scenario analysis: planning for uncertain futures

Scenario Analysis

August Jackson

Global Market & Competitive Intelligence

#scipdc

It's tough to make

predictions, especially about the

future.

Human Cognition, Systems Complexity and Fate Conspire to Thwart Our Efforts at Prediction

"This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us.” Western Union internal memo1876

Lehman Brothers bankruptcy leads to a near collapse of global

finance.

Scenario Analysis Overcomes Limitations of Traditional Forecasts

High Uncertainty Unlikely, Impactful Events Differences of Opinion

Scenario Analysis Does NOT Predict the Future!

Ingredients and Outcomes of a Good Scenario Exercise

Scenario Analysis Gives us a View of Multiple Possible Futures

Extreme Negative State

Extreme Positive State

Extre

me

Nega

tive

Stat

e

Extre

me

Posit

ive

Stat

e

Critical Uncertainty 1

Criti

cal U

ncer

tain

ty 2

Stages to Scenario Analysis

Use KITs to Define Your Scope

Example: Rural Wireless Broadband

Diversity of Expertise and Opinion Are Key to Identifying Critical Factors

Management Technical, Engineering, R&D Marketing & Sales

Customers Academics

Inte

rnal

Exp

erts

Exte

rnal

Exp

erts

Use Delphi Method to Engage Experts

STEEP Framework Captures External Factors

Social Technological Economic Environmental

Political

• Demography• Gender roles• Ethnicity• Culture• Tastes• Behaviors• Beliefs

• Innovation• Adoption• Application• Business Models

• GDP• Industries Driving Growth• Funding• Business Cycles

• Air quality• Water quality• Arable land• Climate change• Resources

• Laws• Regulations• Elections• Power distribution

An Example: STEEP for Rural Wireless Broadband

Social Technological

Economic Environmental

Political

• Rural Brain Drain• Aging population in rural communities

• Fiber back-haul• Roll-out of 4G Wi-Max and LTE• Use of analog TV spectrum

• Stimulus funding• Availability of Universal Service Funds (USF)• Pricing models• Lower costs of living• Lower median incomes

• Push for telecommuting• Availability of water in rural areas• Impact of climate change on agriculture

• USF reform• Network Neutrality regulation• “White space” spectrum policy• Local zoning for placement of network equipment

The Interplay of Critical Uncertainties Will Define Possible Alternative Futures

License Regime Unlicensed Use for WAN

USF

Limite

d to

Fixe

d Lin

eUS

F Av

aila

ble

for W

irele

ss

Availability of “White Space” Spectrum

Univ

ersa

l Ser

vice

Fund

Pol

icy

A Hundred Flowers Bloom• Competition between licensed and unlicensed broadband• Significant 4G build outRLEC’s Dream

• Broadband remains very expensive, limited market penetration• High ROC for RLECs for fixed-line

BYO Broadband• Many rural markets ceded to unlicensed providers• Municipal fiber in larger rural communities

4G Goes Rural• Incumbent wireless carriers compete w/RLECs• Wired voice & broadband becomes the exception

Develop Strategies for Each Scenario

License Regime Unlicensed Use for WAN

USF

Limite

d to

Fixe

d Lin

eUS

F Av

aila

ble

for W

irele

ss

Availability of “White Space” Spectrum

Univ

ersa

l Ser

vice

Fund

Pol

icy A Hundred Flowers Bloom• Lobby FCC and states to ensure only for licensed providers receive USF

RLEC’s Dream• Moderate 4G build-outs in rural markets, starting in largest markets

BYO Broadband• Slow 4G build-out in rural markets• Sell fixed-line assets in rural markets

4G Goes Rural• Create “cut the cord” bundles for rural markets• Accelerate 4G Build

Use Scenarios to Create Early Warning

Scenario 1

Scenario 2

Scenario 3

Event A

Event E

Event D

Event C

Event B

Event Z

Event V

Event W

Event Y

Event X

Event F

Event U

Scenario 4

Other Applications for Scenario Analysis?

Valuation model for early stage companies?

What do you think?

Thank you!

August Jackson+1 703 348 7337august (at) augustjackson (dot) nethttp://augustjackson.nethttp://www.twitter.com/8of12

Sources on Scenario Analysis

Blenkhorn, David, and Craig Fleischer. Managing Frontiers in Competitive Intelligence. New York: Quorum Books, 2000.

Bensoussan, Babette and Craig Fleischer. Analysis Without Paralysis: 10 Tools to Make Better Strategic Decisions. New York: FT Press, 2008.

Day, George. "Looking in to Marketing's Future.” Marketing Management September/October 2009: 12-17.

Dewar, James. Assumption Based Planning: A Tool for Reducing Avoidable Surprise. New York: Cambridge University Press, 2002.