Forecasting vs Scenario Planning

Everyone has goals for their future, which requires planning and forethought to see those goals become a reality. Whether its health or finance goals, planning is necessary to ensure their success, and forecasting is required for that plan to be accurate.

 Traditional forecasting is a prediction of future outcomes. Forecasting utilizes quantitative data to create its predictions. Quantitative forecasting uses past data and information to develop predictions of what the future may hold. An example of forecasting is the Farmer’s Almanac, specifically the almanac’s weather predictions. The Farmer’s Almanac utilizes historical weather data and current solar activity to, well, forecast the weather forecast (Southwest Water Resource Consulting [SWRC], 2018). 

When compared to traditional forecasting, scenario planning is much more creative. While scenario planning can utilize quantitative data and methods, qualitative methods and data are more common. When scenario planning is utilized, the planner is predicting possible events or critical points in the future that can have significant influence. Scenario planning is used to predict multiple possible future scenarios, as the name implies (Schultz Financial Group, 2021).

As stated previously, scenario planning is much more creative as it examines potential influences based on other future predictions, such as social or geopolitical issues. Forecasting’s reliance on quantitative data is both is strength and weakness. Quantitative data provides an exact method and formula for creating predictions, which can assist with identifying further trends and creating predictions that are further in the future and possibly more accurate. This is similar to modern AI, where past data and patterns are used to continuously refine AI performance. Due to the quantitative data utilized in traditional forecasting, the predictions must exist within the range set by said data, which excludes any possibilities that lie outside the given range. Scenario planning can compensate for forecasting’s shortcomings, as scenario planning is capable of evaluating a wider range of possibilities due to its reliance on qualitative data. Scenario planning is subjective and relies on assumptions made by participants. Forecasting can be verified through the data, and it can be tested for accuracy and replicated. Scenario planning yields unique results which makes it difficult to replicate and test for accuracy (Mortlock, 2021).

There are also differences between forecasting and scenario planning regarding scope and time frames. Forecasting can be used frequently due to the historical data. For example, the Farmer’s Almanac can use daily weather data to create daily predictions. Due to the usage of historical data, forecasting can create short term predictions. Long term predictions can yield inaccuracies. Scenario planning can be used to create predictions for the long distant future, but due to the larger scope scenario planning can not be used as frequently as forecasting (Mortlock, 2021).

References

Mortlock, L. (2021, May 12). Scenario planning vs. forecasting: 6 questions to ask to prepare for a post-pandemic future. Leadership Now. https://www.leadershipnow.com/leadingblog/2021/05/scenario_planning_vs_forecasti.html

Schultz Financial Group. (2021, August 20). Scenario planning vs. forecasting - schultz financial group inc. Schultz Financial Group Inc.. https://sfginc.com/scenario-planning-versus-forecasting/

Southwest Water Resource Consulting. (2018). How does scenario planning differ from traditional approaches? SWRC. https://swrcscenarios.com/about/how-does-scenario-planning-differ-from-traditional-approaches/