Viikari lauds the approach for enabling stakeholders to come together from across administrative silos for richer strategic thinking:

“Most strategic policy questions are multi-sectoral and complex. Therefore multiple perspectives and experiences can deepen the understanding of potential futures.”

Closer to home, Energy Consumers Australia has incorporated scenarios as part of their contribution to the national discussion about post-2025 energy sector designs.

CEO Rosemary Sinclair says:

“We know the energy system is undergoing fundamental transition, but our planning processes reflect the old, more stable world.”

“We think scenario planning gives us the opportunity to extend our thinking about how significant some of these changes could be and to fulfil consumers’ expectations that they be involved in these important policy decisions that frame our future energy system.”

Such publicly available scenario work can help stakeholders to mentally accommodate tough choices, thinking through the implications of different futures and developing a playbook of strategic options, but Stefan Hajkowicz notes that some scenario planning is better done privately. When scenario work raises unacceptable future conditions, there can be a bias against publishing futures which seem negative:

“There are always aspects which will trouble at least one stakeholder group. Policymakers may be challenged to bring foresight into a decision environment that could be politically charged; sometimes there will be good options on the table which simply can’t be taken politically. All this has to be taken into account when embarking on scenario work.”

Institutions interested in exploring the scenario methodology are advised to start off at a small scale, trying out the various tools with a group of people who have a good balance of curiosity, willingness to experiment, and critical thinking.

Hajkowicz suggests:

“Start by having a conversation with peers, colleagues, and stakeholders, building understanding of how they see the future, what will affect it, what decisions will need to be made. … You’re making a commitment to be better at anticipation, bringing issues forward from the future into the present to make better decisions.”

You can find the original article “We Can’t Predict the Future, but Scenario Planning Can Identify What It Might Look Like” at The Mandarin website.

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