Scenario Planning and Traditional Forecasting.

 

Scenario Planning

Private and public business practices make assumptions about the future of the business environment and changes that might ensue. They envision scenarios and predict the results of those happenings. 

Scenario Planning & Forecasting

Scenario planning identifies and evaluates possible outcomes, risks, and opportunities (Chermack et al., 2001). It involves visualizing and documenting possible occurrences. Scenario planning is a  tool that organizations use to estimate their growth, earnings, and overall outcome. They use it to combat uncertainty in the business world. 

Traditional Forecasting.

Traditional forecasting involves using records and observations to predict future business KPIs (Weatherford & Kimes, 2003). People who use this method believe that historical records play a vital role in determining future events. 

Comparisons Between Scenario Planning and Traditional Forecasting.

They both use records to make predictions. However, scenario planning uses past and current papers to estimate the future. Most researchers prefer scenario planning as they believe that it produces better results.

While the traditional method utilizes past data and quantitative methods, scenario planning involves the use of both quantitative and qualitative data and an approach for prediction. The conventional way is rigid and often experiences gaps and model breakage. Scenario planning is more strategic and flexible.

Advantages of Scenario Planning

1. With scenario planning, the stakeholders of an organization can understand the impacts of possible future events.

2. It promotes quick and appropriate decision-making amongst policymakers and business owners. They can visualize outcomes and choose the best option.

3. It also allows staff and teams to create immediate responses for possible threats or worse-case scenarios

4. The documentation process in scenario planning provides firms and countries with something they can lean on if the decision-makers are unavailable. 

Disadvantages of Scenario Planning

1. It is a long and time-consuming process. Firms may only use this if they make decisions within a month or two. 

2. It is a continuous process that updates as surrounding conditions evolve.

Advantages of Traditional Forecasting.

1. It enables the policymakers of an organization to plan and make decisions regarding the future of the organization or country. Some authors believe that firms can only plan for the future if they have a forecast or prediction.

2. Since they use historical records for the forecast method, firms can identify their previous weakness, predict possible defects, and create ways to avoid them.

3. Due to the nature of traditional forecasts, it promotes proper record-keeping, administrative control, and coordination.

Disadvantages of Traditional Forecasting.

1. Its reliance on past data affects its ability to predict future events accurately. Some researchers believe that this method is unreliable

2. Traditional forecasts do not appropriately link expenses, asset operations, and performance measures.

3. The deficiencies of this method drive organizations to oversimplify their assumptions.

4. It consumes a large amount of data, time, and resources. The process of gathering, converting, and analyzing the data requires a lot of human and financial resources.

References

Chermack T.J., Lynham, S.A. and Ruona, W.E.A.. (2001). A Review of Scenario Planning Literature. Futures Research Quarterly, 17(2), 7-10.

Weatherford, L. R. and Kimes, S. E. (2003) 'A comparison of forecasting methods for hotel revenue management, International Journal of Forecasting.