Comparison Between Traditional Forecasting and Scenario Planning

 

CS875 Unit 3-1

Comparison Between Traditional Forecasting and Scenario Planning

Humans beings are always limited in predicting about the future. In fact, according to Schoemaker (2004), “Years of behavioral research on judgment and decision making have unearthed a variety of cognitive limitations when people are confronted with uncertainty” (p.275). Primarily, this can be attributed to the fact that future predictions are based on utopian visions and overconfidence that leads humans into making biased conclusions. That, however, does not mean humans should not predict or plan for the future. As such, business and tech leaders have been relying on different tools and techniques to improve the future planning and prediction process. The main approaches that this discussion will address include traditional forecasting and scenario planning techniques.

According to Hernandez (2018), traditional forecasting uses mathematical formulas and quantitative analysis to predict the future. Different algorithms and statistical tools are used to help build, evaluate, and optimize the model. Primarily, this process is based on past data which is used to build a model for predicting what the future might unfold. The aim is to use historical data to create a model can help to understand, estimate, and predict the likelihood of events or incidents that might occur in the future. Using historical data to predict the most likely outcome makes this approach simple to understand and to focus effort towards achieving strategic goals. However, traditional forecasting is not very effective because it is based on a trial and error method. For instance, this method fails to account for unpredictable future events. Besides, accurate data must be readily available and assumptions must also be made that future events will most likely follow a projected linear trend.

In contrast to traditional forecasting, scenario planning does not involve future prediction but planning for scenarios that might unfold in the future. According to Ogilvy (2015), scenario planning is more effective in strategic foresight than traditional forecasting because it does not rely on traditional data. As the name imply, scenario planning involves identifying multiple future scenarios that might occur and their implications. Typically, scenario planning process involves eight steps and the first step mainly involves the identification of the future scenarios to focus on. Once the scenarios have been identified, some of the next steps involves identification of the critical success factors and external forces, implications of each scenario as well as indicators that can be used to differentiate the scenarios. In this regard, identifying critical success factors and forces includes addressing issues such as technological developments, suppliers, competitors, customer demand, social, economic, and geopolitical forces. Most importantly, adopting this approach can enhance the decision-making process and help to develop a robust strategy towards achieving long-term and short-term business goals. This is because an organization can be able to identify the critical uncertainties, opportunities, challenges and risks that should be mitigated as the future unfolds. However, scenario planning is a bit complex and requires an experienced practitioner to help plan and look into the future. Also, the process consumes a lot of time as compared to traditional forecasting.


 


Reference List

Hernandez, M. K. 2018, January). Traditional Forecasting Vs. Scenario Planning. Retrieved December 27, 2021, from https://mkhernandez.wordpress.com/2018/01/27/traditional-forecasting-vs-scenario-planning/

Ogilvy. J. (2015, January). Scenario Planning and Strategic Forecasting. Retrieved December 27, 2021, from https://www.forbes.com/sites/stratfor/2015/01/08/scenario-planning-and-strategic-forecasting/?sh=50b35028411a

Schoemaker, P. J. (2004). Forecasting and scenario planning: the challenges of uncertainty and complexity. Blackwell handbook of judgment and decision making, 274-296.

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