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Scenario Thinking Reading Packet

How To Build Scenarios: Planning for “long fuse, big bang” problems in an era of uncertainty Lawrence Wilkinson

The Official Future, Self-Delusion, and the Value of Scenarios By Peter Schwartz

It happens to us all. We look out into the future, try-ing our best to make wise decisions, only to find our-selves staring into the teeth of ferocious and widespreaduncertainties. If only everything didn’t depend on, well,everything else. How do we decide what kind of careerpath to pursue when it’s not clear what industries willexist in 20 or 15 years? How do we plan our children’seducation when we can’t know what sort of societythey’ll live in? As we face each of these problems, weconfront a deeper dilemma: how do we strike a balancebetween prediction—believing that we can see pastthese uncertainties when in fact we can’t—and paraly-sis—letting the uncertainties freeze us into inactivity.

The senior managers of large corporations face a similardilemma, but they often carry the additional weight thaton their decisions rest the livelihoods of thousands. Thecliché is that it’s lonely at the top. But for most man-agers these days, the bigger problem is that it’s confus-ing up there . It’s no longer enough simply to execute, to“do things right.” Like us, senior executives have tochoose the right thing to do: set a course, steer throughthe strategic issues that cloud their companies’ horizons.Do we or don’t we buy that competitor? Build thatsemiconductor fab plant? Replace the copper in our net-work with fiber? Or wait and save billions?

Questions like these are known as “long fuse, big bang”problems. Whatever you decide to do will play out witha big bang—often a life or death difference to an organi-zation—but it can take years to learn whether your deci-sion was wise or not. Worse yet, “long fuse, big bang”questions don’t lend themselves to traditional analysis;it’s simply impossible to research away the uncertaintieson which the success of a key decision will hang.

Still, like us, the managers must make a decision—andmake it now. The rest of the stampeding world will notwait until certainty appears. Anything that can helpmake a decision in the midst of uncertainty will be valu-able. One such tool is scenario planning. A growingnumber of corporate executives are using scenario plan-ning to make big, hard decisions more effectively. And

it’s not just for bigwigs: scenario planning can help usat a personal level as well.

Scenario planning derives from the observation that,given the impossibility of knowing precisely how thefuture will play out, a good decision or strategy to adoptis one that plays out well across several possible futures.To find that “robust” strategy, scenarios are created inplural, such that each scenario diverges markedly fromthe others. These sets of scenarios are, essentially, spe-cially constructed stories about the future, each onemodeling a distinct, plausible world in which we mightsomeday have to live and work.

Yet, the purpose of scenario planning is not to pinpointfuture events but to highlight large-scale forces thatpush the future in different directions. It’s about makingthese forces visible, so that if they do happen, the plan-ner will at least recognize them. It’s about helping makebetter decisions today.

This all sounds rather esoteric, but as my partner PeterSchwartz (see “The New World Disorder,” page 104) isfond of saying, “scenario making isn’t rocket science.”He should know. Not only did he help develop the tech-nique back in the 1970s, but he’s also a rocket scientist.

Scenario planning begins by identifying the focal issueor decision. There are an infinite number of stories thatwe could tell about the future; our purposes is to tellthose that matter, that lead to better decisions. So webegin the process by agreeing on the issue that we wantto address. Sometimes the question is rather broad(What’s the future of the former Soviet Union?); some-times, it’s pretty specific (Should we introduce a newoperating system?). Either way, the point is to agree onthe issue(s) that will be used as a test of relevance as wego through the rest of the scenario-making process.

As managers of our own lives, we can do the same exer-cise. Let’s say that our key concern is the quality of lifethat we’ll have in 15 or 20 years and the personalinvestments that we’ll need to make in preparation forthe future.

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How to Build ScenariosPlanning for “long fuse, big bang” problems in an era of uncertainty.

BY LAWRENCE WILKINSONCofounder, Global Business Network

This article originally appeared in Wired “Scenarios: The Future of the Future” Special Edition, 1995.

Copyright 2004 Global Business Network. This publication is for the exclusive use of Global Business Network members. To request permission to reproduce, store in a retrievalsystem, or transmit this document in any form or by any means, electronic, mechanical, recorded, or otherwise, please contact Global Business Network.

We breathe in: driving forcesSince scenarios are a way of understanding the dynam-ics shaping the future, we next attempt to identify theprimary “driving forces” at work in the present. Thesefall roughly into four categories:

• Social dynamics—quantitative, demographic issues(How influential will youth be in 10 years?); softerissues of values, lifestyle, demand, or political ener-gy (Will people get bored with online chatting?).

• Economic issues—macroeconomic trends andforces shaping the economy as a whole (How willinternational trade flow and exchanges rates affectthe price of chips?); microeconomic dynamics(What might my competitors do? How might thevery structure of the industry change?); and forcesat work, on or within the company itself (Will webe able to find the skilled employees we need?).

• Political issues—electoral (Who’ll be the next pres-ident or premier?); legislative (Will tax policies bechanged?); regulatory (Will the FCC loosen its gripon radio spectrums?); and litigative (Will the courtsbreak up Microsoft).

• Technological issues—direct (How will high-band-width wireless affect land-line telephony?);enabling (Will X-ray lithography bring in the nextchip revolution?); and indirect (Will biotech alloweasy “body hacking” and thus compete with moretraditional forms of entertainment?).

Of course, categories are only handles. Real issues entaila bit of all four forces. The point of listing the drivingforces is to look past the everyday crises that typicallyoccupy our minds and to examine the long-term forcesthat ordinarily work well outside our concerns. It isthese powerful forces that will usually catch us unaware.

Once these forces are enumerated, we can see that fromour own viewpoint, some forces can be called “predeter-mined”—not in a philosophical sense, but in that theyare completely outside our control and will play out inany story we tell about the future. For instance, thenumber of high school students in California 10 yearsfrom now is more or less predetermined by the numberof elementary school children now. Not all forces are soevident, or so easy to calculate, but when we build ourstories, predetermined elements figure in each one.

Scenario logicsAfter we identify the predetermined elements from thelist of driving forces, we should be left with a number ofuncertainties. We then sort these to make sure they arecritical uncertainties. A critical uncertainty is an uncer-

tainty that is key to our focal issue. For instance, willthe percentage of women in the work force continue toincrease? Our goals are twofold—we want better tounderstand all of the uncertain forces and their relation-ship with each other. But at the same time, we want thefew that we believe are both most important to the focalissue and most impossible to predict to float up to thesurface.

At first, all uncertainties seem unique. But by steppingback, we can reduce bundles of uncertainties that havesome commonality to a single spectrum, an axis ofuncertainty. If we can simplify our entire list of relateduncertainties into two orthogonal axes, then we candefine a matrix (two axes crossing) that allows us todefine four very different, but plausible, quadrants ofuncertainty. Each of these far corners is, in essence, alogical future that we can explore.

(We could, of course, spin hundreds of scenarios fromcombinations of our forces, but experience teaches thatfewer are better. The right one, two, or three axes giveus a very effective framework in which to explore all ofthe other forces.)

Wired staff developed, as an illustration, the followingmatrix as one set of scenarios for the future. The ques-tion: What will be the general tenor of commercial lifeon a global scale in the year 2020? (see chart)

The first (horizontal) axis of uncertainty is thecharacter of our desire, an “I” or “We,” individual orcommunity.

This uncertainty about the quality of our individualhopes and intentions cuts at the most fundamental level:Will the energy of democratization and the ascendanceof the ultimate individualized “I” continue to prevail?Or will our social organization and self-definition berooted in a group—a nation, a tribe, a collection of usersof a particular brand, a more communitarian “We”? TheI or the We will never disappear, but which will come tobe the prevailing influence in our culture? It could goeither way, and with a bang; that is the uncertainty.

The second (vertical) axis shows the uncertain char-acter of social structure: Will society be a center thatholds and provides stability, or will it fragment?

Here, we stake out the extreme possibilities of socialorganization: Will social and political structures (eithernew or traditional) provide a society-wide coherenceand order? Or will society shatter into shards, the jaggededges of which do not mesh into a coherent whole? Willthere be a state to impose order, level the playing field,and unify a commonwealth? Or, will permanent frag-mentation, increasing plurality, and unfettered free-mar-ketism bring us to “bottom-up” functioning anarchy?

HOW TO BUILD SCENARIOS, BY LAWRENCE WILKINSON

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HOW TO BUILD SCENARIOS, BY LAWRENCE WILKINSON

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Scenario 1:

I WillThe world fragments into a working pandemoniumof individuals, organized by jobs rather than geog-raphy. Communication is pervasive and focuses onpersonal empowerment. The Net becomes thechief exchange medium for decentralized work,personal gratification, and global commerce.Physical infrastructure in North America stag-nates, while personal spaces thrive. Art and atten-tion are turned inward, as personal expressionflourishes in new media and old public spacescrumble. Technology is the global culture. Thehave-nots become the have-lates. Ethnic or groupdifferences give way to a homogenized patchworkof unbridled individual variety. Europe is wrackedwith civil strife as its socialistic civilization unrav-els. Russia rebounds. Japan lags. China andthe developing countries become huge fleamarkets where just about anything goes.

Scenario 2:

ConsumerlandThe world is populated by consumers rather thancitizens. Technology breeds unlimited customizedchoices. The consumer is served by highly evolvedcompanies, aggressively nimble and conscien-tious of the market’s whims. Computers doincreasing amounts of white-collar work.Manufactured products are heavily personalized,but do-it-yourself dies. Real leisure increases; dis-sent withers. Politics means electronic voting.Governments are virtual corporations, with theirheavy lifting privatized to commercial ventures.The have-nots are given spending vouchers.Southeast Asia and the coast of China manufac-ture most of Consumerland’s goods, and consumealmost half themselves. Latin America is theirbranch office. Japan gets richer and unhappier.Russia exports trouble in the form of neoreligiouscultists and mafioso. The US and Europe becomehuge theme parks.

Scenario 4:

New CivicsThe world settles into small, powerful city-states.Rural areas of the world are second-class, but havewidespread virtual hookups. Europe fractionalizesinto 57 countries; China Russia, Brazil, and Indiaalso devolve into black market ethnic states. Gangsin developing countries and old inner cities trans-form into political law-and-order machines. Citizensuse networks and databases to watch over and pro-tect each other. Average life spans increase dramat-ically; general health improves. Civic pride blos-soms. Governments use advance technologies tocreate the largest public works yet, both citywideand global. Corporations are reigned in by civic reg-ulations, although they increase in size—there’s theFortune Global 5,000. Conglomerates fund most of

the UN-type activities.

Scenario 3:

EcotopiaThe world slows the growth of development. Inreaction to earlier decades of high crime and chaos,communitarian values triumph over strictly individ-ualistic ones. Slimmed-down and digitized govern-ments win the trust of people. Directed taxationfunds public works, some of them large-scale.Corporations adopt civic-responsibility programsout of long-term economic self-interest. Technology,such as online shopping, makes urban living veryresource-friendly. Net access is a subsidized right.Dirty technologies are outlawed, forcing less-devel-oped countries to leapfrog to clean and light tech-nologies, if they can. Initially, this widens the gapbetween rich and poor nations. Europe erupts into asecond renaissance, becoming a moral beacon.Japan mobilizes not much later. The Islamic worldawakens. Asia and Latin America become lifeboatsfor the young and restless of the developed worldwho find the environmentalism and communitarian-ism too dogmatic; they settle in “free economiczones,” where their migration and energy help tovitalize growth. North America stumbles as its cow-boy individualism is tamed.

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yIn scenario making, we cancreate a matrix (two axescrossing) that definesfour very different, butplausible futures. Forinstance, if the future isone characterized by com-munitarian desires butdecentralized social struc-tures, we get Ectopia.

Our second uncertainty might seem at first blush an out-come of the first. But in fact, while they’re related,they’re separately uncertain. Indeed, it’s precisely theway they’re intertwined that makes them interesting bygiving us four scenarios, four very different “futurespaces” to explore.

Fleshing out the scenariosWe return to the list of driving forces that we generatedearlier; these dynamics become “characters” in the sto-ries that we develop. Our goal is not to try to tell fourstories, one of which—we hope, as futurists—will betrue. Instead, we recognize that the “real” future will notbe any of the four scenarios, but that it will contain ele-ments of all of our scenarios. Our goal is to pin downthe corners of the plausible futures. These corners areexaggerated—the outer limits of what is plausible. Thus,our scenarios will have a near-caricature quality.

Here’s how the Wired scenarios play outin each of the four corners:

I Will is the quadrant where individualism (I-ness)meets fragmentary or marginal control by large organi-zations. It is a future in which you want and get the abil-ity to make your life uniquely yours. The Net is theubiquitous medium through which you realize yourdesires and discharge your few and relatively unimpor-tant social duties. Government has withered in the faceof privatization, replaced by a largely electronic market-place that connects and clears transactions of every type.Most large, centralized institutions have crumbled into amuch more finely grained pattern, a many-to-manylandscape on which each individual is alternately pro-ducer and user. In this future, you co-produce the prod-ucts and experiences that you consume. Your loyalty isto your tools, knowledge, and skills.

Consumerland is the quadrant where individual desiresmeet a social and corporate center. It is a future in whicheveryone is the ultimate consumer, possessed of almostinfinite choices. The Net is again a ubiquitous medium—but a medium through which corporations deliver mar-keting messages tailored directly to your unique prefer-ences, via personal catalogs, personalized ads andcoupons, and the like. The products, of course, are “masscustomized” to your desires. Government plays an activerole, laying down the rules (standards, regulations) bywhich corporations play. Social organizations proliferatebut it is clear that they serve individual yearnings. Thecitizen becomes a consumer—served by society.

Ecotopia is the quadrant where a communal sense of“We” meets a strong social center. It is the future wherethe center holds. Government plays a large role in sup-

porting the commonwealth, but more important thangovernment is the emergence of widely shared ecologi-cal values. These are not coercive values but a voluntaryembrace of cohesion, cooperation, and reduced con-sumption, backed by legislation and even corporate poli-cies. The Net acts as replacement technology; it’s maxi-mized to eliminate the need to travel on business, to cutdown on the amount of paper used, etc.

New Civics is a future in which values are shared but inmany small, competing groups. It is a decentralizedworld of tribes, clans, “families,” networks, and gangs.It is a future in which we want to build and enjoy thebenefits of community but without the help of a benevo-lent Big Brother government. The Net encourages eachgroup to move most of its members’ economic activityand their social services inside a closed group. Thus,government’s role and influence are eclipsed by thesway of these emergent groups; small—often deadly—conflicts among groups pop up continually around theglobe. Our primary concern is to be good members ofour group. Our loyalty is to its membership, it’s mores,and its brands. While this future conjures visions ofpride, heroism, and the satisfactions of belonging.

Note that the scenarios don’t fall neatly into “good” and“bad” worlds, desirable and undesirable futures. Likethe real life from which they’re built, the scenarios aremixed bags, at once wonderfully dreadful and dreadfullywonderful.

The implications of our scenariosGiven that we don’t know which scenario will unfold,what do we do to prepare?

Some of the decisions we make today will make senseacross all of the futures. Others will make sense only inone or two. Once we’ve identified those implicationsthat work in all of the scenarios, we get on with them inthe confidence that we’re making better, more robustplans. The decisions that make sense in only one orsome of the scenarios are tricky. For these we want toknow the “early warning signs” that tell us those scenar-ios are beginning to unfold. Sometimes, the leadingindicators for a given scenario are obvious, but oftenthey are subtle. It may be some legislation or technicalbreakthrough, or gradual social trend. Then, of course, itis important to monitor these critical signs closely.

Ultimately, that’s the power of scenario planning. It canprepare us in the same way that it prepares corporateexecutives: It helps us understand the uncertainties thatlie before us, and what they might mean. It helps usrehearse” our responses to those possible futures. And ithelps us spot them as they begin to unfold.

HOW TO BUILD SCENARIOS, BY LAWRENCE WILKINSON

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The Official Future, Self-Delusion, and the Value of Scenarios Peter Schwartz May 2, 2000 The current economic boom seems to have diminished the risks facing business. Yet the raft of success stories has diverted our attention from numerous individual strategic busts within the collective corporate boom.

IBM and Sears Roebuck each invested heavily in the online service provider Prodigy, but instead of building a profitable Internet company they each lost several billion dollars. In finance, U.S. banks lost a great deal of capital in successive Latin American crises in the 1980s. The Nobel laureates at Long-Term Capital Management, the ill-fated hedge fund, lost billions in 1998 when they failed to consider scenarios that challenged key assumptions in their mathematical models. These massive failures remind us that very smart people and companies continue to make some very poor decisions.

In each case, the protagonists failed to ask themselves a vital question: What happens if we are wrong—very wrong? In other words, they badly misjudged the risks inherent in their decisions. This article describes a different way to approach these kinds of decisions and offers a new set of tools for managing risk in a capricious global marketplace.

There are two very different types of scenario planning. One is exploratory: trying to understand the contours of an unknown landscape—the future—mainly out of a general sense of interest. An exploratory approach may be helpful in seeking out potentially unforeseen risks, but is not always relevant for decision-makers. The second class of scenarios, that relating to decision-making, is far more important. This article focuses on this second use of scenarios.

Decision-making scenarios are not created in the abstract.We need to know who the decision-makers are, since individuals base their decisions on perceptions as well as facts. People interpret facts and put them in context. Those interpretations and contexts are based on the decision-makers' belief systems, psychological attitudes, and worldviews.

The best way of finding these things out is to ask a series of probing questions. Are the decision-makers analytical and quantitative—an engineer or scientist, for example? Or are they intuitive and qualitative—perhaps historians, philosophers, or psychologists? Are they optimists or worriers? Are they systemic thinkers, always looking at the interactions of units, or more linear, following events in sequence? Do they have any political bias? Are they aristocrats and elitists or populists? Do they see lurking conspiracies or do they accept the logic of historical accidents? Are they blinded by their own ambitions and biases or are they eager to learn? Are they susceptible to herd mentality? These kinds of questions help account for the idiosyncrasies of decision-makers and thus build the necessary foundations for developing good decision-making scenarios.

Subjective Assessment

Companies assess the nature of strategic risk not as some objective reality but rather through the subjective viewpoints of the decision-makers. While some risk assessment is amenable to straight factual analysis (usually when the risks are mainly technical), the risks we are most concerned with are those in which the decision-maker himself or herself must observe and interpret the nature of risk. How might the variations in the subjective interpretations of individuals (and companies) affect their strategic decisions? Might one person aim too high and aspire to accomplish too much too quickly, or, conversely, shoot too low and expect to achieve too little?

Decision-makers' cognitive maps may similarly bias their answers toward more "objective" questions. What are the nature of, and how great are, "killing risks"? How large might the losses be? How much room is there to maneuver? What is the balance between risk and reward? How large an insurance policy is needed against those risks? Decision-makers' perceptions frame the way they think about these questions.

So how do decision-makers evaluate risk in situations of great uncertainty? In large part, by engaging in collective self-delusion. They start out with a preferred scenario, the conventional wisdom, the accepted view or the "official future."

In scenario planning, it is important that planning staff who develop a set of possible futures for discussion ensure that the "official future" is included among them. Not until this initial scenario is called into question—through good research analysis and powerful new facts—will decision-makers consider other possibilities among future options.

How do we identify and describe the "official future"? We probe the decision-makers' cognitive processes and the organizational and market environment in which they operate. A good approach is to engage crucial decision-makers in a long interview and ask them a set of abstract questions intended to trigger spontaneous and expansive responses. There are five such questions, the first of which I call the "oracle" questions. If you could speak with an oracle, what questions would you ask about the future? Second, given the decision you face, what is the scenario for the best possible outcome? Third, what is the scenario for the worst possible outcome? Fourth, if you were retiring or leaving your company, what would you want your erstwhile colleagues to consider as your legacy? Finally, are there important barriers to change in your organization?

These questions are designed to get decision-makers to talk about what they believe, what they fear, what they hope for, how they see the nature of their organizations, what the limits and capabilities of those organizations are, and so on. The responses can be analyzed to see what natural categories various decision-makers fall into and what shapes their real agenda. One can then present the findings to decision-makers and test whether the perceived agendas of the individuals match the nominal agenda of the group.

Thus, the next stage in developing scenarios is to identify the primary decisions that managers face. Usually these center on the question: Should we do something? This

could involve building infrastructure, launching a product, starting a new business, or killing an old one. Scenarios are then constructed around the answer to that question by looking at the possible positive and negative outcomes. The key to each scenario is how it relates to the "should we" question.

Mental Maps

This process can best be illustrated by looking at a few examples. One of the most consequential strategic decisions in recent years was made by AT&T, the biggest U.S. long-distance telephone company, in the late 1980s regarding the Internet. At that time, the U.S. government (in particular, the National Science Foundation) loomed large in administrating the Internet. The NSF wanted to withdraw from this role and offered to transfer the operation to AT&T at no cost. The government thus offered AT&T a free monopoly on what in a single decade has become the increasingly dominant medium of communication. AT&T declined. How did this happen?

The answer lies in the unchallenged mental maps at the top of AT&T. The instinct of the significant decision-makers was to see virtues in their current systems and flaws in the new technology. After all, they had designed and built the centrally switched network on which their services operated. Why would anyone want less efficient, lower quality technology? Their technical experts only reinforced management prejudices. They thought packet-switching—the zinternet's fundamental technology—would not work. Furthermore, they believed there would be little demand for Internet-based services. Their technical experts concluded that the Internet was insignificant for telephony and had no commercial significance in any other context.

If AT&T's decision-makers had looked at alternative scenarios, they might have reached a different conclusion. On the issue of the technology and telephony, for example, they might have read the Huber Report for the U.S. government, which explored how what would become the Internet could restructure telephony. The report—rejected by some experts, hailed by others—was a credible document, and AT&T could have constructed a scenario in which the report's findings were correct. There was strong research and analysis available to them that could—and should—have led them to a scenario that would have challenged their technical judgments.

Second, AT&T ignored the considerable work that had already been done on the development of business-to-business electronic commerce. They might have explored, for example, how companies might restructure theira ctivities, deliver new services, interact with each other in new ways, and create new demand for online business services. It required no great leap to project the efficiency improvements possible in this (now real) scenario.

AT&T planners might have provided the decision-makers with two scenarios. One would have been the "official future" in which centrally switched architecture remained dominant. They might also have developed an alternative in which new markets for Internet services and new kinds of telephony challenged the then-dominant network

architecture. Such a scenario would have at least given the decision-makers as ense of the Internet's potential, prompted them to take the decision more seriously and perhaps have led to a very different conclusion.

Specific Decisions

Not only are scenarios useful in making specific decisions, they also encourage decision-makers to become much more sensitive to new signals of change. What has not been foreseen is unlikely to be seen in time. Scenarios can serve to train decision-makers to recognize signals in a timely way. Even if AT&T had reached the same decision in light of the uncertainty, they might have chosen to cover against being wrong by developing router technology and online services. AT&T would then have been able to challenge both Cisco Systems, a computer networking company, and AOL, an Internet service provider, early in the game, because by then the Internet was becoming increasingly visible. It has to be worth speculating on the possibilities for a company combining the operations of AOL and Yahoo, the search engine pioneer, and Cisco under single control. AT&T got it badly wrong because it never seriously looked at alternative scenarios.

Another example shows how scenarios can provide a framework for thinking, a means of sifting through the information deluge for the facts of real consequence. Several years ago, a sophisticated technology company began looking at the future of some of its key technologies and its research and development strategies. In workshops designed to facilitate this process, discussions ranged over the potential of fuel cells, biotechnology extending human life, and nanotechnology.

The participating group of senior technical executives mostly dismissed the potential of these new areas. However, they did develop multiple scenarios that looked at the interplay of technical developments and market acceptance. These addressed the possibility that there would be rapid advances in and early adoption of technology, or that technical progress might be slower or even that there could be real resistance in the marketplace. Each of these scenarios turned out to be perceptive in its own way and prepared the executives—despite their scepticism—for the early signals of change and to recognize their significance.

In the months that followed, members of the technical group reported that information on these scenarios had begun to leap out of the background. Articles from newspapers, journals, and magazines on nanotechnology, fuel cells, life extension, and genetically modified organisms emerged with increasing frequency. Within a year, they had changed their views on the potential of these new technologies and successfully launched R&D efforts in two areas—ahead of competitors.

It might be argued that scenarios are unnecessary for such changes of mind and strategy. A straightforward discussion group flagging possible areas of technological advance could just as easily alert executives to the changes and produce precisely the same effects.

Yet scenarios differ in an important respect: their level of structure and detail. They gave these technical executives a familiar construct in which to fit and make sense of new data. Having considered the detailed, though hypothetical, consequences of the wide-scale adoption of these technologies, the group was able to make much more informed judgments about their real-world development. The scenario was a tool for enabling them to perceive new information in a timely way, to recognize important signals of change, and to understand the meaning of those changes for their organization. They were able to reassess the upside risks of the new technological opportunities.

Scenarios not only serve the immediate process ofd ecision-making, but also lead to gradual changes in the perceptual models of the decision-makers themselves. Decision-makers can reconstruct their perceptions and change their minds, and ultimately change their agenda, even as they go forward. So scenarios can have their impact in the short term, in informing the immediate decision, as well as over time, as decision-makers reframe their mental maps.

In conclusion, risk management scenarios show the decision-maker their own perceptions of the risk environment. They thus provide a tool that links the perceptual context with the external environment. The stronger this link, the better placed we are to understand—and perhaps to improve upon—a corporate record of spectacular successes and equally spectacular failures.

African Mining: Scenarios in Action

A major mining company had an option on a central African ore deposit of the type known in the industry as a "companymaker"—the kind of ore deposit found only once or twice every century. Unfortunately, this deposit sat in the middle of a war zone. The central question was: Should it continue to protect the option? Clearly it could not exercise the option and develop the site immediately. However, the option was up for renewal, and the company was going to have to pay several million dollars to preserve it. Faced by a difficult investment decision, the company chose scenario planning.

A new chief executive had just taken over the company and was sceptical of the chance of success, based on his experiences running businesses in Africa. In the absence of a strong possibility of an improving political climate, he was unwilling to renew the option. So the significant analytical question was whether there were any plausible scenarios for a more orderly environment that would permit development of the ore deposit.

There were many paths to chaos—to some extent, the country was already in chaos and it was not hard to see this continuing. But after doing its research, gathering reliable data, and engaging a number of credible experts in a series of scenario workshops, the planning team developed robust scenarios suggesting plausible paths to order. A scenario of a settlement imposed through the combined effort of its neighbours and the European powers seemed quite plausible.

There were some early signals that just such a process was underway. This demonstrated that while indeed there were paths to chaos, and probably more of them than to order, there were at least some credible paths to a more orderly environment that would support development. Crucially, there was a reasonable likelihood of big regrets if they let the option lapse. The chief executive changed his mind and renewed.

Copyright The Financial Times Limited