Scenario Planning

Overview

Scenario planning was developed as a formal business discipline at Royal Dutch Shell in the early 1970s, primarily through the work of Pierre Wack, head of Group Planning. Wack's team built scenarios that anticipated the 1973 OPEC oil embargo — Shell was the only major oil company to have done so — and used them to reposition the firm while competitors were caught flat-footed. Wack described the methodology in two landmark Harvard Business Review articles: "Scenarios: Uncharted Waters Ahead" (September–October 1985) and "Scenarios: Shooting the Rapids" (November–December 1985).

The intellectual roots run deeper. Herman Kahn at the RAND Corporation developed scenario-based thinking for military planning in the 1950s and 1960s, coining the phrase "thinking the unthinkable." Peter Schwartz, who worked at Shell under Wack and later co-founded the Global Business Network (GBN), brought scenario planning to a broader business audience in The Art of the Long View (1991, Currency/Doubleday) — the most accessible introduction to the methodology. Kees van der Heijden's Scenarios: The Art of Strategic Conversation (1996, Wiley) provides the most rigorous practitioner framework.

The essence: instead of a single forecast (which will be wrong in some dimension), build 2–4 internally consistent stories about different ways the future might unfold, based on the interaction of critical uncertainties. Then develop strategies robust across multiple scenarios — and identify early warning signals that tell you which scenario is developing.

When to Use It

When the future is genuinely uncertain in ways that matter strategically: technology disruption, regulatory change, geopolitical shifts, macroeconomic scenarios. Most valuable for long-range strategy (5–10 year horizons), stress-testing existing strategies against adverse futures, and capital-intensive decisions with long payback periods where optionality has real value.

Less useful for near-term operational planning where uncertainty is lower and execution speed matters more than optionality. Scenario planning is overkill when the range of plausible futures is narrow.

How It Works

1. Identify the focal question — what strategic decision is this exercise designed to inform? Good scenario planning is always anchored to a decision, not conducted as general futuring. "Should we build a new plant in Southeast Asia?" is a focal question. "What will the world look like in 2035?" is not.
2. Identify key driving forces and critical uncertainties — brainstorm the macro forces that will shape the future for this decision (PESTEL is a useful starting structure). Then separate:
   • Predetermined elements: trends that will occur regardless — population aging, continued urbanization in emerging markets. These are constants in all scenarios.
   • Critical uncertainties: things that could go multiple ways and would have high impact if they did — regulatory direction, technology adoption rate, geopolitical stability. These are what drive the scenarios.
3. Build the scenarios — select the two most critical and orthogonal uncertainties. Place them on two axes to create a 2×2 matrix. Each quadrant is a scenario: a world defined by a particular resolution of those two uncertainties. Give each scenario a memorable name and write a compelling narrative: what happened, who the winners and losers were, what operating in that world would look like for your client.
4. Develop strategic implications — for each scenario: what would be the right strategy if this future unfolds? What would you regret not having done? Identify:
   • Robust strategies: moves that look good across all scenarios
   • Hedging strategies: moves that reduce downside in specific adverse scenarios
   • Early warning signals: indicators that tell you which scenario is actually developing, so you can adjust

Common Pitfalls

• Scenarios as forecasts — the most common misuse; scenarios are not predictions of what will happen, they're structured thought experiments; the moment a team argues about which scenario is "most likely," they've lost the method
• Too many scenarios — more than four is unmanageable; two to four gives enough spread without overwhelming the analysis
• Non-orthogonal axes — if the two driving uncertainties are correlated (they both point in the same direction), the four scenarios won't be meaningfully different; find axes that are genuinely independent
• No decision connection — scenarios divorced from a specific strategic question produce intellectually interesting exercises but not strategic insight; always anchor to the decision
• Skipping the early warning signals — the most actionable output is often the list of indicators that tell you which future is developing; teams that skip this leave the most practical value unrealized

Recommended Books

• The Art of the Long View — Peter Schwartz
• Scenarios: The Art of Strategic Conversation — Kees van der Heijden
• The Inevitable — Kevin Kelly