When scenario planning has worked well, it has proved enormously useful to a wide range of organizations as a tool for making decisions under uncertainty. First popularized by Shell in the early 1970s, the approach should be a natural complement to other ways of developing strategy—especially when executives are as concerned about geopolitical dynamics as many are today. It would probably be more widely used if it hadn’t been such a disappointment to many executives. In fact, 40 percent of those we surveyed in 2013 described it as having little effectiveness.
That scenario planning often underdelivers, in our observation, can be a simple matter of insufficient experience. Companies that infrequently use the approach lack the organizational muscle memory to do it right. Managers who are familiar with it assume they can just delegate it to subordinates. Those who are new to it can get caught up in the details, focusing on the assumptions behind sensitivity analyses, for example, without stopping to think about whether the uncertainties they’re testing are the most important ones. Furthermore, in our experience, scenario planning can be hampered by the same deep-seated cognitive biases that it should be used to address, such as anchoring, neglecting low-probability events, or overconfidence. Fortunately, an understanding of how such biases undermine scenario planning can mitigate their impact on decision making generally, and improve the effectiveness of scenario planning itself.