Forecasting and Scenarios Flashcards
(36 cards)
What is forecasting?
Predicting future events and outcomes to support planning and decision making
In exams, link this to strategic planning or budgeting
Why do we forecast in strategy?
To anticipate changes and align resources to future conditions
E.g. supermarkets forecasting inflation to adjust pricing strategy
What are the 2 conditions where forecasting is used?
- Stable environments > single point forecasting
- Uncertain environments > range/scenario forecasting
What is the main risk of forecasting?
Assuming the future will be like the past
In exams, mention that unpredictable events (e.g. COVID) invalidated past-based models
What’s the difference between forecasting and scenario planning?
Forecasting = predict what will happen
Scenario Planning = prepare for what could happen
What are the 3 trend concepts in forecasting?
Megatrends
Inflexion points
Weak signals
What is a megatrend?
A large-scale shift impacting multiple sectors over time
E.g. digital transformation, climate change, ageing population
What is inflexion point?
A sudden change in trend direction
E.g. fall in retail footfall after rise of e-commerce
What are weak signals?
Early signs of change, often subtle or overlooked
E.g. growing remote work habits before the pandemic
How are forecasts tested for usefulness?
They must be aligned to current trends, include uncertainty ranges, and be used alongside scenario planning
What is scenario planning?
Building different versions of the future based on key uncertainties to improve strategy readiness
Why use scenario planning?
To help organisations become future-oriented and challenge assumptions
Mentioned often in exam case studies where change is likely
What are the 5 steps of scenario planning?
- Define scope
- Identify key drivers of change
- Build initial scenarios
- Analyse implications
- Develop strategy
Step 1: What does ‘define scope’ mean?
Clarify time frame, product/markets, and key stakeholders to include
Step 2: What are key drivers of change?
PESTEL factors, competition, customer behaviour, technology shifts
Step 4: What are implications in a scenario?
Risks, opportunities, and resource needs under each possible future
Step 5: How are strategies developed?
Use scenario insights to create flexible, resilient strategic responses
What are 3 major benefits of scenario planning?
- Helps plan under uncertainty
- Encourage future thinking
- Highlights capability gaps
How does it help strategy development?
Reveals weaknesses in current plans and builds adaptable options
How does scenario planning improve learning?
Encourages critical thinking and challenges assumptions?
When is scenario planning most useful?
In high uncertain or volatile environments
e.g. tech, energy, global expansion
Application tip: How to write this in the exam?
Scenario planning allows the company to model future conditions, preparing for both threats and opportunities by deriving contingency planning
What are the 2 dimensions used to prioritise change drivers?
Strategic importance & Urgency
From Aaker & McLoughlin Model
What is ‘strategic importance’
How significantly a change could affect the organisation
