Scenario Analysis

Exploring Different Futures

© iStockphoto

Explore different futures using a rational and professional framework.

Imagine that you're facing a really significant decision, which could fundamentally affect your personal life, or could determine the future of your business. Maybe you're thinking about "stretching your finances" to buy a bigger house. Or maybe you're thinking of launching a new product which you know could "cannibalize" existing sales.

Perhaps you've done the numbers, and these seem OK. But deep down, you dread what could go wrong. After all, no one has a foolproof vision of the future, and while you may have strong instincts as to how things may develop, any single projection of the future is clearly vulnerable to disruption by a range of different factors.

Scenario Analysis helps you bring these fears into the open and gives you a rational and professional framework for exploring them.

Using it, you can make decisions in the context of the different futures that may come to pass. The act of creating scenarios forces you to challenge your assumptions about the future. By shaping your plans and decisions based on the most likely scenarios, you can ensure that your decisions are sound even if circumstances change.

How to Use the Tool

In Scenario Analysis, the scenarios are stories about the way the world might turn out if certain trends continue and if certain conditions are met.

We offer a simple five-phase Scenario Analysis process, as follows:

1. Define the Problem

First, decide what you want to achieve, and think about the time horizon you want to look at. This will be driven by the scale of the plans and scenarios that you want to test.


Barry was starting to plan a new business that focused on helping corporate clients implement a popular financial management software package. He wanted the business to grow to a reasonable size over the next five years. With this in mind, he decided to use scenario thinking to look at what the future might hold over this period.

2. Gather Data

Next, identify the key factors, trends, and uncertainties that may affect the plan. If your plan is a large-scale one, you may find it helpful to do a PEST Analysis of the context in which it will be implemented to identify political, economic, socio-cultural, and technological factors that could impact it. Then, identify the key assumptions on which the plan depends.


Amongst others, Barry identified the following factors as important:

  • The state of the economy (people don't buy much new software in a recession).
  • The ongoing importance of new software in increasing clients' productivity.
  • Whether the software package would maintain its market position.
  • Whether he could recruit enough skilled implementation consultants.

3. Separate Certainties From Uncertainties

You may be confident in some of your assumptions, and you may be sure that certain trends will work through in a particular way. After challenging them appropriately, adopt these trends as your "certainties." Separate these from the "uncertainties" – trends that may or may not be important, and underlying factors that may or may not change. List these uncertainties in priority order, with the largest, most significant uncertainties at the top of the list.


Based on analysis of recent vacancy rates, Barry was confident that, provided he paid attention to recruitment, he could find a sufficient number of new employees. And seeing the new technologies shortly to be deployed by the software vendor, he was confident that clients would reap considerable efficiency gains by implementing the next versions of the software.

He was anxious, however, that a global software giant might enter the market and displace the current vendor. Furthermore, he'd seen plenty of implementation companies go bust in the previous recession.

4. Develop Scenarios

Now, starting with your top uncertainty, take a moderately good outcome and a moderately bad outcome, and develop a story of the future around each that fuses your certainties with the outcome you've chosen.

Then, do the same for your second most serious uncertainty.

Finding This Article Useful?

You can learn another 135 strategy skills, like this, by joining the Mind Tools Club.

Join the Mind Tools Club Today!

Don't do too many scenarios in this step, or you may find yourself quickly hitting "diminishing returns."


Barry decided to prepare the following scenarios:

  • "All's going well": The economy grows steadily over the five-year period with only minor slowdowns, and he's "backed the right horse." The software vendor consolidates itself in the market and moves into a position of market leadership.
  • "Economic slowdown": Toward the end of the period, a commodity price shock pushes the economy into mild recession. While some new software implementations do go ahead, many clients decide to defer implementation until things pick up.
  • "Intensifying competition": The global giant enters the market. While it takes time to get its products established, toward the end of the period, it is starting to squeeze the current supplier.

5. Use the Scenarios in Your Planning

You can now use the scenarios you came up with in your planning.


Having looked at the scenarios, Barry's aware that there's some risk to the business in the medium term.

In his business planning, he decides to gear the business to use a mix of full-time staff and short-term contractors so he can scale his business quickly, depending on the circumstances.

And he notes that he's going to have to monitor the activities of software companies entering the market so he can cross-train personnel if a new entrant starts to threaten the existing supplier.

Tip 1:

In identifying trends, be careful to base your assessment on evidence rather than supposition. And make sure that trends are built on secure foundations.

Also, remember that trends tend to be damped down by other factors. No revolution is instantaneous.

Tip 2:

Peter Schwartz, one of the fathers of scenario thinking, mentions the following as plots of common scenarios:

  • Evolution: All trends continue as expected. Things gently move toward a predictable end point.
  • Revolution: A new factor fundamentally changes the situation.
  • Cycles: What goes around comes around. Boom follows bust follows boom follows bust.
  • Infinite Expansion: Exciting trends continue. Think of the computer industry in the 1950s.
  • Lone Ranger: The triumph of the lone hero against the forces of inertia.
  • My Generation: Changes in culture and demographics affect the situation.

From "Art of the Long View" by Peter Schwartz. © 1991 Peter Schwartz. Published by Profile Books, 2003. Reproduced with permission of John Wiley & Sons Ltd.

Key Points

Scenario Analysis is a useful way of challenging the assumptions you naturally tend to make about the situation in which your plans will come to fruition.

By building a few alternative scenarios, you can foresee more unknowns that may come to pass, and therefore you will be able to plan measures to counteract or mitigate their impact.

This site teaches you the skills you need for a happy and successful career; and this is just one of many tools and resources that you'll find here at Mind Tools. Subscribe to our free newsletter, or join the Mind Tools Club and really supercharge your career!

Rate this resource

Comments (5)
  • Over a month ago CarolineS wrote
    Hi all,

    In this week's Featured Favorite resource, learn how to use Scenario Analysis to explore different futures so that you can prepare for them effectively.

    Best wishes,

  • Over a month ago Midgie wrote
    Hi Ibrahim,
    Welcome to the Forums and thanks for sharing your thoughts about scenario analysis. You are so right in that it is NOT a prediction of the future it simply plays out a few options of possibilities.

    I do believe that once you have thought of these possibilities and ways that you might address it, you are then better prepared for whatever does happen. Although you might not have thought about how to deal with a specific situation that arises, just by the mere fact you have thought up some alternatives, you will more easily come up with ideas to deal with what is presented.

    Hope to see you around the forums some with more thoughts and ideas, or questions of your own. If there is anything I can help you with, just let me know.
  • Over a month ago ibrahimdani wrote
    Hi All,

    I totally agree with Rachel, and I add that doing scenario analysis will help you gain a very important skill: think of the unthinkable.

    Scenario Analysis will help you realise the 'dots in the horizon' and make you more prepared for 'uncertainties and unknowns', if and when they become certainties and known. Just go ahead and do it with a group of friends or work colleagues and you will be surprised with the ideas, interactions and conflicts that will arise.

    What you need to know is that scenario analysis is NOT a prediction of the future. Also, keep in mind that the scenarios you develop will not happen in full as you planned - what you thought will happen if the economy booms may not be as you thought because of other unknowns.

    The objective of scenario analysis is to be prepared and have an open mind to always look "outside of the box". Why? As Louis Pasteur said "Luck favors the prepared mind". So, be prepared and you will certainly be more lucky....

    I can talk more about this subject. I recently completed the Scenario Planning course (MBA course with the University of Strathclyde) as a Local Counsellor (tutor) for the University's campus in Abu Dhabi. The taught process is very similar to the process outlined in the article, with a bit of more structure around it to help develop plausible future scenarios. If you want to know more, just drop me a line...

View All Comments