Today I would like to explore the similarities and differences between scenario planning and traditional forecasting. We will begin by first defining both scenario planning and traditional forecasting, then look at comparing the two.
Scenario planning is the idea of exploring a decision that could have multiple outcomes and examining the different outcomes at the same time (Ogilvy, 2015). Of all the different outcome possibilities, Ogilvy (2015) says it is best to select two to five different possible outcomes to examine at the same time, with an optimal number being four. One important key is that each organization will need to develop their own set of scenarios that fit the circumstances they are dealing with (Ogilvy, 2015).
As an example, a company may want to examine the different outcomes if they acquired a competitor. Outcomes could range from taking over the market to future cash flow issues due to the acquisition. A committee is convened to explore the possibilities and determine which outcomes should be explored in-depth (Ogilvy, 2015). The exploration of the various outcomes can take time, which is why scenario planning is used for long term planning (Ogilvy, 2015).
Traditional forecasting is utilizing historical information such as sales reports to project what the future will hold (Performance Canvas, 2018). Traditional forecasting would be ideal for a world that has little to no change; unfortunately, we do not live in that world (Wade, 2012). Normally, traditional forecasting is used for year-to-year projections and is not good for long term planning in the real world (Performance Canvas, 2018). One of the downfalls of using traditional forecasting is that it relies on historical information and can have a rigid workflow (Performance Canvas, 2018).
For an example of traditional forecasting, a manufacturing company may need to know how much raw-material to order for the next few weeks. The company could look back at recent orders to gain an understanding of how many units they may want to produce and calculate how much raw-material they need. As stated above, this type of forecasting would be great in a consistent world with little to no changes (Wade, 2012).
Compare & Contrast
From the two overviews above, you can see these are radically different approaches to predicting and planning for the future. On the one hand, you have traditional forecasting that works well when your business does not change. However, in today’s market, all companies need to be flexible and open to change. On the other hand, we have scenario planning, which is ideal for long-term planning, but the process would take too long to be useful for short-term decisions.
Ideally, you would employ a mix of both in your company. Using traditional forecasting to make short-term decisions, such as how much stock to order for the next few weeks, and scenario planning to help drive your company for the next ten years. Much like everything else in life, planning is a balancing act, and there is no right or wrong answer that fits everyone.
Ogilvy, J. (2015). Scenario Planning and Strategic Forecasting. Retrieved from: https://www.forbes.com/sites/stratfor/2015/01/08/scenario-planning-and-strategic-forecasting/#1d604f73411a
Performance Canvas (2018). Live forecasting vs traditional forecasting vs rolling forecasting. Retrieved from https://www.performancecanvas.com/live-forecasting-vs-traditional-forecasting-vs-rolling-forecasting/
Wade, W. (2012). Scenario Planning. Retrieved from vbk://9781118237410