By offering different possible versions of the future, leaders can get comfortable with uncertainty and make better decisions....
Whether you call it a ‘polycrisis’ or a ‘permacrisis’, there is no doubt that we are living in an age where multiple crises are unfolding simultaneously, many of which will occupy us for a long time.
With the future holding unknown possibilities, scenario analysis is a useful tool to bring people together to think creatively -without bias – about the future.
Scenarios have been used since ancient times, and more recently, by companies such as Shell to consider multiple versions of the future to help make decisions and inform strategy.
The biggest misconception around scenarios is that they are about predicting the future. This is not the case. It’s impossible to forecast the future with any accuracy and, in a world of multiple crises, the crystal ball gets even foggier.
Take the example of the rapid development of generative AI, which has occupied many executives since Microsoft-backed Open AI’s ChatGPT was launched last November. Since then, a whole range of worst-case scenarios have proliferated, with people predicting a dangerous race to the bottom, and the end of privacy and free will. On the other hand, there are more optimistic scenarios such as greater shared economic prosperity and more fulfilling jobs. The risk is that the imperfect use of scenarios will end up causing even greater uncertainty.
So what are scenarios and how can you best go about using them?
One way to think of them is as a script outlining the setting and the scenes of the future. They are used to analyze the impact of something on a target area, for example the impact of a technology like AI on the labor market. Executives should ask themselves two questions:
There are four types of scenarios:
These start in the present day and sequence emerging events to explore future developments, as well as the consequences of those developments.
These involve a desired future or state and anticipate the steps to get there.
These rely on data and data modelling. They provide excellent back-up for qualitative scenarios.
These go beyond the Excel spreadsheet to provide a narrative description of what the future could look like.
A four-box matrix is a neat way of analyzing what the future might look like.
If we stick with the AI example and its impact on how we age, you could have a horizontal axis where AI ranges from being helpful to restrictive. On the vertical axis, this might lead to a world where we have ‘happy aging’ or ‘aching aging’.
A four-box matrix is a neat way of analyzing what the future might look likeCan you use AI to do scenario planning? I decided to ask ChatGPT to come up with four scenarios that show how the rapid development of AI interplays with the deterioration of environmental concerns. I wanted snappy descriptions, so asked it to limit its summaries to 33 words and use evocative titles.
The results were impressive. Its four scenarios: Techno-Utopia, Tech-Driven Divide, Nature’s Resilience, and Dystopian Domination were plausible.
Yet there are downsides. Large language models (LLMs) like the generative pre-trained transformer family (GPT) work by predicting the next word in the sentence and can make things up or “hallucinate”. The risk is that we will also face an avalanche of possible scenarios. If we are to check that the scenarios are truly plausible, we have to spend time editing and checking to make sure they don’t contain inaccuracies.
When using scenario analysis, it’s important not to get complacent. Just having some scenarios, does not mean the future is in hand. We also want to avoid the risk of ‘paralysis by analysis’, where we keep coming up with more scenarios, and never end up making a decision. We also need to make sure that we know what our risk profile is before we start doing scenario analysis, and make sure that they are robust and not rogue
It’s impossible to forecast the future with any accuracy and, in a world of multiple crises, the crystal ball gets even foggier.
I advise coming up with three to five scenarios to have a richer, more nuanced analysis. If we only have two, we risk falling into a best-case/worst-case situation. You also need at least two critical variables (who is involved and how they work with each other) and to identify four critical factors on which the futures depend.
Lastly, here are some things to consider when conducting scenario analysis:
Strategy is informed and helped by scenarios, but it’s not the same thing.
You need a group of diverse and disinterested people to develop scenarios. If they have a stake in the strategy, their inherent bias will very often inform the strategies they develop, and derail the whole purpose and effect.
Data is critical and the way that this data is presented can influence the audience.
Rich scenarios grab humans not only by the head, but also by the heart.
Make sure you develop scenarios that are specific for your organization and situation.
Scenario analysis cannot be done alone. If you are to challenge your assumptions about the future, you need a diverse group of people.
The world, in particular the business world, is too short-term orientated. It’s important to take the time to work on scenarios and possibilities, and as time progresses, change the scenarios.
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