CGMA TOOL

Scenario planning: Providing

insight for impact
Two of the world’s most prestigious accounting bodies, AICPA and CIMA,
have formed a joint venture to establish the Chartered Global Management
Accountant (CGMA ) designation to elevate and build recognition of
® ®

the profession of management accounting. This international designation

recognises the most talented and committed management accountants
with the discipline and skill to drive strong business performance. CGMA
designation holders are either CPAs with qualifying management accounting
experience or associate or fellow members of the Chartered Institute of
Management Accountants.
CONTENTS

EXECUTIVE SUMMARY 2

INTRODUCTION 3

What is scenario planning? 3

SCENARIO PLANNING IN ACTION: SHELL 4

BUILDING A SCENARIO PLAN 5

Step 1: Define scope, issues and time horizon 7

Step 2: Define key drivers 8

Step 3: Collect and analyze data 8

Step 4: Developing scenarios 10

Step 5: Apply scenarios 12

Step 6: Maintain and update 15

CONCLUSION 16

RISKS AND MITIGATION STRATEGIES 16

FURTHER READING 19
EXECUTIVE SUMMARY
Scenario planning is a management tool that is designed to allow organizations to evaluate
the efficacy of strategies, tactics, and plans under a range of possible future environments.
In short, it is a perfect tool for today’s increasingly uncertain and volatile world.

Quality decision-making has never been more important — or more difficult. Competition
is relentless, new innovations disrupt the status quo, and torrents of information add to the
increasing complexity of business. The Global Management Accounting Principles prepared
by the Chartered Institute of Management Accountants (CIMA) and the American Institute of
CPAs (AICPA) are intended to help organizations extract value from this increasing volume of
available data.

COMMUNICATION INFORMATION IS
PROVIDES INSIGHT RELEVANT
THAT IS INFLUENTIAL Help organisations plan for
Drive better decisions and source the information
about strategy and its needed for creating
execution at all levels strategy and tactics
for execution

GLOBAL
MANAGEMENT
ACCOUNTING
PRINCIPLES
©

STEWARDSHIP IMPACT ON
BUILDS TRUST VALUE IS
Actively manage
ANALYSED
relationships and resources Simulate different scenarios
that demonstrate the cause-and-
effect relationships between inputs
value of the organisation are protected and outcomes

No organization has the luxury of locking into a single view of what the future may look like
and placing all their bets on that outcome. The level of global economic interdependence,
advances in technology and changing business models are increasing complexity and hence
uncertainty for all organizations. Those that fail to adapt to the new realities will stumble
and ultimately fail. Those that are able to act quickly to rapidly changing circumstances and
mitigate threats or seize opportunities will thrive.

Scenario planning allows organizations to plan for an uncertain future enabling them to
react with greater speed and confidence. By simulating different scenarios that demonstrate
cause-and-effect relationships an organization can create the insight necessary to understand
the impact of potential decisions on generating and preserving value.

2 CGMA TOOL: SCENARIO PLANNING: PROVIDING INSIGHT FOR IMPACT

INTRODUCTION
WHAT IS SCENARIO PLANNING?
In simple terms, scenario planning provides a structured method for organizations to evaluate
alternative views of what may happen in the future as an aid to strategic, operational and
financial planning.

A scenario is a cohesive set of assumptions that describes Scenario planning has value in any situation in which
a view of the future that is then used to develop a there is significant uncertainty about aspects of the
forecast or test a strategy, plan or decision. Scenario future that could materially change an organization’s
planning is largely focused on answering two questions: strategy, plans or decisions.

1. What could happen? To be effective, scenario planning must be focused —

2. What would be the impact? ideally around a material question or issue that needs to
be answered or understood. These can be very specific
Scenario planning is a means for managers to visualize such as “Should we enter the Chinese market?” or
the future and assess how they will respond in different relatively broad such as, “What are the implications of
situations. As agility, flexibility and responsiveness have reducing the reliance on fossil-based fuels?” In either
become more prized capabilities, scenario planning has case, there are many variables that could shape the
become an integral part of the overall planning and risk future making it difficult to construct a single scenario
management process for many organizations. upon which decisions can be made.

Scenario-planning techniques are being used to help

organizations better understand the implications on a
broad range of decisions affecting business strategy,
investment prioritization and operations. Of particular
note to management accountants is that many
organizations are looking to integrate aspects of scenario
planning into near-term management processes such as
risk management, business case development, budgeting,
forecasting and competitive analysis. Examples include:

• Capital investment decisions such as building new

plants, opening new retail outlets and upgrading
equipment
• Market strategy decisions regarding market entry
and exit, marketing spend by segment, and channel
strategy
• Financing decisions based upon scenarios
surrounding credit quality/availability, interest rates
and equity valuations
• Human resource decisions regarding location,
sourcing, pay practices and benefits costs

3
 SCENARIO PLANNING IN ACTION: SHELL

Shell has contributed much to the literature on the use of scenario planning. The company publishes its
scenarios on its website (shell.com/global/future-energy/scenarios.html). Shell Scenarios ask “what if?”
questions to explore alternative views of the future and create plausible stories around them. They consider
long-term trends in economics, energy supply and demand, geopolitical shifts and social change, as well as
the motivating factors that drive change. In doing so, they help build visions of the future.

Jeremy Bentham, Head of Scenarios, Strategy and Business Development, Royal Dutch Shell, is quoted
as saying that “our goal is not to predict the future but to enable policymakers to make richer and better
decisions involving the future, as a result of having a deeper grasp of key drivers and key uncertainties.”

The company goes on to describe how scenarios are used:

Scenarios help decision-makers reconcile apparent contradictions or uncertainties, such as how political
change in one region affects global society. They also have the potential to improve awareness around
issues that could become increasingly important to society, such as increased urbanization, greater
connectivity or loss of trust in institutions.

By exploring plausible, as well as predictable, outcomes, scenarios challenge conventional wisdom.

Organizations using scenarios find it easier to recognize impending disruptions in their own operating
environment, such as political changes, demographic shifts or recessions. They also increase their resilience
to sudden changes caused by unexpected crises like natural disasters or armed conflicts.1

4 CGMA TOOL: SCENARIO PLANNING: PROVIDING INSIGHT FOR IMPACT

BUILDING A SCENARIO PLAN
Scenarios are a way of understanding the forces at work today (e.g., demographics, globalization,
technological change, environmental stewardship and biotechnology) that will shape the future.
Scenarios can be organized into four broad categories:

1. Social — What are the implications of increasing productive process and deliver more widely understood
obesity, or the widespread efforts to combat it? outputs, but requires careful planning, disciplined
management and the commitment of time by senior
2. Economic — What is the effect of slower growth management.
of the Chinese economy on global markets?
Regardless of the approach adopted, the steps needed to
3. Political — What is the likelihood and impact of build a scenario plan are straightforward. While there
European Central Bank measures to improve the are numerous methodologies that have been created for
uneven economic recovery? building scenario plans, they all follow the same basic
4. Technological — What will be the impact of the approach (see figure 1).
“Internet of things” on the rate of change in an industry
or particular business?

Like most other management techniques, scenario

planning is not just about the quality of the results
that accrue from the exercise. Scenario planning can
serve as a powerful educational tool for managers who
participate in the process by increasing awareness of the
impact of uncertainty and allowing them to envision how
their behavior and decision-making will change under
different conditions.

There are two basic models for organizing a

scenario-planning exercise:

1. Expert — A small group completes the

scenario-planning process, often led by the strategic
planning team possibly supported by external
consultants and other subject-matter experts.

2. Collaborative — A small core team leads the exercise,

but the organization seeks input and participation from a
broad cross-section of people from inside and outside the
organization.

The expert approach has the advantage of usually

being quicker and more focused than the collaborative
approach but much of the organizational learning and
personal development opportunities are sacrificed.
The collaborative approach is likely to ensure a more

5
 Figure 1: Scenario planning work approach

• Define the Issues, decisions or key variables that need to

Define scope, issues be evaluated
and time horizon • Set the scope of study
• Agree on an appropriate time horizon for the scenarios

• Identify key internal and external drivers that are likely to

influence future scenarios
Define key drivers
• Establish critical relationships

• Collect quantitative, qualitative and expert opinion data as

17 Collect and analyze data inputs to the scenario definition process
• Assess the materiality and volatility of the key drivers
• Analyze key relationships that will affect the future

• Construct a series of cohesive and logical scenarios and

develop a narrative description for each
Develop scenarios • Test the scenarios against the quantitative and qualitative
data and expert opinions
• Update scenarios as appropriate

• Test strategies, plans, forecasts and decisions under each

scenario as appropriate
Apply scenarios • Develop action/contingency plans for each scenario
where needed
• Communicate to all constituencies

• Define leading indicators and key performance metric;

integrate into the performance reporting process
Maintain and update • Update scenarios as appropriate over time
• Repeat the process as needed

6 CGMA TOOL: SCENARIO PLANNING: PROVIDING INSIGHT FOR IMPACT

STEP 1: DEFINE SCOPE, ISSUES AND TIME HORIZON
Before embarking upon a scenario-planning exercise, it is essential to be clear about the issue that you
are seeking to address and then define the appropriate scope and time horizon for the scenarios to be
constructed. Answering the following questions can assist:

• What issues or decisions are being evaluated?

• Is there a high degree of uncertainty about the future
environment?
• What is the time horizon for making decisions and
then executing against them?

For example, an oil company may have a 15-year time

horizon from initial exploration to full production of
a new oil field; a pharmaceutical company may focus on
a 20-year time horizon that matches the patent protection
period for newly approved drugs; a fashion retailer
may only focus on a six- to nine-month window, which
equates to the next two (spring and fall) selling seasons.

EXAMPLES OF FRAMING ISSUES

Figure 2: Framing issue questions

“How is the increasing affluence of the

“What would be the impact Chinese middle class likely to affect
on our strategy and business demand for our products over the next
plans for the next three years five years?”
if oil prices averaged:
“What will be implications of a strong
1. $55 a barrel dollar and fluctuating foreign exchange
rates on our plans for next year?”
2. $110 a barrel
“How will cloud computing affect
3. $175 a barrel”
competition in the software as a service
marketplace?”

7
STEP 2: DEFINE KEY DRIVERS
The heart of an effective scenario plan is to identify the right drivers around which to construct the
scenarios. In the context of scenario planning, drivers are internal and external factors that could
influence the future environment. This definition is very broad so it is important to develop reasonable
criteria for identifying those that are material to the organization or issues being addressed.

Figure 3 provides examples of drivers that may be integrated into the development of scenario plans.

Figure 3: External drivers and internal variables

EXTERNAL DRIVERS KEY BUSINESS VARIABLES

• GDP growth • Access to capital

• Demographic change • Market share/acceptance

• Market size and growth • Customer satisfaction/loyalty

• Commodity prices • Productivity

• Consumer spending patterns • Quality

• Rate of technological innovation • Cost structure

• Inflation • Business model

• Exchange rates • Talent attraction/retention

• Time to market

STEP 3: COLLECT AND ANALYZE DATA

In traditional planning processes, much of data collected are of a historic nature. When embarking
upon the development of scenario plans, the data collection net should be cast wide. Numerous
types of data can be collected, including traditional historic trends, future projections and forecasts,
insights as to potential sources of disruption, alternative hypotheses of the future and analyses of the
relationships between key drivers.

DESIGN OF HEDGING STRATEGIES

Not all the data need to quantitative, some of the most scenarios of what the future may look like based upon
interesting inputs to scenario planning can be the diverse what is known or believed today.
opinions of experts and futurists who specialize in
Having collected the base data, the next step is to
conceptualizing alternative futures. The key is to collect
identify the relative materiality and predictability of the
a broad range of data with a view to developing credible

8 CGMA TOOL: SCENARIO PLANNING: PROVIDING INSIGHT FOR IMPACT

drivers. For example, the supply of hotel rooms is largely affect an organization or a market is increasing — hence
predictable in the short term, whereas fashion trends or the increased interest in scenario planning.
exchange rates are far less certain.
One technique that can assist in prioritizing drivers
Even for drivers where the long-term trend has been is to map them against two axes. The first axis is an
reasonably stable, scenario planners should not be afraid assessment of each driver’s materiality or importance
to ask the question, “What could materially change to the issue or decision being analyzed and the second
this trend?” looks at the predictability of future trends for each
driver (figure 4). Those drivers that are both material
Scenarios are not directly concerned with probabilities. and reasonably predictable (top top-right-hand circle)
They are more concerned with plausibility. Several of can form a consistent basis for all the scenarios that are
the defining events of the current millennium such as to be developed. Those that are material but difficult to
9/11, the global credit crisis and the H1N1 pandemic predict (top-left-hand circle) will be those that define the
all had low probabilities but were plausible. In a world differences between the scenarios.
characterized by increased volatility and uncertainty, the
number of plausible but low probability events that can

Figure 4: Evaluation and identification of key drivers

High
Key drivers Baseline for
all scenarios

Materiality

Low

Low High
Predictability

9
STEP 4: DEVELOPING SCENARIOS
The starting point for many scenario plans is the traditional planning view of the future that is based
upon an extrapolation of current trends.

However, the value of scenario planning comes to continued to operate under the “business as usual”
the fore when the past is not a good surrogate for the scenario suffered rapid declines, exemplified by General
future and disruptive change occurs. For the automotive Motors, Chrysler, Sony (remember the Walkman),
industry, it was the 1973 Arab oil crisis, combined with Motorola, Sears and Woolworth.
the rise of imports in the U.S. market; for consumer
Crafting scenarios that lay out plausible alternative views
electronics, the disruption was the emergence of low-cost
of the future based upon a change in the behavior of
broadband Internet access; and for the retail model it was
drivers or the relationship between them is at the heart
the emergence of the “big box” retailer such WalMart,
of effective scenario development.
Target, Home Depot and Best Buy. Organizations that

GUIDELINES FOR DEVELOPING SCENARIOS

1. Develop between two and four scenarios. Developing more than four scenarios can be confusing
and counterproductive. Each scenario should be sufficiently distinct to materially affect future plans
or decisions.

2. The intent is not to develop the perfect scenario but to provide a mechanism for testing strategy,
plans, decisions and behaviors under a range of credible future scenarios.

3. Scenarios should be organized around the key questions or issues defined in step 1.

4. Each scenario must present a credible and logical alternative view of the future

5. Scenarios must be internally consistent.

6. Each scenario should clearly describe the assumptions or pre-conditions upon which it is based.

7. The differences between each scenario should be clearly documented and understood.

8. The completed scenario should include:

a. A narrative description that sets out the major elements that describes each scenario.
b. A listing of the key drivers that will determine whether the scenario prevails.
c. The definition of the leading indicators that will provide early warning that a particular scenario
is unfolding.
d. Quantifiable metrics that allow the organization to test strategies, plans, or decisions for efficacy
under each scenario.

The three most common approaches for defining for developing their plans for 2010. During the latter
scenarios are the spectrum, the matrix and the binary. half of 2009, when most plans were being developed,
The spectrum approach isolates one major variable there was considerable uncertainty as to the medium
that has a spectrum of credible future states. A simple term economic outlook. While stock markets were
example would be the approach many organizations used signaling signs of recovery, many other indicators such

10 CGMA TOOL: SCENARIO PLANNING: PROVIDING INSIGHT FOR IMPACT

as unemployment, gold prices, housing and credit quality ElectricIQ , is a software company focused on the
were less positive. A similar example is the planning development of smart systems for the management of
process for companies affected in 2014 by the fall in oil electric usage in factories and office systems. ElectricIQ
prices or fluctuations in foreign exchange rates, or those adopts the matrix approach and constructs four scenarios
affected in 2015 by the economic dynamics in China. across two dimensions (see Figure 5). The dimensions
are (a) public opinion, which describes the level of
The second approach is to organize the scenarios around consumer demand for environmentally friendly or
two dimensions in the form of a matrix. The matrix “green” solutions, and (b) public policy, which describes
approach isolates two material dimensions that have a the extent to which government policy incentivizes or
high degree of uncertainty associated with them. mandates “green” standards. This leads ElectricIQ to
define four scenarios to guide their planning:

Figure 5: ElectricIQ scenario development

Mandate
“Cost of “Do it
doing
business” or die”

Public policy

“Steady as “Better be
she goes” the best”

Subsidized

Early Mass market

adopter adoption
Public opinion

• Mandate – “Cost of doing business” • Necessity – “Do it or die”

Governmental action leads to hard mandates Public opinion swings rapidly to green solutions
for adoption. Little support is provided and and dramatically changes customer buying
adoption becomes a “cost of doing business,” patterns. Products not seen as being green are
akin to a tax. Public opinion is not a major shunned in the marketplace. Governments mandate
driver; consumers will not pay more for green adoption of environmentally friendly technologies
solutions unless forced to do so through taxation for new construction and remediation for all
or mandate. existing construction.

• Market-driven – “Better be the best”

• The “S” Curve – “Steady as she goes”
Public opinion moves to green, and consumers are
Demand for smart grid systems follows a
willing to pay extra for the best green products.
traditional adoption cycle of early adopters
Governments offer some incentives. Adoption is
leading the way at high prices; as the market
balanced between market innovation and a series
scales and prices drop, mass market adoption
of tax-based incentives by governments to
takes off before flattening out as maturity is
encourage adoption of smart grid technologies.
reached. Little effective public policy or
Being green becomes a source of competitive
incentives are provided/needed.
advantage.

11
There is a third approach that some organizations use Having constructed a set of plausible and interesting
effectively, which is to create just two scenarios using scenarios, many organizations mistakenly think they are
a simple binary structure where one scenario is “good” done — they’re not! While creating plausible scenarios
and the other is “bad.” This can be effective for simple that resonate with management is satisfying, the real
yes/no decisions where it is possible to define clear value comes by using the scenarios in a structured
criteria for the key drivers that determine whether they manner to test and adjust strategies, plans and decisions.
are acceptable for a decision to be made. However,
most situations are not so clear-cut and a simple binary
approach may provide insufficient choices.

STEP 5: APPLY SCENARIOS

One of the criticisms of scenario planning is that it can become a largely conceptual exercise with little
practical application. It is a valid criticism but not of the technique itself but more of how the results are
used (or more accurately not used). Too often organizations pour a lot of effort into developing rich
scenarios but fail to apply them in the planning and decision making process.

Beyond envisioning alternative views of the future, the investing in different markets. During their planning
next step is to assess how plans, decisions and priorities process they develop scenarios around each major region
will change under different circumstances. Figure 6 and then develop alternative investment portfolios based
provides an example of the type of scorecard one global upon the relative attractiveness of regions relative to
business uses to assess the relative attractiveness of each other.

Figure 6: Prioritize investment risks and opportunities

Strong government fueled
growth, rapidly rising
GDP growth
demand
Weak recovery, rising Patchy growth, flat demand Political risk
unemployment, softening GDP growth
demand for oil Market size
Political risk
GDP growth Market size
Political risk

Market size

China-driven growth
due to commodities

GDP growth
Strong growth, significant Political risk
new local oil finds
Market size
GDP growth

Political risk

Market size

12 CGMA TOOL: SCENARIO PLANNING: PROVIDING INSIGHT FOR IMPACT

The first step after completing scenario development risk factors and hence the appropriate risk mitigation and
is to test the sensitivity of strategies, plans and budgets management techniques that may need to be employed.
under different scenarios by asking, “What will be the
Let’s look at how the four scenarios for the consumer
impact?” Developing an understanding of the validity of
electronics industry defined in the previous step could be
different strategies and plans under different scenarios
used to frame strategies and make decisions affecting key
gives management a much clearer understanding of the
elements of a business:

Table 1: Electronics industry scenario implications

Better be Cost of doing Steady as

Do it or die
the best business she goes

Must meet the Focus on select

The minimum is not Innovative standards; little areas where there
Approach to
enough: must be leadership has advantage in is strong demand
innovation
best to win real value being ahead of and we have a
the curve capability

Partner with
Either be the safe
Marketing builders and Be No.1 in select
option (complaint) Must be a leader
strategies owners to secure niches
or the best
share

Be the preferred Build share

Market goals Own the high end Acquire share
supplier in niches

Focus on size Modest growth

Financial goals High margins Low-cost producer
and scale over time

After understanding the broad implications of each • Leading indicators may be identified that can provide
scenario, organizations will frequently complete more the organization with an early warning that the most
detailed analysis of specific initiatives or decisions. likely future scenario is changing. For example, the
For example: adoption of broadband Internet technology in Asia
progressed much faster than almost all forecasts,
• Budgets maybe recast under each scenario to assess making online business models much more attractive.
the financial implications. Leaders such as Google and Microsoft capitalized on
• Alternative approaches may be tested against each this trend while others such as America Online and
scenario. For example, a new entrant may model the eBay were less successful.
implications of entering new markets by partnering
with an established player versus direct entry under
each of the scenarios.

13
Table 2 shows how ElectricIQ’s management accounting
team used the scenarios to develop a high-level financial
model that laid out how forecasts of key market
measures, business volumes, and financial measures
would change under each scenario.

Table 2: Electric IQ scenario impacts

MARKET: WESTERN EUROPE

All metrics expressed as percentage change from the current three-year trend

Scenario

Better be the Cost of doing Steady as

Do it or die
best business she goes

A B C D

MARKET: WESTERN EUROPE

GDP growth 3% 5% 1% 2%

Demand: New construction 15% 24% 5% 4%

Demand: Remediation 20% 22% 8% 4%

ELECTRIC IQ VOLUMES

Existing products 12% 32% 3% 7%

New products 5% 28% 1% 3%

Western Europe share -2% 7% 0% 0%

ELECTRIC IQ KEY FINANCIALS

Revenues 18% 30% 3% 5%

Growth margins 4% 8% 0% 2%

Net margins 7% 12% 1% 1%

R&D investment 15% 25% 9% 5%

14 CGMA TOOL: SCENARIO PLANNING: PROVIDING INSIGHT FOR IMPACT

STEP 6: MAINTAIN AND UPDATE
Some organizations treat scenario planning as a one-off exercise or project. There is certainly merit in
using scenario planning in this way, particularly as the effort required can be significant. However, in
today’s increasingly volatile world, the future rarely is predictable, so many organizations are adding
scenario planning as a core tool in their management toolbox.

Scenario planning does not have to be an annual activity;

many organizations tie the development and update of
their scenario plans to major events rather than simply
the turning of the calendar.

Updating scenarios in response to material changes

in the internal or external environment serves two
purposes:

1. It forces managers to revisit the original scenarios

and develop an understanding of what worked and
what didn’t which provides valuable input to future
iterations.

2. It will help flush out new opportunities and threats

that have been created since the original scenarios
were developed.

Updating scenarios can be a simple process of revisiting

steps 2, 3 and 4 by refreshing the data and then assessing
the impact of any material changes in the scenarios on
current operations and future plans. The most critical
element is to avoid assuming that the same relationships
between key drivers and results remain the same.

15
CONCLUSION
Scenario planning is not a silver bullet — no management tool is. Like any management tool, there are
risks associated with implementing and using scenario planning. Successful scenario plans demand
careful planning and clear communication.

Table 3 lists some of the more typical risks and proven finance team’s to assist in helping them understand the
strategies for mitigating those risks. Scenario planning choices, opportunities and implications that uncertainty
can provide organizations with a valuable tool to expand presents. Applied judiciously, scenario planning can
management’s thinking around future uncertainty and provide valuable insights as to how the future may
the possible implications on current strategies, plans unfold thereby equipping organizations to react with
and decisions. speed, agility and confidence.

As organizations globally struggle to deal with an Finally, remember the words of Benjamin Franklin:
increasingly uncertain world, they are looking to their “Those who fail to plan, plan to fail.”

Table 3: Risks and mitigation strategies

RISKS MITIGATION STRATEGIES

• Take enough time to frame the issues or decisions

• Upfront, ask the question: “Can we define the decisions that will
Poorly defined issues or decisions
need to be made and who will need to make them as a result of
make it difficult to identify key drivers
completing this process?”
and therefore construct scenarios
• Always the “So what? Who cares?” questions to ensure
relevance and ownership of issues and decisions

• Limit scenarios to no more than four

Too many scenarios are defined • Emphasize that the goal is not to define the perfect scenario
• Focus on material differences between scenarios

• Establish a clear timeline

• Frequently step back and ask the question: “Have we defined a
Scenario definition and refinement
logical and consistent scenario yet?”
becomes a never-ending process
• Remember that with respect to the future, more detail does not
equal more accuracy

16 CGMA TOOL: SCENARIO PLANNING: PROVIDING INSIGHT FOR IMPACT

 RISKS MITIGATION STRATEGIES

• Ensure an appropriate balance of quantitative and

qualitative data
Scenarios are perceived as being too
• Each scenario needs to be perceived as credible; one way to do
subjective
this is to show how each scenario can realistically evolve from
the current state

• Ensure an appropriate balance of quantitative and

qualitative data
Management becomes fixated on a
• Each scenario needs to be perceived as credible; one way to do
single scenario
this is to show how each scenario can realistically evolve from
the current state

• Ensure an appropriate balance of quantitative and

qualitative data
Little changes as a result of
• Each scenario needs to be perceived as credible; one way to do
developing scenario plans
this is to show how each scenario can realistically evolve from
the current state

• Ensure an appropriate balance of quantitative and

qualitative data
Scenario projects are effectively
• Each scenario needs to be perceived as credible; one way to do
outsourced to third party consultants
this is to show how each scenario can realistically evolve from
the current state

• Emphasize that uncertainty is a fact of life, but that does not

The explicit definition of multiple
invalidate commitment to a common plan of action. In fact, the
plausible scenarios makes it difficult
existence of scenario plans increases the likelihood that a
to secure commitment to the chosen
chosen strategy or plan can adapt to changing circumstances by
strategy or plan
providing managers with a road map to respond to variability

• Forecasting is predicated on the assumption that the future is

predictable based upon information and relationships known
Confusion can exist between
at the time of creation. Scenario planning assumes that the
forecasts of future performance that
future is not predictable with any degree of confidence. Both
offer a singular view of the future
techniques have value; however it can be dangerous to apply
and scenarios that offer multiple
scenario planning to factors that are reasonably predictable and
views
conversely develop forecasts for inherently unpredictable
factors

17
Endnote

1 Shell Global, shell.com/global/future-energy/scenarios. September, 2015.

The information herein was adapted from Financial Risk Management by Margaret Woods and Kevin Dowd.
Copyright © 2007 by The Society of Management Accountants of Canada (CMA Canada), the American Institute
of Certified Public Accountants, Inc. (AICPA) and The Chartered Institute of Management Accountants (CIMA).

Note: Society of Management Accountants of Canada is now Chartered Professional Accountants of Canada

© 2015 American Institute of CPAs. All rights reserved.

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18 CGMA TOOL: SCENARIO PLANNING: PROVIDING INSIGHT FOR IMPACT

Further reading

Axson, David A.J., Best Practices in Planning & Performance Management, 3d ed. New York: John Wiley & Sons,
2010

Axson, David A.J., The Management Mythbuster. New York: John Wiley & Sons, 2010.

Roxburgh, Charles. The Use and Abuse of Scenarios. McKinsey Insights. November, 2009

Wilkinson, Angela and Kupers, Roland. Living in the Futures. Harvard Business Review, May, 2013

19
NOTES:

20 CGMA TOOL: SCENARIO PLANNING: PROVIDING INSIGHT FOR IMPACT

Acknowledgements
We would like to thank all of those who contributed their time, knowledge, insight and experience
in order to provide this tool.
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