Strengths and Weaknesses of Scenario Planning as a Risk Management Tool

Abstract

There could be good reasons for believing that forecasts of any kind and importance are inherently fallible (Wack, 1985a: 73), given dynamic complexity (a specific reason) and given that the future is invariably a combination of the known and the unknown or unknowable (Diebold et al., 2010) and the proportion of the latter tends to rise as the time-scale extends (a general reason, etc.). A more limited aspiration, of identifying a range of versions of what might happen, could be, however, a tenable and supportable basis for (qualitative) risk and planning analysis. Precisely, the aim of problem structuring methods like scenario planning is both more modest and more ambitious than that of the previous generation of exact probability-based risk measurement methods (Part I), branding efficiency seeking management of risks in financial systems.