Advantages and Disadvantages of Scenario Planning - Term Paper Example

Introduction One of the common views about the ‘Scenario Planning’ is that it is considered as a way for organisations to sensibly take possible futures and appropriate decisions into account. The work at hand critically discusses this point of view including the point that having good plans can lead to effective dealing with crisis and risk, by which Scenario Planning can become the basis for the development of risk management and crisis management plans. Scenario Planning Scenario planning is actually like trying to explore the future. It simply is not about activities on knowing what to be most likely to take place in the future, but what specifically to do in the future. In fact, planning is not about predicting the future, but preparing for it disregarding the fact of which future will eventually come true (Wade, 2012, p.31). Therefore, scenario planning is about trying to formulate plans that are addressing the what-if scenarios in the future (Hill and Jones, 2009, p.26). It is therefore easy to understand that scenario planning is a used tool for flexible long-term plans, which also allows decision makers to understand the nature and impact of uncertainties that affect the world (Northumbria University, 2014). This technically does not mean forecasting the future, but eventually preparing for the future to come based on the possible scenarios to take place. After all, scenarios are considered to be as strong supports for strategic planning (Zahradnickova and Vacik, 2014, p.665). The reason why there is a need to prepare for the future with various plans addressing the what-if concerns is due to the fact that the business environment is affected by many forces. This leads to the point that in the actual business, scenario planning is considered as an analytical tool that allows the business people to prepare things in the future, because it allows them to develop a framework that can lead them further to develop visions for the future as they analyse the environmental forces in the environment that can hinder growth. In the business environment, an organisation is faced with various forces such as politics, economics, social, economics, technological and legal concerns. These are important factors that could substantially affect the business outcomes. In the first place, there are various cases by which the success of an organisation depends on the prevailing legal concerns in an organisation. On the other hand, the success of a certain brand for instance may depend on the prevailing social trend that people accept in the society. For instance, the prevalence of social networking site is a social trend online, allowing the people to take part in the various activities involved in here. This scenario might quite change in the future, and so therefore the management of an organisation must be able to consider this scenario and prepare for the appropriate plans to initiate in order to continue to fit in the prevailing trends in the future. These are just some of the illustrations showing the remarkable potential of scenario planning and how it exactly should work for an organisation. Scenario planning therefore is about taking into account the different futures from the identification of factors including demographics, and trends linked to political, economic, social, technical, legal and environmental as the basic driving forces, allowing the decision maker to increase knowledge of the environment and future events (Northumbria University, 2014). In addition to the above point, it is also important to understand that the business environment does not follow a kind of progress that is like a straight line moving forward. The performance in business environment can be erratic in reality, by which sometimes it is hard to predict the actual prevailing business pattern. For this reason, it is important to consider that exploring the business environment rather than forecasting it seems to be more reasonable especially if it is particularly linked to the actual business plans. However, the most important point is to set the relevant plans that will eventually work for whatever the future unfolds. This is eventually a form of strategic consideration in an organisation, primarily in the business context. That is why strategic planning has become one of the most important concerns in every organisation that would want to make a difference for good. Strategic planning is what every organisation requires in order to survive in tough times, especially in the event of highly advanced competition by which there is an urgency to achieve a specific competitive edge. For this reason, it is important to understand that the ultimate goal of an organisation is to make flexible and long-term plans. For this reason, in the aid of scenario planning, an organisation could eventually prepare for various alternatives that will be able to fit in the prevailing needs or concerns linked to the many forces and even situations that could affect the actual business environment at present and in the future. This is generally one of the advantages linked to scenario planning. Advantages of Scenario Planning In the actual application, scenario planning is found to decrease the framing bias and increase the decision quality (Meissner and Wulf, 2013, p.801). In general, scenario planning is considered to be a support for strategic planning and decision making in an industry (Greiner et al., 2014, p.120). From a strategic point of view, decisions will have to consider alternatives that are to be evaluated based on the given criteria (Ragsdale, 2010, p.687). A good decision therefore is expected to be in line with choosing the best alternative based on the given criteria. For this reason, it is important to consider that a good decision must have to take into account of finding the best alternative that truly fit into the given criteria. The presence of criteria eliminate bias, but what is most interesting point of view is the inclusion of alternatives which leads to the point that a decision maker is left not only with the decision, but an opportunity to decide on what is eventually the best one. The inclusion of scenario planning aids the decision maker to have varying point of views to consider which plan might effectively fit into the given scenario in the future. For this reason, the probable bias may be eliminated due to the fact that the decision maker is exposed to the various scenarios that have to be taken into account and the other options or alternatives for consideration. Furthermore, this increases the chance of the decision maker to be exposed to various perspectives, leading further to the opportunity to understand a specific scenario or a given situation at the deeper level. In other words, the presence of scenario planning in the strategic planning will eventually allow the decision maker to formulate varying plans that are more likely to function well in the given scenario in the future. This leads to the opportunity to consider what is best, and which is eventually far from personal choice, but based on the prevailing conditions in the future that could be set as the ultimate criteria for the actual decision-making process. To illustrate this further, the scenario planning might be a form of action by which there is an opportunity to set for plans A, B and C in the future depending on which situation or scenario might unfold. It is clearly nor forecasting, but more than that because the decision maker will be given the opportunity to prepare for the right alternative course of action when a specific situation arises. In other words, the failure to respond to a certain condition could be minimised. With that, the success of a certain decision cannot be overlooked, which in totality will lead to the success of the operation of the organisation and eventually the achievement of its goals. Having all of these in mind, it is now clear that there are remarkable advantages when a decision maker will have to employ scenario planning in the entire decision-making process. Scenario planning is therefore not just a strategic tool for planning, but a remarkable consideration for ensuring less mistakes or risks in the future. Generally, scenario planning prepares the decision maker for the multiple alternatives in the future, which eventually will lead to divergent ways of thinking that might be essential for success (Chang, 2010, p.58). However, scenario planning has also remarkable disadvantages. Disadvantages of Scenario Planning However, it is evident that scenario planning has the absence of tight link to formal goal setting and action planning, it might only lead to wishful thinking and so to desire a one particular future outcome, and it can just only lead to “pipe dreams and happy talk” (Chang, 2010, p.58). Although scenario planning is a special component of the strategic plan, it is still different from goal setting and action planning, which are essentially the most fundamental point of the management if ever it wishes to achieve something. Scenario planning looks like it only tries to prepare for the future outcomes and the right course of actions to take, but it does not absolutely give the management the right path to consider while heading to the future. What it only gives is what to do in the future, but not what to be done prior to the future. In this way, scenario planning might be quite impractical for the management to employ if there is a necessity to set the target goal. The target goal should be necessarily obtained amidst various challenges. What the scenario planning is trying to consider is to allow the management to eventually stay away from the touch of the challenges such as risks and crisis in the future, which might be a bit impractical to consider at some point as far as setting the actual target goal is concerned. For this reason, scenario planning eventually finds it potential way to risk and crisis management activities. Risk Management Risk management is an integral component of managerial functions and so it is an act that tries to manage risk, because it actually involves on how to identify risk, analyse risk, develop risk response strategies, and monitor and control risk (Kerzner, 2009, p.462). In other words, the essential functions of management are included in risk management. Risk management is therefore a relevant component of decision making with certainty. It is for this reason that the scenario planning is eventually a relevant strategic tool for this purpose. As already stated, scenario planning allows the management or the decision maker to choose the right courses of actions to take in order to eliminate probable risk in the future. The decision maker wants to decide with certainty, and so the employment of scenario planning cannot be overlooked for this matter. Risk management with the integration of scenario planning is an effective means to decide with certainty, as clearly defined. One reason therefore why an organisation will have to plan for it is to eliminate possible uncertainty in the decision maker. It is intuitive that when a decision is certain, the chance of obtaining success is higher, and when uncertainty prevails, the likelihood of obtaining success might be dismal at some point. It is for this reason that risk management plan is necessary, because with this, the decision maker or the management will be able to come up with the right courses of actions to take in the future that will alleviate or totally eliminate potential risks. In addition, with the presence of plan concerning risk management, based on as what has already stated, there is a great chance of monitoring and controlling risks in the future and even in designing the appropriate move in order to suppress its possible occurrence. Crisis Management One of the simplest ways to define a crisis is to consider it as a major occurrence that could potentially provide negative outcome that can affect an organisation, company or industry, publics, products, goods, services or a name or brand (Aidoo, 2005, p.5). It is therefore of no surprise that the management should come to the point of managing it or put it under the context of management, where it can be identified, analysed, solved and monitored or controlled. As already stated, the scenario planning could be another way of addressing crisis because of the involvement of various alternatives or options to implement as plans based on the prevailing scenarios in the future. It is true that there are things that could go beyond one’s control especially in the midst of crisis, and so having various alternatives to respond to it could guarantee at least a remarkable success too. An organisation with a valuable brand should be able to plan for crisis management because it is clear that crisis is linked to a negative outcome at some point. Organisations do not want to obtain negative outcome because it could eventually harm either of their existing product or brand. It is important for each organisation to be prepared for various occurrences in the future and so setting the right course of action to manage the crisis is an essential component of a successful organisation. In this case, it is crucial to employ scenario planning, because it is shown to have a remarkable connection to identifying the right course of action that could manage potential crisis in the future. Scenario Planning, Risk Management and Crisis Management So far, it has been shown that scenario planning has a relevant connection to risk management and crisis management. However, the issue of how might scenario planning be used in organisation when making risk management and crisis management is a crucial consideration. In the first place, it is clear that crisis and risk are forms of scenarios that are not impossible to take place in the future. These are events that organisations must be fully aware of and must have substantial level of readiness in facing them (Faghfouri, 2012, p.114). The case of scenario planning does not eliminate the possibility of considering various scenarios in the future. For this reason, the ability of an organisation to consider substantial risks and crisis in the future allows the possibility of scenario planning to be integrated in the whole issue about risk management and crisis management. In addition, it cannot be contested that risks and crisis are integral components of strategic planning, and this paves the way for scenario planning to take its meaningful contribution to the actual risk and crisis management activities. Furthermore, in an organisation, the management does not totally eliminate the possibility of taking some alternative course of actions as they are necessary for the risk and crisis management. However, it is evident that scenario planning takes into account of the varying alternative course of actions. It is for this reason that crisis and risk management have remarkable common ground with the actual scenario management. The above justifications could prove the meaningful ways that are necessary for the implementation of scenario planning especially in the consideration of planning for the crisis management and risk management. Conclusion The work at hand just presented the relevant points concerning the probable connection of scenario planning and the crisis and risk management. It was revealed that these management approaches are necessary for an organisation, although it is also shown that scenario planning might have significant disadvantages or level of impracticality when implemented in an organisation. However, these disadvantages do not eliminate the fact that scenario planning can be best integrated in the prevailing plans of the organisation for its crisis management and risk management. After all, scenario management significantly considers the possible scenarios in the future, including the crisis and risks, and the right or appropriate alternative actions to take to specifically address them. References Aidoo, K. K. (2005) Public Relations Issues and Crisis Management. Cengage Learning Australia. Chang, C. M. (2010) Service Systems Management and Engineering: Creating Strategic Differentiation and Operational Excellence. Hoboken, NJ: John Wiley & Sons. Faghfouri, P. (2012) The Role of Governance Structure in the Context of Crisis Management: An Empirical Analysis on a German Sample of Non-Family and Family Businesses. Wiesbaden: Springer. Greiner, R., Puig, J., Huchery, C., Collier, N., and Garnett, S. T. (2014) ‘Scenario modeling to support industry strategic planning and decision making.’ Environmental Modelling & Software 55, 120-131. Hill, C., and Jones, G. (2009) Strategic Management Theory: An Integrated Approach. 9th ed. Mason, OH: Cengage Learning. Kerzner, H. R. (2009) Project Management: A Systems Approach to Planning, Scheduling, and Controlling. Hoboken, NJ: John Wiley & Sons. Meissner, P., and Wulf, T. (2013) ‘Cognitive benefits of scenario planning: Its impact on biases and decision quality.’ Technological Forecasting and Social Change 80(4), 801-814. Northumbria University (2014) Scenario Planning [online] available from < http://www.jiscinfonet.ac.uk/infokits/scenario-planning/> [28 April 2014]. Ragsdale, C. (2010) Spreadsheet Modeling & Decision Analysis: A Practical Introduction to Management Science. Mason, OH: Cengage Learning. Wade, W. (2012) Scenario Planning: A Field Guide to the Future. Hoboken, NJ: John Wiley & Sons. Zahradnickova, L., and Vacik, E. (2014) ‘Scenarios as a Strong Support for Strategic Planning.’ Procedia Engineering 69, 665-669. Read More