Scenario Planning and Traditional Forecasting

 It is important to understand what each of these methods means before explaining the differences between scenario planning and forecasting. Furthermore, their significance in our world of innovation and technology is ever-changing. Likewise, the advantages and disadvantages of each. There has been a rapid change and intertwinement of uncertainty and chaos in the dynamic and energetic world within the past few years. It is nearly impossible to predict what the future will be like from the present. Businesses in aggressively competitive environments realize that identifying potential changes and being ready for them is very important. A scenario planning approach in business provides a better alternative to traditional forecasting, which can no longer respond adequately to gradual and sudden changes (Seeman, S. (2002).     

What is traditional forecasting? 

In traditional forecasting, the outcome of an event or future state is predicted without having seen it. In healthcare, weather, economics, business, education, and many other areas, it creates a framework and processes for vision. Thus, according to Wade, W. (2014), in traditional forecasting, the organization analyses where they are today and predicts where they will be in the future. In six months, a year, or even five years, stakeholders predict where the origination will be using mathematical formulas. Most of the time, these variations are accompanied by pluses and minuses. This allows the best- and worst-case scenarios to be shown. It is easy to understand the traditional forecasting method. This limitation prevents disruptions from being incorporated into the scenario. Additionally, it does not offer the same level of flexibility as scenario planning, leading to a false sense of security. Predicting how much revenue an organization will earn in the future.

What is scenario planning?

Wade, W. (2014) state that Scenario planning is a concept that involves examining potentials and plausibility to make flexible long-term plans that overcome conventional forecasting limitations. In essence, scenario thinking, or scenario analysis is an adaptation and generalization of classical military intelligence methods. If hypotheses indicate a range of future outcomes, then scenarios help organizations make better decisions today. By using a scenario planning method that is not a prediction method, organizations can manage uncertainty and risk and seize market opportunities. Strategic decisions will be developed and tested under multiple plausible futures through scenario planning. The goal of scenario planning is to help organizations recognize, adapt, and advance with industry changes as they evolve over time.

Comparison and contrast between scenario planning and traditional forecasting

It's important to note that while scenario planning and traditional forecasting both addresses, prepare for, and project the future business of an organization, they have significant differences:

Prediction versus projection

The goal of traditional forecasting is to predict what will happen in the future. As an example, current forecasting may focus on predicting change in two dimensions such as a mathematic plane, whereas scenario planning plans for change in three dimensions such as a space funnel rather than predicting. Multiple alternative futures can be provided, for instance, along with the official future.

Techniques

Ql techniques including time series, exponential smoothing regression, etc. are used in conventional forecasting, as are Qn techniques such as experiments, empirical data, curve fitting models, and many others. The 2x2 matrix with four quadrants is used by scenario planners in order to uncover possible future environments as well as understand how today's strategic decisions will affect the organization in the future.

Outcome

There is a tendency in traditional forecasting methods to be somewhat rigid, and almost always fail to predict significant changes in market conditions, especially today's highly dynamic market conditions. A scenario planning methodology, on the other hand, provides flexibility, enables exploration, and allows policy research to be conducted before policies are implemented. Pre-policy research allows concrete options for strategic decision making, while exploration encourages supervised learning and creative thinking (Wade, W. 2014). Organizations that use scenario planning are more likely to succeed in business as they manage uncertainty and risks effectively and seize market opportunities appropriately (Seeman, S. (2002)     


Advantages and disadvantages

The following are some advantages and disadvantages of scenario planning and traditional forecasting:     a. Traditional forecasting method

• The classic forecasting approach has a mathematical and scientific advantage. Using the output prediction, there is no need for humans to be involved in the forecasting process.

• In a gradual or sudden environment, the technique has the disadvantage of being rigid and of not being flexible. Forecasting has a high failure rate when using traditional methods.     

b. Scenario planning method

   There are several advantages to scenario planning:

• Flexibility, plausibility, and logic are among the advantages of scenario planning.

• In order to make sense of conflicting or ambiguous market signals, it is useful to form an organizational framework that consists of scenarios (Ogilvy, 2015).

• Scenario planning produces high-quality outcomes.

The disadvantages of the scenario planning are:

• For employees with working habits concerned with controllable factors, future uncertainties may pose a high level of stress.

• There is a balance between art skill and scientific tool in a method, although an art skill is needed more than a scientific tool.

The traditional planning method is used by most organizations when examining both types of planning. Wade (2014) describes it as providing the ability to predict profits and make business decisions based on those profits.  The advantage of scenario planning is that it enables the organization to be flexible when making predictions. The organization must allow for mistakes while maintaining its innovative focus.

REFERENCES

KaufmanHall (2016). Scenario planning. Retrieved May 2, 2016 from http://www.axiomepm.com/solutions/core/budgeting/scenario-planning?gclid=CjwKEAjw9Zu5BRCS_OuVibujhQ0SJAD7t4KrtylNeDnd_IB5syWMOeRBDl2QziIjc99IxeUyEQWyqRoCUt3w_wcB


Ogilvy, J. (2015). Scenario planning and strategic forecasting. Retrieved May 2, 2016, from http://www.forbes.com/sites/stratfor/2015/01/08/scenario-planning-and-strategic-forecasting/#661a1e006b7b


Seeman, S. (2002). Traditional forecast techniques. Retrieved May 2, 2016, from http://speedy.meteor.wisc.edu/~swetzel/winter/methods.html


Wade, W. (2014). "Scenario Planning" - thinking differently about future. Retrieved May 1, 2016, from http://e.globis.jp/article/000363.html


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