From Traditional Forecasting to Scenario Planning

As we look to further our reaches into Cyberspace, it is vital that we have some semblance of a "starmap" to get from where we are now technologically to the next new form of advancement. Whether following a traditional forecast or branching out into a scenario planning method, picking the right one based on a particular use case is imperative. And so, without further ado, we will use this time and space to compare and contrast the two lightly.

Scenario Planning

With scenario planning, decision-makers must flesh out assumptions about specific sets of critical uncertainties in years, months, and even days ahead to develop conceivable scenarios (Mariton, 2016). This form of planning helps decision-makers ask the "what ifs" of these scenario outcomes and impacts, then evaluate responses and manage positive or negative possibilities (Ali & Luther, 2020). It is used personally or with any type of entity, from farming to the military or an organization of some kind (Mariton, 2016). By planning for scenarios, risks and opportunities can become proactively dealt with versus simply reacting to events (Ali & Luther, 2020). In other words, scenario planning is a way to assert control over uncertainty by identifying assumptions about the future and determining how to respond.

Pros: Scenario planning helps decision-makers understand the effects of various possible events and have their teams prepare their initial responses (Ali & Luther, 2020). There's also an element of knowledge management with documentation to refer to and proactively deal with a scenario's occurrence.

Cons: Scenario planning can be an enormous undertaking with a lengthy process for collecting data and determining driving factors (Ali & Luther, 2020). As a living process, driving factors can change quickly, impacting plans and requiring constant updates as these conditions and assumptions evolve over time.

Traditional Forecasting

That said, the objective of traditional forecasting is to estimate future value or occurrence based on historical records (Menon & Ranjan, n.d.). More precisely, forecasts include confidence intervals expressing the level of certainty of the prediction, making forecasting an essential part of a demand planning strategy (BluePi, 2019; Menon & Ranjan, n.d.). For example, in forecasting the sales of any consumer product, traditional statistical methods could provide a reasonable forecast accuracy based on their historical data (Menon & Ranjan, n.d.). This forecast plan works as the number of dimensions that may affect the product's sales is finite and countable. It is good to note, further innovations have led us beyond the scope of calculations through spreadsheets and charts, for the traditional forecast model, to machine-learning algorithms that can predict these sales with a perceivably enhanced accuracy.

Pros: Traditional forecasting provides entities with valuable information to use and make decisions about the future of the entity and any of its projects (Bass, 2019). Qualitative data is dependent on the judgment of experts to use in conjunction with the quantitative forecast findings.

Cons: No matter the data, it is impossible to forecast the future with one hundred percent certainty (Bass, 2019). Because different scenarios can come out of the qualitative aspect of forecasting depending upon the interpretation of the data, following a flawed forecast can result in financial ruin or project failure.

Conclusion

Traditional forecasting and scenario planning still have utility and a place in economic and innovation predictions. But it is important to know your use case to choose the correct planning and forecasting model. Choose traditional forecasting when a finite and countable variable anchors only a few unknowns. Choose scenario planning in the absence of a set variable, or there are too many unknowns to calculate with confidence. 

References

Ali, R., & Luther, D. (2020, May 14). Scenario planning: Strategy, steps and practical examples. NetSuite. https://www.netsuite.com/portal/business-benchmark-brainyard/industries/articles/cfo-central/scenario-planning.shtml 

Bass, B. (2019, February 5). Advantages and disadvantages of forecasting methods of production and operations management. Small Business - Chron.Com. https://smallbusiness.chron.com/advantages-disadvantages-forecasting-methods-production-operations-management-19309.html 

BluePi. (2019, July 31). Traditional forecasting methods. https://www.bluepiit.com/blog/traditional-forecasting-methods/ 

Mariton, J. (2016, March 9). What is scenario planning and how to use it. SME Strategy Management Consulting. https://www.smestrategy.net/blog/what-is-scenario-planning-and-how-to-use-it 

Menon, S., & Ranjan, R. (n.d.). The evolution of forecasting techniques. Genpact. Retrieved March 30, 2022, from https://www.genpact.com/insight/technical-paper/the-evolution-of-forecasting-techniques-traditional-versus-machine-learning-methods