by Read an interesting piece on combining scenario planning and real options: “Making sense of future uncertainties using real options and scenario planning” (sorry, not available for free), outlines a three-stage process to explore the following question: “Do real options thinking and scenario planning enhance collaborative sensemaking in dealing with future changes and strategic options?”
I’ve been especially interesting in finding ways to linking scenarios more tightly to action, whether it’s strategy, policy, consumer insight, or new business development. In our Framework Foresight process, we developed an Implications Analysis module as a bridge from scenarios to the identity of strategic issues or opportunities, because students and clients often struggled with this transition. We’ve also been spending more time on working with indicators – including developing an “Indicator Bingo” game. This has helped a lot, but I’m always on the lookout for different techniques. I recall playing with real options maybe ten years ago, thinking it had great potential for linking to foresight, but never figured out a way to make it work (probably because I did not try hard enough).
I was intrigued to see this article title and dove in. concept. To cut to the chase, the authors concluded that: “Overall, the real options concept appeared to be too complex to be immediately adopted, although it was recognized as a useful tool in negotiating with contractors over flexibility.” In essence, they found a neat way to bring scenario planning and real options together, but it was a bit too complex for the groups. I’m not surprised about that, but I am intrigued by the process that the authors described.
In the first stage, the scenarios provided the exploratory context; in the second, the organization envisions their desired future state or preferred future, and the third develops strategy or strategic response via the real options — to work toward the preferred future based on the exploratory context described by the scenarios.
They also called out “sensemaking” throughout the process. I think in my own practice, we do this, but more implicit than explicit, i.e., I have not called out “time for sensemaking.” Here is how the authors define sensemaking: “individuals give meaning to the events and actions taking place in an organization. Sensemaking is undertaken by individuals in interaction with others, each having their own socially constructed reality based upon their experiences. Collective sensemaking takes place when individuals discuss their insights and knowledge obtained by individual sensemaking. In this way, tacit knowledge of individuals becomes more explicit and usable.” One might say that “strategic conversation” fits this approach. They go on to add that ….”sensemaking starts by people noticing cues. Cues are seen as those observable events that are inconsistent with people’s expectations and require further attention….people can only absorb a certain number of cues without reacting, after which they experience a ‘shock’ that initiates the sensemaking process. The two most common sensemaking events that generate shocks are ambiguity and uncertainty.” The goal of scenario planning is to change the “frames” or mental models of participant which is done by introducing the cues. The real options serve as future cues — similar to the indicators concept that is typical of scenario planning.
Before going to deep in the weeds, let’s resurface and see if we can do a lot sensemaking about what we have so far. I think the authors have done a terrific job in making a connections that makes a whole lot of sense (pun intended), and that this is an area that is ripe for further investigation. Maybe it’s a bit complex for audiences right now, but isn’t that a juicy challenge for us! Andy Hines
Hi Andy, as always, thank you for sharing this.