Scenario building: A Suggested Methodology

ASC Conference Team

November 25, 2009

Scenario building is one of the most powerful methods available to researchers and policy analysts for understanding the dynamics of the various interdependent factors that shape alternative futures. It also highlights and projects the potential influence of different policy choices made in the present.

Scenario building allows us to transcend narrow thinking about just a “best case,” “most probable case,” or “worst case” future, and leads researchers and their audiences to a deeper understanding of the dynamics and possible range and complexities of future environments.

Ultimately scenario building is not really about the future per se, but rather focuses on shaping the lens of how we should see where trends and events are going today, where they could lead to, and what we could do to affect them. Thus, scenario building is amongst the most powerful analytic tools to answer two fundamental questions of interest to think tanks and their stakeholders:

  • “How will the future be different from today?” It allows us to look not at one factor in isolation, but to weave several interactive drivers of change into a descriptive gestalt.

  • “What would I need to do in the present to arrive at, or avoid a potential future?”

These questions, in turn, orients policy makers and policy implementers to position their systems proactively—toward where things are going, and to make informed decisions about what future states are desirable to approach or avoid. They operate first on the level of paradigms, or “maps of reality” and how we understand a system, and what ends we believe are achievable, and secondly at the level of strategy, of matching our means and actions to accomplish that end.

Scenario building is often used in a very loose manner as just imagining some specific event or set of conditions. But scenario building in this context, and for the purposes of the 12th Asian Security Conference, has a much more specific meaning, and it has a defined methodology that has historically yielded good results. It is a simple, but sequential process.

The Methodology of Building Useful Scenarios

1. Identify Clearly the System of Concern. It is important analytically to limit the scope and focus. Some researchers may be looking at the larger balance of power, while others may be examining the trajectory of just one country, region, or sub-region. The dominant strategic drivers are likely to be different in each case, and the researcher should ask and answer the difficult question of what are the most important factors that will make the future different from today for that specific system, area or region

2. Pick a specific date. It is very important to introduce the element of time into scenario building. A specific date constrains how far each trend, and the system as a whole can move or change in a given period of time. For instance, an extrapolation of India’s GDP growth or China’s Population Demographics will look quite different in 2030 as opposed to 2050.  Similarly, a specific date and historical knowledge provides insight into how much of a window exists to change a policy or strategy and see it come to fruition. Any change in policy, for example, “Look East” takes time to bear fruit, as projects and meetings take place over years, and there is a delay between sowing and reaping.

3. Identify the Strategic Drivers of Change. What is of importance is the understanding of how tomorrow is likely to be different (and therefore requires different thinking and policies to remain adaptive) than today. Sometimes we have high confidence in the direction of change (India will get richer), at other times we can be confident that there will be a change but there is great uncertainty or disagreement on the direction (Will wealth be more or less equitably distributed) or the speed of growth (will India grow at 4 per cent or 10 per cent).  For each type of driver, there is a specific methodology:

i. Identify the High Impact Drivers of Change about which there is relatively high confidence Often there are major trends playing themselves out that have considerable momentum, and can be forecast with relative confidence barring some major catastrophe. Often a researcher may feel that things such as demographic trends, GDP growth, technology trends, etc. fall in this category. Usually there is no lack of such data and predictions available on-line (UN, World Bank, Goldman Sachs, and so on). However, we are interested in weaving these separate predictions together into a coherent picture that develops over time. There is not a hard limit to the number of such drivers, but it usually serves analytic purposes better if the researcher pares them down to fewer than a handful. A useful method to simplify is to ask “Will this really result in a qualitative change in the system?” For instance, a trend that results in a 10 per cent increase in GDP PPP is very different from a trend that would lead to quadrupling of the GDP PPP.

ii. Identify the Drivers of Change about which there is great uncertainty.  Some factors can have a high element of embedded uncertainty in them, meaning that these are highly consequential factors that will cause the future to be different than today, but could also go either way, or the rate of change is deeply uncertain. It is the task of the researcher to identify which of these variable factors would make the most strategic difference in the character of the overall system. For instance, here is a list of some of the drivers that past global scenario builders thought were of strategic importance and great uncertainty:

  • Whether or not the relationship between two major powers (eg. United States and China) was cooperative or adversarial?

  • Whether or not a regional actor chose to have an activist or isolationist policy?

  • Which regional actor had the strongest economy and influence?

  • Whether or not terrorism or interstate conflict was perceived as the dominant security threat?

  • Whether or not fossil fuels were abundant or scarce in comparison to demand?

Here it is very important to limit the major drivers of uncertainty to just three.  Scenario building that attempts to analyze together more than three drivers has historically proven cumbersome and difficult to digest, resulting in less useful analytic products. While there are likely to be many uncertainties about the future, it is the job of the researcher to consolidate and pare down to identify the top three drivers that are distinct from each other and which, in the researcher’s opinion, are likely to have a greater strategic effect on the system than the others. 

Most researchers prefer to examine three sets of interacting binary uncertainties. An important alternative that has also proven analytically useful is when the most relevant factors are opposed not by one possibility but by two. Where, for instance, elements in the system are trying to maximize three different goods (as for instance Efficiency, Security, Social Cohesion) that in part oppose each other, but usually, “Two win and one lose.”

iii. Graphically Create the Space of Possible Futures.

In the most common format, this results in a cube, as depicted above, where the three sets of binary uncertainties are set orthogonal to each other as the X, Y, and Z axes and define the boundaries of the space of possible futures in the research model. The extreme points (there are a total of eight) become the most divergent futures of where the uncertainties can take us. Usually all eight are not interesting or analytically useful to develop, but at least three or four are quite interesting and worth developing. It is important to give each scenario an interesting, descriptive, and memorable name. For instance, in the example above, “Elbow Room” is the point where the major external powers are adversarial, but South Asia’s Growth is strong and its foreign policy is activist. This is a very different world than the opposite side of the uncertainty space, “Help Please” where low South Asian Growth, an isolationist Indian foreign policy, and a cooperative relationship between foreign powers prevails.

In the alternative “2 Win, one loses” or Shell “Trilemma” model, the strategic space described is a triangle, and the interesting scenarios emerge from the complex tradeoffs where two of the competing drivers win at the expense of the third.

4. Create a narrative timeline.  The job of building scenarios does not end with the identification of generalities in extreme end points. To provide useful scenarios, each must have its own “history of the future.”

For the uncertain drivers, the researcher must pick representative major events that plausibly could move the system from where it is now to the possible future scenario, and weave them in time. The researcher might chose to do this graphically, or through a narrative story, but either should include major policy decisions and events, and might sound something like:

“The results of the 2010 elections in country X were __, resulting in a public statement of Y.  At the subsequent 2012 APEC summit, a decision was announced to ___.  Country Z reacted strongly, making a demarche in the UN, and putting pressure on MNCs doing business with it.  As a result, company T decided to postpone its investment in a major pipeline till 2016.  The loss of hope to the province that would have benefited resulted in a violent incident that…”

The purpose of constructing the narrative timeline is not to actually predict any course of events, but strengthen the researcher’s understanding and insight into cause and effect,  second-order effects, and to be able to talk concretely rather than vaguely about what such uncertainties might actually mean if played out in reality. The timeline has a second purpose: it allows the researcher to “live through” a simulated future of influential events. This puts the researcher in a strong position to describe and make judgments about that future—What is it like to live in that end state? Is it a safer or more dangerous world than today or the other scenarios that have been crafted?

5. Conclusions, Recommendations, and Strategic Bets. The final step for the researcher is to take the perspective of citizen or policymaker and assist in making the decision of where to attempt to take the system, and illuminate what are the policies that must be pursued to get there.

  1. Setting the Long-Term Vision: Making a Value Judgment about Where to Go. Having “lived through” at least three alternative futures, and examined what are the likely problems and considerations to be encountered along the way, the researcher can now ask and answer: 

    • “Which of these futures is desirable?”, and

    • “Which of these futures would be best avoided?”  

    Based on the possible future options (one of the three or four Scenarios Examined), make a policy recommendation as to what should be the realistic long-term vision of a desirable future. That becomes the strategic end-state. 

  2. Illuminate the Policy and Strategy to get there. Look back on the narrative timeline at what were the key events and policy decisions that took the system in one direction as opposed to another. Distil the key actions that would need to be taken, and the key actions to be avoided to create the greatest possible chance of arriving at the desired strategic end state. These become the recommendations for policy/strategy.

Additional Resources on Scenario Building:

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