Multiple scenario development: Its conceptual and behavioral foundation

TLDR

The multiple scenario approach is presented as a key corporate innovation in strategic planning. The study investigates how scenario planning addresses methodological, organizational, and psychological challenges faced by senior managers. The author analyzes scenario planning through its intellectual roots, organizational requirements such as diverse perspectives and simplicity, and cognitive biases, and conducts experiments to assess its effects on confidence and belief coherence. Scenario planning is distinguished by a narrative script, cross‑model uncertainty, and decomposition of futures, offering benefits while presenting obstacles, and its psychological advantage lies in balancing biases such as overconfidence and conjunction fallacies.

Abstract

Abstract This paper examines the multiple scenario approach as an important corporate innovation in strategic planning. Using a participant/observer perspective, I examine how scenario planning tries to meet certain methodological, organizational and psychological challenges facing today's senior managers. Three prime characteristics are identified as setting the scenario approach apart from more traditional planning tools: (1) the script or narrative approach, (2) uncertainty across rather than within models, and (3) the decomposition of a complex future into discrete states. After exploring the intellectual roots of scenario planning, I examine such organizational aspects as the need for diversity of views and the importance of simplicity and manageability. Both benefits and obstacles to using scenarios in organizations are identified. Cognitive biases are examined as well, especially the well‐known biases of overconfidence and the conjunction fallacy. Two experiments test the impact of scenarios on people's subjective confidence ranges. Another two experiments test the internal coherence of subjects' beliefs. The psychological benefit of scenario planning appears to tie in the exploitation of one set of biases (e.g., conjunction fallacies) to counteract another (such as overconfidence).