Scenario Planning and Traditional Forecasting

Scenario planning involves identifying a wide range of possible impacts and outcomes, evaluating responses, and planning for all possibilities (Ali, 2020). By predicting possible opportunities and risks, businesses can proactively plan for events, rather than simply reacting. Scenario planning can be used in multiple ways, such as in business, including estimating cash flow, projecting financial earnings, and mitigating future events, thus effectively handling uncertainty. Scenario planning can also be used to visualize various possibilities of an organization’s future by making assumptions about the forces that drive the market.

Traditional forecasting involves using various tools and techniques to predict business developments such as sales, profits and costs (Amer, 2013). Traditional forecasting is done by using informed predictions to develop suitable strategies. Qualitative and quantitative models collect and analyze past data to identify patterns and direct financial and marketing operations and future production.

Scenario planning is more effective than traditional forecasting because it uses quantitative and qualitative methods during risk management. This technique facilitates both the bottom-up and top-down approaches and enables businesses to predict the future and how the business may respond to possible events. Scenario planning’s process makes it more flexible compared to traditional forecasting.

Traditional forecasting uses historical quantitative methods in predicting future events using current and past data, leading to a rigid management assessment. Quantitative methods are often ineffective in predicting a highly dynamic market. Forecasting is also unsuitable for assessing risk in dynamic markets because its models are ineffective when assessing new events (Solanki, 2021).

Scenario planning leads to the development of quality and effective policies (Saulsgiver, 2021). It leads to the generation of new insights and ideas of developments in an organization’s external environment. Scenario planning also enables the organization to evaluate its business paradigms and monitor trends in the market, thus widening its strategic vision. However, the success of scenario planning relies on the processes used in executing it. It is also a vague process since it is theoretical in nature, without any scientific backing.

Traditional forecasting provides valuable insight by using past and present data in predicting the future, leading to better preparedness. When traditional forecasting is done effectively, it can increase efficiency in the business leading to decreased costs. However, traditional forecasting is resource-intensive and time-consuming. It involves spending a lot of time gathering and organizing data. Traditional forecasting is costly because it involves hiring planners, purchasing quality tools and advanced software.  


References

Ali, R., & Luther, D. (2020). Scenario Planning: Strategy, Steps and Practical Examples. Retrieved from

https://www.netsuite.com/portal/business-benchmark-brainyard/industries/articles/cfo-central/scenario-planning.shtml#:~:text=In%20the%20context%20of%20a,how%20your%20organization%20will%20respond.

Amer, M., Daim, T. U., & Jetter, A. (2013). A review of scenario planning. Futures, 46, 23-40.

https://www.sciencedirect.com/science/article/pii/S0016328712001978

Saulsgiver, W. (2021). Scenario Planning vs Forecasting. Retrieved from

https://sfginc.com/scenario-planning-versus-forecasting/#:~:text=We%20believe%20this%20makes%20scenario,very%20rigid%20risk%20management%20assessment.

Solanki, K. (2021). What is Scenario Planning? | Process, Advantages & Disadvantages.

https://www.toppers4u.com/2021/11/what-is-scenario-planning-process.html


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