Scenario based planning and decision-making

SCENARIO-BASED PLANNING AND DECISION-MAKING:

GUIDELINES FOR USE IN THE U.S. ARMY CORPS OF ENGINEERS PLANNING STUDIES AND

LITERATURE REVIEW

By Charles Yoe

PRESENTER

RAJAN NHEMAPHUKI 071MSTIM160 PULCHOWK CAMPUS

CONTENTS

1.Introduction

2.Uncertainty and a Culture of Uncertainty

3.Scenario Planning

4.Scenarios in Corps of Engineers Planning

5.Conclusions

“ALL OUR KNOWLEDGE IS ABOUT THE PAST AND ALL OUR DECISIONS ARE ABOUT THE FUTURE”

IAN WILSON 1/31/75

Planning in an uncertain world

WHAT IF THE FUTURE IS NOT LIKE THE PAST?

Charles Yoe Professor of Economics at Notre

Dame of Maryland University

Recent publications include three textbooks:

• Principles of Risk Analysis: Decision Making Under Uncertainty• Primer on Risk Analysis: Decision Making Under Uncertainty• Natural Resources Planning

Experience

Consultant and Risk analyst U.S. and other government Involvement: International trade, Natural disasters, Ecosystem restoration, Navigation, Planning, Water resources.

Figure 1: Planning Process (P&G)

US Corp. Planning Process

Problem & Opportunity

Inventory & Forecast condition *

Plan Formulation

Evaluation

Comparison

Selection

TRADITIONAL P&G PLANNING

Is largely deterministic*

Process relies on a single most likely alternative future forecast with and without condition.*

Desire for single right answer Often anchored in present Adversarial--legitimate differences in

views of uncertain future

MOST LIKELY FUTURE CONDITION

Single forecast of the future will be wrong

Thus, planning is based on what could be

not necessarily what will be What could be is wide open to debate –We cannot ignore it The consequences of being wrong may

be serious

TRADITIONAL CORPS’ PLANNING METHODS

During the postwar years the future could indeed be adequately described as an extension of the immediate past.

But now world is rapidly changing and growing complex world.*

Future could no longer be characterized accurately as an extension of the past.

2. UNCERTAINTY AND A CULTURE OF UNCERTAINTY 2.1 UNCERTAINTY IN THE WORLD

- World is rapidly changing and growing complex world.

-A new phenomenon of “known

unawareness” has entered.* -In an uncertain world we cannot know

everything and we will make mistakes despite our best efforts to the contrary.

2.2 THREE DECISION CONTEXTS FOR THE CORPS

Risk involves known probabilities of events with potentially undesirable (or less desirable) outcomes.*

Situations of uncertainty involve known states of the world, but with unknown probabilities.*

Ignorance involve unknown states of the world and their probabilities.

-Catastrophic events such as the 9/11 attacks

2.3 A CULTURE OF UNCERTAINTY

Stakeholders and principals are ready, prepared and able to openly talk about an approach to risk, uncertainty and ignorance.

Successful companies will be those best able to handle uncertainty through adaptive attitudes, structures, and processes.

FOUR ESSENTIAL THINGS FOR ESTABLISHING A CULTURE OF UNCERTAINTY

Knowledge of Uncertainty Environment That Supports Uncertainty

Analysis. Infrastructure* Stakeholder Involvement*

Non-federal

planning partners

Citizen& stakehol

der

US Corp

Academia

*Environment That Supports Uncertainty Analysis*

2.4 UNCERTAINTY NOT ALWAYS SIGNIFICANT*

3.0 SCENARIO PLANNING

Developed in second half of 20th century (Europe)

Result of failure of traditional planningDeterministic view of futureForecasts were wrong

SCENARIO PLANNING

Explores several alternative futures Developed by blending data and

analysis with intuition and creativity wellcrafted like novel stretch the imagination without going

outside the bounds of believability. consistently address issues that are

critical to decision makers.

Schriefer and Mercer, 1996

SCENARIO PLANNING

More than one possible future and they are significantly different.

Examination of a complete range of futures that could be realized.

The plan that performs best across all future without project conditions is deemed the best plan.

3.1 SCENARIOS IN THE CORPS CONTEXT

Scenarios have always played a significant role in the Corps’ planning process.

Scenario is called the “without condition” if no any specific action taken to alter the path of the future.

If without condition future scenario is undesirable, planning partnership may decide to take action in the present to alter that future.

This scenario is called the “with condition”

3.2 EARLY HISTORY OF SCENARIO PLANNING 3.2.1 WHAT IS IT?

Herman Kahn (RAND Corporation ,1950s) “A description of possible actions or events in the future”.

3.2.3 Why do it? “Scenarios are most appropriate under conditions

where complexity and uncertainty are high” (Schoemaker, 1993)

3.2.4 Who’s doing it? Firms, Industries like Aerospace &

telecommunications Agriculture, Banking, Chemicals, Data-processing, Petroleum, Public- utilities

3.3 PURPOSE OF SCENARIO PLANNING

3.3.1 Scenario Planning is Strategic 3.3.2 The Shell Experience 3.3.3 The Role of Stakeholders 3.3.4 Forecasts Are Usually Wrong

3.4 CONSTRUCTING SCENARIOS

1. Develop case for scenarios

2. Get executive support and participation

3. Define decision focus

4. Design process5. Select facilitator6. Form scenario

team

7. Gather data & view

8. ID key decision factors

9. ID critical forces & drivers

10. Conduct focused research on key issues, forces, & drivers

Getting Started Laying Environmental-Analysis Foundation

SCENARIO PLANNING STEPS

11. Assess importance & predictability/uncertainty of forces/drivers

12. ID key axes of uncertainty

13. Select scenario logics to cover uncertainties

14. Write stories for scenarios

15. Rehearse future with scenarios

16. Decision recommendations

17. Identify signposts to monitor

18. Communicate results

Creating the ScenariosMoving from Scenarios to Decisions

4. SCENARIOS IN CORPS OF ENGINEERS PLANNING

Uncertainty

Consequence

Grave

Minor

Much

little

P&G Planning

Scenario Planning

Standard Decision Making

P&G Planning

When to Use Scenario Planning

FORECASTING & COMPARING CRITERIA

`

Baseline Risk

Existing Risk

Without Condition (Single scenario)

With ConditionBefore & AfterComparison

With & WithoutOption Comparison

Target Gap Analysis

Time

4.1 CURRENT CORPS PLANNING METHOD

4.2 PLANNING WITH MULTIPLE WITHOUT CONDITIONS

. Problem & Opportunity

Inventory & Forecast

conditions *

Plan Formulation

Evaluation

Comparison

Selection

4.3 PLAN SENSITIVITY TO ALTERNATIVE FUTURES AND REGRET

4.3.1 A Selected Plan’s Sensitivity to the Future

Scenario A

Recommended plan 1

Scenario B

Scenario C

Scenario D

Benefit Benefit Loss(regret)

WHAT IF REGRET IS SIGNIFICANT?

Reformulate Plan A* Wait & See*

4.3.2 PLAN SELECTION’S SENSITIVITY TO THE FUTURE

Scenario A

Scenario B

Scenario C

Scenario D

Recommended plan 1

Recommended plan 2

Recommended plan 1

Recommended plan 3

How To Decide?Compare Net Benefit of Plan 1, Plan 2, Plan 3.

4.4 SENSITIVITY ANALYSIS

Sensitivity analysis has been described as “what if” analysis.

systematic investigation of the model inputs, parameters, and assumptions used, future condition scenarios

SENSITIVITY ANALYSIS

4.4.1 Assumptions Sensitivity 4.4.2 One-At-A-Time Analysis 4.4.3 Joint Analysis 4.4.4 Scenario Analysis 4.4.5 Subjective Estimates* 4.4.6Importance Analysis*

4.4.7 What Does It All Mean? Sensitivity analysis enables planners to

experiment with the performance of their plan and to revise it according to what they learn about its performance

5.0 CONCLUSIONS

Traditional P&G Planning is deterministic, relies on a single most likely alternative future forecast often anchored in present.

failure of traditional planning in rapidly changing and growing complex world.

“Scenarios are most appropriate under conditions where complexity and uncertainty are high” (Schoemaker, 1993)

The benefit is not more accurate forecasts but "better decisions about the future."

THE END

QUESTIONS ?

THANK YOU

REFERENCE

Scenario-Based Planning and Decision-Making: Guidelines for Use in the U.S. Army Corps of Engineers Planning Studies and Literature Review by Charles Yoe .

Charles Yoe presentation.