October 23, 2012

Prediction vs. Scenario Planning: What’s Your Goal?

 

Nate Silver is not a household name in the scenario-planning world, not yet anyhow.  But FSG partner Patrick Marren has discovered in Silver’s writings a lot of rich fodder for scenario thought, of interest to strategists, planners and risk managers.

Silver writes the Five Thirty Eight blog in The New York Times.  Right now Silver’s blog is all about the election, and making sense of competing poll data.  It’s one of the most finely tuned analyses of polling data around.  He concludes each entry with a probabilistic forecast of electoral victory, based on computer model simulations.  As of this writing, Silver is saying that President Obama enjoys a 70.3% chance of winning.  (Though he himself is very open about the limitations of such a forecast; almost exactly a year ago, he gave Obama only a 45% chance at re-election.)

As Patrick notes in the FSG blog, precise forecasts a la Silver hold a certain fascination for us – they make us think we have advance knowledge of some important outcome.  But in the scenario-planning world, we know too well the folly of applying forecast science to real business beyond the very short term.  Strategic decision-makers need to think through not just x versus y outcomes, but x versus y in the context of alternative backdrops a, b, c, d, e, etc.  That challenge exceeds the power and viability of any forecast model and suggests the need for alternative scenario analysis.  For more on forecasting vs. scenario planning, check out Patrick’s recent blog entry, as well as his review of Silver’s recent book The Signal and the Noise.