Scenarios, their concept, elaboration and application

Abstract

Purpose – The purpose of this paper is to elucidate on specific risk mitigation approach which is known as “scenario approach”. Description of stepwise process of their elaboration, which is worth considering for managers, offers feasible tool not only for company risk management improvement but also for significant enhancement of the quality of company strategic planning. Authors also draw attention to advantages and disadvantages of investment and strategic scenario planning. Theoretical implications of using scenario approaches are exemplified both by the set of investment projects and company strategic planning process where method in question was applied. Design/methodology/approach – As for methods applied which fulfilled research strategies, it is worth mentioning following items: analysis which explores particular parts of methodology of scenario elaboration and application, the way of obtaining information, impact on strategy, working with risks and organizational support of outcomes in company environment; synthesis observing context and natural relation of problems solved which supports research hypotheses formulation; induction generalizing facts acquired from results in companies; deduction to be grounds on which conclusion of this paper was drawn up; abstraction used upon evaluation of case studies; comparison assessing consistency and inconsistency of phenomena and objects; description inevitable for characterization of companies and environment in which they operate; interview collecting information inevitable for the evaluation of the way of working with scenarios and company knowledge standards; modelling was used upon consideration about possible future development of factors observed. Findings – The paper arrived at conclusion, that scenario approach, when used appropriately, may significantly mitigate risk exposure of the company. Conclusions which have been made on selected industrial companies can be extended to other industrial branches. Practical application of scenario planning method confirmed that this approach was superior to deterministic single scenario model. Scenario technique thus compensates for deficiencies and omissions which are inherent in simplistic deterministic model. In cases where an investment scenario planning process proved to be insufficient, the paper refers to more advanced techniques like simulation methods or real options. Research limitations/implications – Over past ten years practical test of proposed stepwise process of scenarios elaboration was repeatedly tested on approx ten industrial companies during the tenure of Mr Soucek and Mr Špaček in top managerial positions. Practical implications – This paper offers flexible and feasible toll for scenario elaboration and their further development. Such an approach contributes significantly to the enhancement of company risk management process. Proceedures described were successfully tested in managerial practice by two of authors while holding CEO positions in oil prcessing and pharma business. Social implications – This paper does not have direct social implication. But scenario approach as a powerful tool of risk management process may significantly contribute to company survival and thus impact social status all stakeholders concerned. Therefore social implications should be identified rather on the background of the problem. Originality/value – Notwithstanding some general notion about scenario concept, there is still little evidence that scenario approach is applied in larger extent. It is prevalently due to lack of expertise of respective managers who are obviously puzzled with numerous outcomes to be obtained by this approach. Clearly define procedure of scenarios formation may be conducive to larger exploitation of this approach. Design of the elaboration and application of scenario approach which was proven to be functioning in the practice brings new benefits to risk management exploration.