Scenarios of possible events

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Scenario methods are a tool of strategic management. They help in preparing of corporate strategy in the long run. These methods predict different types of phenomena that can occur in a changing environment and help managers in preparing for them.

Scenarios of possible events represent the impact of various factors influencing the company, its trends and the capacity of the enterprise to adapt to them.


Building the scenario

Construction of scenarios consists of five stages:

  1. Identification and development of events in the environment - to do this, managers divide the spheres of business environment, and then choose factors in the sphere that may affect the company's activities in the period for which the strategy is created. Such spheres can be:
    • The economic sphere
    • Technological sphere
    • The social sphere
    • Sphere of regulatory and legal matters
    • Sphere of international activity
    • The political sphere
    • The demographic sphere
  2. Determine the effects of selected factors on the activity of the enterprise - for this purpose managers should determine the trend (increasing, constant, decreasing) of each factor. Then they should assess impact of each factor on a scale of -5 to 5, or 1-10 (where -5 (1) represents the most negative impact and 5 (10) - the most positive) and the probability of each factor to emerge.
  3. Calculating the average impact force of a factor to a company by multiplying the assessment and the probability of each factor.


Results of above steps is recorded in following table:


Table. 1. Environment trend analysis

Name of factor Trend Evaluation of the impact-force (1-10) Probability (0-1) The average impact
Economic sphere
Factor A
  • Increasing
  • Fixed
  • Descending
Factor B
  • Increasing
  • Fixed
  • Descending
Sphere of Technology
Factor K
  • Increasing
  • Fixed
  • Descending
Factor L
  • Increasing
  • Fixed
  • Descending


Types of scenarios

Based on the above table managers can then create various scenarios. Most commonly used are the following scenarios:

Optimistic scenario

It takes into account the highest rated trend of each factor.


Table 2. Optimistic Scenario

Elements of scenario The strength of the impact
Economic sphere
  • Factor A
  • Factor B
  • The average impact strength
Sphere of Technology
  • Factor K
  • Factor L
  • The average impact strength

Pessimistic scenario

It takes into account the lowest-rated trend of each factor

Table 3. Pessimistic scenario

Elements of scenario The strength of the impact
Economic sphere
  • Factor A
  • Factor B
  • The average impact strength
Sphere of Technology
  • Factor K
  • Factor L
  • The average impact strength


The most likely scenario

It takes into account trend, which has the highest probability of occurrence.


Table 4. The most likely scenario

Elements of scenario Probability Negative strength of the impact Positive strength of the impact
Economic sphere
  • Factor A
  • Factor B
  • The average impact strength
Sphere of Technology
  • Factor K
  • Factor L
  • The average impact strength


Surprise scenario

It takes account of this trend, which has the lowest probability of occurrence.


Table 5. Surprise scenario

Elements of scenario Probability Negative strength of the impact Positive strength of the impact
Economic sphere
  • Factor A
  • Factor B
  • The average impact strength
Sphere of Technology
  • Factor K
  • Factor L
  • The average impact strength



Rating of scenarios

To evaluate the quality of each scenario managers need to create a table containing:

  • Deviation from the most optimistic scenario from the most likely scenario, measured as an average difference between effect of each factor of each scenarios.
  • Deviation from the pessimistic scenario from the most likely scenario (measured as above)
  • The sum of average deviations

Place each factor, determined by the sum of average deviations (first is the factor having the largest deviation)

Table. 6. Evaluation of the results

Name of factor Optimistic scenario Pessimistic scenario Most likely scenario Deviation Optimistic-MostLikely Deviation Pessimistic-MostLikely Sum of deviations Rank
Economic sphere
  • Factor A
  • Factor B
Average impact force Average impact force Average impact force
Sphere of Technology
  • Factor K
  • Factor L
Average impact force Average impact force Average impact force


On the basis of the above table managers creates list of opportunities and threats, which facilitates a clear breakdown of business development opportunities and risk areas. This is the basis for planning of various company strategies.


References