Scenario Planning versus Traditional Forecasting

 


Scenario Planning definition

            According to Schultz Financial Group scenario planning is “The process of visualizing what future conditions or events are probable, what their consequences or effects would be like, and how to respond to, or benefit from them.”  An example would be visualizing the benefits and risks of making 4G communications everywhere.  Many people believe that the radiation created from this can cause cancer and would become a greater risk than reward.  Others feel that this information is false, and we would get a greater benefit than risk in faster telecommunications.  The other side of the coin needs to be examined as well.  What would happen if we continued using 3G and chose not to upgrade?  Would our communications suffer?  Would other countries that utilize 4G gain an advantage over us?  Trying to understand the many scenarios created by decisions is the basis of scenario planning.

Forecasting definition

            Forecasting involves using past data to predict future events (Saulsgiver, 2018).  This is more commonly used in many businesses like sales, financial, insurance, and medical.  Sales uses this information to predict future sales while a bank may use this method to predict (and possibly prevent) customer churn.  Medical industries will use this to predict the efficacy of a vaccine (and none too soon) while the insurance business has made forecasting a major part of its business.  Actuaries are grateful for this and can be considered as a higher-level math data analyst.  The level of testing they undergo is intense.  They will analyze how often a certain age group- sex combination will have an auto accident.  This is then used to analyze the expected value of a wreck along with how many accidents are expected during the lifetime of coverage.  All of this information is used to assign an insurance rate that will ensure the insurance company will not go broke from its claims.

Differences

            Scenario planning uses both quantitative and qualitative methods.  It contains various levels of the cause, effect, benefit, and risk analysis.  Things can go in many different avenues while forecasting has no qualitative analysis in their predictions.

Advantages

            The fact that scenario planning uses both qualitative and quantitative analysis is one of its benefits.  It allows for both top-down and bottom-up approaches which allow for many issues to be avoided or at least prepared for (Saulsgiver, 2018).  A forecasting advantage is that because it only uses qualitative methods allows it to be cut and dried.  The analysis will be quicker with forecasting than with scenario planning.

Disadvantages

            Forecasting can be limited in its view of the future while scenario planning can lead you down many rabbit holes.  It may be difficult to think of possibilities and analyze them all.

 

References

Saulsgiver, W. (2018, February 23). Scenario Planning versus Forecasting. Retrieved from Schultz Financial Group: https://sfginc.com/scenario-planning-versus-forecasting/#:~:text=Forecasting%20deploys%20historical%20quantitative%20methods,from%20the%20past%20and%20present.&text=Scenario%20planning%20offers%20a%20greater,than%20purely%20quantitative%20forecasting%20mo

Steemit.com. (2019). Scenario Planning vs. Time-series Forecasting. Retrieved from Steemit: https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcQvRxkJ0YTSEW1EcMY4KlJz7NyP3OI2coHUKg&usqp=CAU

 

 

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