Planning and Forecasting
Introduction
The only way a business can stay profitable is to make sure they can properly forecast the demand for their product and or services (Alon, Qi & Sadowski, 2001). It is not as simple as it seems to achieve this goal, and business will either use scenario planning or traditional forecasting to achieve this. There are many differences as well as advantages and disadvantages that accompany the usage of scenario planning or traditional forecasting. For this discussion, the researcher will compare and contrast the concepts of scenario planning versus traditional forecasting.
Scenario Planning
Scenario planning can be easily achieved with a group of at least nine people but usually no larger than thirty (Wade, 2012). Scenario planning requires that the entire group have a basic understanding of the fact that prediction of the future is impossible but they should be aware of possible scenarios that could happen or are possible as it relates to the future (Wade, 2014). There is however one thing that should be taken into account related to scenarios, and that is that scenarios are not the same as actual predictions because they mostly are used to show what direction to which the future could turn/unfold.
Scenario Planning Advantages (Wade, 2012; Wade, 2014):
The focus is placed on the most critical uncertainties.
Defines extremities in many areas and also their challenges, responses, and opportunities as it relates to the development of future scenarios.
Uses an analytical method of planning that sole purpose is to point out a scenarios threats, strengths, weaknesses and also any other opportunities.
Scenario Planning Disadvantages (Wade, 2012; Wade, 2014):
None of the members can or are expected to be able to predict the future.
Take much more time than the traditional forecasting method.
The focus is placed only on a couple of critical uncertainties.
Traditional Forecasting
Traditional forecasting looks at where you were, and your current state into the future, simply saying “the best possible scenario” (Wade, 2012; Wade, 2014). Traditional forecasting relies mostly on mathematical formulations with error ratio being 5 to 10% give or take. Mental forms of extrapolation are also used in traditional forecasting and can be difficult to gauge because they are based on the assumptions that the world stays pretty much the same (Wade, 2012).
Traditional Forecasting Advantages (Wade, 2012; Wade, 2014):
The method is simple to understand and there are only three possible outcomes.
Senior staff and management are more likely to easily understand and implement this method.
Traditional Forecasting Disadvantages (Wade, 2012; Wade, 2014):
The results are less likely to be accurate over longer periods of time.
Disruptions are not accounted for in the scenarios.
Usually results in a false sense of security.
Conclusion
There are many differences between scenario planning and traditional forecasting, but they should still be considered complementary to one another than just an alternative. The major difference between the two would be that scenario planning focuses on scenarios and traditional forecasting focuses on the best possible estimate of a particular action/method. Both methods have their advantages and disadvantages and one does not seem to be any better than the other except for the actual time one takes verse the other.
References
artificial neural networks and traditional methods. Journal of Retailing and Consumer Services, 8(3), 147-156.
Wade, W. (2012) Scenario Planning: A Field Guide to the Future. John Wiley & Sons P&T.
VitalSource Bookshelf Online.
Wade, W. (2014). Scenario Planning – Thinking differently about future innovation. Globis
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