This document provides an introduction to scenario planning and discusses its importance for dealing with uncertainty. It outlines some key concepts: 1. Scenario planning allows organizations to think about multiple possible futures rather than relying on single predictions, helping them adapt to changing environments. 2. Cognitive biases like overconfidence and confirmation bias can prevent organizations from detecting signals of change or updating their thinking. Scenario planning addresses this by challenging assumptions. 3. Scenarios are used to embed signals about the future into organizations' mental models of the world in order to draw conclusions and take action, facilitating learning. 4. Constructing and discussing scenarios explicitly challenges conventional wisdom and helps integrate alternative views of the future into decision making.

1. Introducing Scenario Planning
Part-2
Introducing Scenario Planning
Part-2
Aziz Alizadeh
Psychological Perspective

2. Why We Need Future Study?
All our knowledge is
about the past, but all our
decisions are about the
future.
Most of what we need to know to make good decisions today is
outside our comprehension: we don’t even know it’s there.

3. Change: Chaos, Complexity & Uncertainty
• Change is only permanent thing in the world.
• Companies and countries rise and fall in period of change
Uncertainty, chaos and complexity are considered to be simply
alternative names for our ignorance.
George Cowan, head of the Santa Fe Institute:
I think it’s obvious that economics operates out of equilibrium . You
shouldn’t look foe stable states, you should look for transitions and for
the laws that govern them.

4. Map of the Organizational Ignorance
• Uncertainty: not having enough information
• Complexity: having to process more information than you can
mange or understand.
• Ambiguity: not having a conceptual framework for interpreting
information.
• Equivocality: having several competing or contradictory conceptual
frameworks.
• Uncertainty: not having enough information
• Complexity: having to process more information than you can
mange or understand.
• Ambiguity: not having a conceptual framework for interpreting
information.
• Equivocality: having several competing or contradictory conceptual
frameworks.
Organizational Ignorance

5. Equivocality
It is difficult to look at the same information from different perspectives.

6. How companies respond to fundamental changes?
• Relying on agility and avoid any long term
commitments - give up on the long view.
• Make good guess at what’s coming, gamble on it and
hope for the best.
• Third is to think – really think – ahead.
• Relying on agility and avoid any long term
commitments - give up on the long view.
• Make good guess at what’s coming, gamble on it and
hope for the best.
• Third is to think – really think – ahead.
In a stable environment, or in a wildly erratic one, often the best policy is
CONSERVATISM. But in an environment that shifts permanently to new
state, or progresses steadily away from the old state, ADAPTATION must
be swift and sure

7. Dealing with Change
Analytical
Judgmental/
SubjectiveAssurance
Insurance
Modeling
Monitoring
Suggestion
Box
Dealing With change
Active
(Before the event)
Passive
(After the event)
Anticipatory
(Forecasting)
Defensive
(Insurance)
Do nothing

8. Subjective Probability Judgments
• SPJ: The probabilities that people generate in their own
minds to express their uncertainty about the possibility
of the occurrence of various events or outcomes.
Tools for SPJ
Intuition Reasoning/ Heuristic

9. Two Systems of SPJ
Intuition: Thoughts and preferences that come to mind quickly and without
much reflection
Heuristic: “Rules of thumb” that human use to perform abstract reasoning in
cognitively economical ways.

10. Comparing Two Systems of SPJ

11. Maps of Bounded Rationality
A Perspective on Intuitive Judgment
Systematic biases or errors in judgment:
1. Representativeness Bias
2. Availability Bias
3. Anchoring and adjustment Bias
Systematic biases or errors in judgment:
1. Representativeness Bias
2. Availability Bias
3. Anchoring and adjustment Bias

12. Representativeness Bias
• People are insensitive to sample size
They draw strong inferences from small number of cases.
• People have a misconception of change: Gambler’s Fallacy
They see a normal event and think it rare:
They think chance will correct a series of rare events
• People have a misconception of regression:
they see rare event and think it normal:
they deny chance as a factor causing extreme outcomes.
• People are insensitive to sample size
They draw strong inferences from small number of cases.
• People have a misconception of change: Gambler’s Fallacy
They see a normal event and think it rare:
They think chance will correct a series of rare events
• People have a misconception of regression:
they see rare event and think it normal:
they deny chance as a factor causing extreme outcomes.

13. Availability Bias
• People tend to be biased by information that is easier to recall:
They are swayed by information that is vivid, well publicized, or
recent.
• People tend to be biased by example that they can easily retrieve:
they use these search examples to test hypotheses
• People tend to correlate events that occur close together
• People tend to be biased by information that is easier to recall:
They are swayed by information that is vivid, well publicized, or
recent.
• People tend to be biased by example that they can easily retrieve:
they use these search examples to test hypotheses
• People tend to correlate events that occur close together

14. Anchoring and Adjustment Bias
Used to estimate value or size of quantity
Start from initial value and adjust to final estimate
• People are influenced by an initial anchor value
anchor may be unreliable, irrelevant
adjustment is often insufficient
• People overestimate probability of conjunctive events
• people underestimate probability of disjunctive events
• Anchor may be qualitative:
People from initial impressions that persist and are hard to change
• People are influenced by an initial anchor value
anchor may be unreliable, irrelevant
adjustment is often insufficient
• People overestimate probability of conjunctive events
• people underestimate probability of disjunctive events
• Anchor may be qualitative:
People from initial impressions that persist and are hard to change

15. Anchoring Bias
Impression resist change

16. Manifestation of Biases
• When judging probability, people can locate the source of the
uncertainty either in the external world or in their own imperfect
knowledge.
When assessing their own uncertainty, people tend to underestimate it. The
two major manifestation of this tendency are called
Overconfidence, and Hindsight Bias
When assessing their own uncertainty, people tend to underestimate it. The
two major manifestation of this tendency are called
Overconfidence, and Hindsight Bias
Overconfidence concerns the fact that people overestimate how much they
actually know.
Hindsight Bias concerns the fact that people overestimate how much they
would have known had they not possessed the correct answer or prediction.

17. Other Systematic Bias And Error In Organizational Planning
• Group thinking: People with homogeneous
background often constitute management teams i.e.
same university degree, middle class people, families
and relatives.
Such cohesive groups tend to develop rationalization for the
invulnerability of the group’s decision or strategy.
• Confirmation Bias: natural tendency of analysts to
focus on information that confirms rather than discredits
existing hypotheses, or to be unduly influenced by
premature consensus with analytic groups close at hand.
• Group thinking: People with homogeneous
background often constitute management teams i.e.
same university degree, middle class people, families
and relatives.
Such cohesive groups tend to develop rationalization for the
invulnerability of the group’s decision or strategy.
• Confirmation Bias: natural tendency of analysts to
focus on information that confirms rather than discredits
existing hypotheses, or to be unduly influenced by
premature consensus with analytic groups close at hand.

18. Why Organizations Are Slow To Adapt And Change
Increase stress
Coping behavior:
High perceived - Bolstering
level of threat - Procrastination
- Buck passing
Level of perceived - Escalation
environmental threat?
Strategic inertia
• Confirmation Bias Low perceived - unconflicted adherence
• Overconfidence level of threat to business as-usual
• Group thinking
Low stress level
Increase stress
Coping behavior:
High perceived - Bolstering
level of threat - Procrastination
- Buck passing
Level of perceived - Escalation
environmental threat?
Strategic inertia
• Confirmation Bias Low perceived - unconflicted adherence
• Overconfidence level of threat to business as-usual
• Group thinking
Low stress level

19. Scenarios and Cognitive Science
• Humans receive a massive amount of incoming sensory data
Terabytes worth. Most is immediately discarded, ignored, or
abstracted away by neurological machinery.
• When new sensory data is abstracted, converted into symbolic
format, and archived in long term memory.
Important Question:
Human brain according which template or pattern filter the Data?
1. Mental Models
2. Time Paths

20. Concept of Mental Model
• Mental Models serve critical function in thinking as
they allow individuals to give meaning to, and thus
efficiently process, what otherwise would be morass
of data. But they can cause us to overlook, reject, or
forget important incoming information that is not in
accord with our assumptions and expectations.
• Mental models are resistant to change, even in the
face of changing external circumstances.
• In analyzing complex problems, individuals rely on
“what has worked before” and rarely update
frameworks (mental models) even when they can no
longer explain new data.
• Mental Models serve critical function in thinking as
they allow individuals to give meaning to, and thus
efficiently process, what otherwise would be morass
of data. But they can cause us to overlook, reject, or
forget important incoming information that is not in
accord with our assumptions and expectations.
• Mental models are resistant to change, even in the
face of changing external circumstances.
• In analyzing complex problems, individuals rely on
“what has worked before” and rarely update
frameworks (mental models) even when they can no
longer explain new data.

21. Importance of Mental (Patterns) Models

22. Time Paths And Perceiving The Change Signals
• Human brain does not engage in
predictions; it engage in possible futures,
in terms of “if that happens then I will
take this action.” these are Time Paths
into an anticipated future.
Dr. David Ingvar
1924-2000These possible time paths are stored in human
“memory of future”
Dr. David Ingvar
1924-2000These possible time paths are stored in human
“memory of future”
If a particular information signal received
from environment is relevant to Time
Paths, data gets meaning and information
becomes knowledge, otherwise it will be
ignored.

23. Why Some Companies Are Unable To Detect Signals Of
Change?
• People of organization cannot see what their mind have
not experienced before.
• They will not see what calls forth unpleasant emotions
• People of organization cannot see what their mind have
not experienced before.
• They will not see what calls forth unpleasant emotions
They have fewer Time Paths because they consider
planning, dealing with the future, as a process of
prediction, and the trouble with prediction is that it is
always singular.

24. Why prediction for managers is not helpful?
• They have to convinced themselves of the truth of the
prediction.
• They have to convince others in the company to
believe in it.
• They all have to agree on what it all means, since the
future is almost unthinkable.
• They have to convinced themselves of the truth of the
prediction.
• They have to convince others in the company to
believe in it.
• They all have to agree on what it all means, since the
future is almost unthinkable.
Accumulation of those three factors makes it impossible for them to act
on the prediction.

25. Two Intermediate Steps Between Reception Of The Signals
And Action
• They have to figure out what the signals means for their
company and arrive at some conclusions.
• They have to muster enough courage to act on these
conclusions.
Receiving a signal, embedding it into the mental picture that people
have of their internal and external world, drawing conclusions, and
finally acting on those conclusions are the four elements of decision
making process in organizations.
These steps are Learning process as well.

26. Key Elements of Scenario Learning
Scenario Learning involves two critical elements:
1. Constructing or developing scenarios
2. Integrating the content of scenarios into decision making
Scenario learning not only emphasizes the role of scenarios as
generator of thoughts and reflections. But also explicitly challenges
the conventional wisdom, historic way of thinking and operating
systems, and long held assumptions about important issues. Learning
implies discussion and dialogue.

27. What is Scenario Planning?
Scenario Planning offers a way to embrace uncertainty (by
exploring alternative futures) and to navigate through
complexity (by invoking the organizing power of storytelling)

28. Scenarios Deals with Two Worlds

29. Why Scenarios?

30. The Essential Starting Points

31. THANKS FOR YOUR ATTENTION