How should indicators be found for scenario monitoring ?

Abstract

Scenario planning is a widely used approach for developing long-term strategies. The typical scenario process involves developing scenarios, identifying strategies whose success is contingent on the scenario, and monitoring the environment regularly to know which scenario(s) may become more likely. Hence it becomes necessary to find a way to monitor the business environment in order to inform the process of making strategic decisions under uncertainty. This thesis proposes to use a set of nested indicators to monitor environment. The approach consists of a seven-step process to build composite indicators and link them with scenarios. Individual indicators are selected based on intuitive theoretical frameworks. Different weights are assigned to individual indicators using factor analysis. And then composite indicators are built by linear aggregation of individual indicators. The composite indicators are used to assess the changes in the driving forces over time. Such changes serve as the basis for judging whether the level of the driving forces is high or low. Those levels are then used to infer which scenario is likely to come to pass. This thesis used a set of four scenarios to illustrate the application of the approach. Those scenarios were built for a chemical company's supply chain in Asian/Pacific region in 2025. The result suggested that the environment of the sub-region in the monitoring year was more like a "Collaborative World" or a mix of "Collaborative World" and "Demanding World". And it is more possible that the environment was evolving into those two scenarios instead of the others.