Literature Review on "Scenario Planning"

Literature Review 16 pages (5072 words) Sources: 12

[EXCERPT] . . . .

Planning: A Literature Review

In Steven Covey's 7 Habits of Highly Effective People, habit #2 for success is to begin with the end in mind (Covey, 1989). Nothing epitomizes this habit more than the job of the strategic manager. The strategic manager must be able to visualize the end product of their efforts long before they are realized. Along this journey, there are many steps and many paths that can be taken. Each of these paths will produce a different end result. Scenario planning is a key step in the ability to visualize the effects of one's actions. This literature review will explore current theory and research on scenario planning.

The literature review explores research the importance and process of scenario planning. It examines key research obtained in academic journals that concerns scenario planning and its need in strategic management. It also explores turnaround management and factors that affect the ability to turn a bad business situation around. In most cases, the research explored is recent. However, in some cases older research was included if it is considered to be a piece that is pivotal to the theoretical foundations of the literature in this topic area.

What is Scenario Planning?

The first task to be undertaken is to define what it meant by the term "scenario planning." Scenario planning arises from traditional forecasting tools and methods. Businesses are affected by both internal and external factors. Internal factors are the easiest to predict from the standpoint of strategic management. The manager has their pulse on the company and has a vast array of tools available for this purpose. However, external factors can often take them by surprise.

External factors include downturns in the market, shifts in the market and other whims of customers. A good strategic manager always has their eye on competition and can factor this into the equation. However, sometimes competition might pull an unexpected surprise. In some industries, weather or natural disaster might play a role in business changes. Factors such as the weather and the human factor are difficult to predict and can render traditional forecasting methods ineffective. This was the key reason for the development of scenario planning.

Scenario planning began with military strategy studies. Scenario planning is about "thinking the unthinkable" (NetMBA, 2010). Scenario planning means considering as many possibilities as one can think of and deciding a plan, should they come to pass. This principle was later adapted into business and led to the development of many different theories and processes for conducting scenario planning. Many think that scenario planning is about predicting the future, as its association with "forecasting" would make one suspect. Scenario planning is about considering the possibilities that might lie in the future and making contingencies.

Scenario planning allows the business to act, rather than react to situations. The result of scenario planning is the formulation of a set of distinct future possibilities, each of which has a different effect on the company. Scenario planning often takes place with a brainstorming session among high-level executives in the company. It is seldom the realm of a single person. Scenario planning forces management to break out of their standard views and opinions (NetMBA, 2010). Scenario planning forces them to consider not what is, what has been in the past, but what could be in the future. They must be able to open their minds and to explore the sources of conflict. They must be able to recognize the elements that will signal the beginning of an event so that they can put their contingencies in place. They cannot wait until it has already happened. These are the key elements of effective scenario planning (NetMBA, 2010)

Scenario planning involves the identification of variables and a set of outcomes based on those variables. Several important factors are important to the scenario planning process. According to NetMBA, they are:

1. Determine the scope of planning and its time frame.

2. Develop a clear understanding of what will serve as a common departure point for each of the scenarios.

3. Identify the elements that are likely to occur and what the driving forces for each scenario are.

4. Identify environmental factors and uncertainties that will effect each scenario. Sometimes, this scope might be wide and involve macro-environmental factors, such as the economy or long-term climate predictions.

5. Prioritize the drivers of a scenario and determine which are more likely to affect the outcome.

6. Determine a set of values for each variables that range from extreme to slight. Improbable values are typically avoided.

7. Develop a matrix that allows for the analysis of the interaction between certain variables.

8. The level of detail need not be great, it must only reflect a general ideal. NetMBA suggests writing a more detailed story that will develop the scenario further. However, it might be note that generalizations in the scenario are more predictable than specifics. The event might happen, but it might not happen in the manner that was predicted.

9. The final step is to quantify the effect of the scenario on the organization and to devise strategies accordingly.

Business unit managers often do not take scenario planning seriously, but tend to stick with mainstream views. According to NetMBA, they tend to rely on traditional forecasting methods, rather than "possibilities." Scenario planners can overcome this by developing a scenario based on mainstream thinking and the costs and benefits of such an attitude. Any possibility, including the norm, can be developed into a scenario.

The transportation industry is one area of business that uses scenario planning on a regular basis. As a result the Federal Highway Administration has developed a scenario planning guidebook to help administrators follow effective and current methods for scenario planning. This guide serves as an excellent source for exploring current methodology in scenario planning that can be applied to a number of business situations.

According to the guidebook, effective scenario planning can be divided into six specific steps. The first is to determine the specific goals for scenario planning and to develop a set of analysis tools that are within the capabilities and scope of the organization. Determining the goals of the exercise is the most important step to achieving the desired end-result. The second step is to determine what the current situation is, where they are, and what resources they have available. In the third phase, they must determine who they are and where they want to go.

In Phase 4, they must determine what the future could look like. This is where they have to get creative and list the factors that could affect the various future possibilities. They need to then analyze what effects these future possibilities will have on their operations. Phase 5 involves analyzing the various effects of the future possibilities. The final phase involves determining how the agency or business will react to each scenario, should it come to pass

(U.S. Department of Transportation, 2010). The guidebook applied these principles to the transportation industry, but these six steps can be applied to any scenario planning process. Now that we understand what scenario planning is and have a basic overview of how to do it, let us now examine what academic literature has to say about scenario planning and the scenario planning process.

Why Do it?

Scenario planning is now considered by some to be an alternative management tool. Recently, it has been given a new meaning in terms of strategic planning. We live in a turbulent world where traditional forecasting methods often fail. The ability to react properly in turbulent times does not involve the rationality of the strategic planner as much as it involves the complexity of the business environment. Strategic planners have the difficult task of achieving predictability in an unpredictable world. Scenario planning is gaining popularity as a way to achieve this task.

A recent study that involved the future of a small travel business in Malaysia. Three possible scenarios developed that were classified as stormy weather, blizzards and an occasional shower. According to the authors the recommendations that developed from scenario planning were differentiation, new services, and differentiation/mergers and acquisitions (Sevaguru & Samaun, 2009). The study found that all of these options were available for all of the scenarios that were analyzed.

The problem with this type of study is that is a single case study evaluation. The usefulness of this study is lies in the ability to demonstrate how to apply the principles of scenario planning to a certain case or business setting. However, single case study analyses are limited to scenarios that are similar to those that were used in the case study. They might not be applicable in a different business setting. Another drawback to the study is that the results of the scenarios that are developed have not yet been proven. Researchers do not know which of the scenarios will hold true and if the contingencies developed will have the expected result. The future is uncertain and it is… READ MORE

How to Reference "Scenario Planning" Literature Review in a Bibliography

Related Literature Reviews:

Planning: USDA's Focus on Its Future Strategies Term Paper

Planning: USDA's focus on its future strategies

The concept of risk

Scenario 1:'no major future changes' in the external environment.

Scenario 2: 'negative future changes' in the external environment

Scenario… read more

Term Paper 12 pages (3023 words) Sources: 12 Topic: Management / Organizations

---

Planning Strategic Foresight People and Organizations Need PhD Model Answer

Planning

Strategic foresight

People and organizations need a strategic foresight plan and warning model to establish a framework for strategic success. This framework may incorporate a lot of factors including… read more

PhD Model Answer 6 pages (1975 words) Sources: 8 Topic: Management / Organizations

---

Planning Budgeting Term Paper

Planning, Programming and Budgeting: Understanding Financial Management and Enterprise Resource Planning and How it Is Applicable in the Real World

The objective of this work is to research planning, programming… read more

Term Paper 11 pages (3133 words) Sources: 6 Style: APA Topic: Business / Corporations / E-commerce

---

Planning Valuable Time Is Lost Term Paper

Planning

Valuable time is lost in planning. Substantial savings can be realized if corporations would cut down on planning and concentrate on implementing." Do you agree or disagree with this… read more

Term Paper 1 pages (455 words) Sources: 1+ Topic: Management / Organizations

---

Planning and Pollution Control Annex 2: Development Essay

Planning and Pollution Control

Annex 2: Development on Land Affected by Contamination

Assessment of the Planning Policy Statement 23: Planning and Pollution Control

Annex 2: Development on Land Affected by… read more

Essay 3 pages (941 words) Sources: 3 Topic: Environment / Conservation / Ecology

---

View 100+ more related papers  >>