Chapter 11 - Executive Decision-Making under KUU Conditions: Lessons from Scenario Planning, Enterprise Risk Management, Real Options Analysis, Scenario Building, and Scenario Analysis

Abstract

This chapter provides overviews and comparisons of major concepts as well as methodologies from the fields of finance and strategic management. This chapter draws on the field of finance for Enterprise Risk Management (ERM), Real Options Analysis (ROA), Scenario Building (SB), and Scenario Analysis (SA). These techniques and processes are compared to Scenario Planning (SP), a concept, and methodology from strategic management. SP is a strategic management methodology used extensively by senior executives since its application at Royal Dutch Shell in the late 1960s and early 1970s. ERM is a broad approach that has recently become more pervasive in use with the increasing emphasis on improving governance processes in companies. SB is a decision support tool for developing quantitative or qualitative descriptions of alternative outcomes. SA, a sub-set of SB used in finance and accounting, is a means of establishing internally consistent sets of quantitative parameters used as inputs for modeling investment alternatives. Additionally, this chapter draws on the KUU (Known, Unknown, and Unknowable) framework to demonstrate the commonalities and differences among these approaches and calls for their synergistic use.