Copyright 2003, by H. Felix Kloman and Seawrack Press, Inc.

In the early 1970s I joined an organization called the World Future Society. Its principal operating premise was the idea that we cannot "forecast" the future but we can describe "alternative futures," and, in so doing, better prepare ourselves, our organizations and our governments for the inevitable unexpected events. This idea has remained with me as a cornerstone of effective risk management, incorporating the use of scenarios as a basic tool of risk analysis. Some years later, in 1988, my friends at Nova Corporation, in Canada, gave me a new book by Vernon Grose entitled Managing Risk: Systematic Loss Prevention for Executives. In Chapter 20, Dr. Grose described the use of scenarios, which he called the "heart of identifying risk." He described specific and practical methods for encouraging operating managers to build their own scenarios. Since then I've been fascinated by this extraordinary tool for risk management. The Grose book, now in its third edition, remains on my shelf of the ten most important books for risk managers. It was followed in 1991 by Peter Schwartz's The Art of the Long View (Doubleday, New York), another book on my ten best list, in which the author recounted his experience with the Royal Dutch/Shell Group, and later as a consultant, using scenarios in strategic planning.

Most recently, I was reminded of the enormous utility of this technique of risk analysis in a speech last fall given by Ged Davis, the Vice President, Global Business Environment, of Shell International Limited and head of Shell's Scenario Team.

"We often talk about risk as if it was something objective, " argued Davis, "and there are certainly technical risks of which this is true." "However," he continued, "there are other types of risk that are neither objective nor easily comparable. Often they involve other people's fears and interests." Here is where scenario plans can expand our understanding of the effects of multiple unexpected events on our organizations and stakeholders.

According to the Shell website (http://www.shell.com), a recommended resource for those interested in this analytic technique, scenarios are "carefully crafted stories about the future embodying a wide variety of ideas and integrating them in a way that is communicable and useful. They help us link the uncertainties we hold about the future to the decisions we must make today." As Ged Davis explained in his talk last fall, scenarios help us do four things: "to work with uncertainty; to broaden our perspective to include risks we haven't previously recognized and ideas of risk we haven't previously understood; to uncover unexpected differences; and to find a way to talk about them not only with colleagues and partners, but also with anyone who has a shaping interest in what happens." These works synthesize the goals of risk management, including that of communicating our conclusions with all those affected by our action or inaction.

Davis explained further that, before answers are reached and decisions made, the risk scenario team must hold conversations "with each of the parties involved in order to try and understand their point of view, their beliefs, and the particular risks " of any given project. Too often risk analysis is confined to internal staff talking with each other. A decision is made and - surprise! -outsiders see the response entirely differently.

I later downloaded from the Shell website another article by Ged Davis, Creating Scenarios for Your Company's Future (April 1998). Davis started this paper with the comment "scenarios are plausible, pertinent, alternative stories of the future. They are powerful tools for addressing what is both fundamentally significant and profoundly unknowable-the future." He noted the tyranny of the past and present, which distorts our ability to contemplate a future that could be radically different. Forecasters, he argued, extrapolate from the past and, in so doing, often fail to incorporate the high probability of "discontinuities." The key behind the value of scenarios lies in their ability to move from "identifying single-risk factors" to the way in which multiple elements of events combine to alter our futures.

Davis described one method of altering our worldview. Most perceptions of the world are based on North American or European-centric maps, in which these areas are the focal points. To change our thinking, he suggested re-orienting a conventional map so that Australia is at the center and it is upside-down, with South (and Antarctica) at the top and North (and Russia and Canada) at the bottom. Try it!

Davis summarized the application of scenarios: 

* "To enrich debate and widen the 'strategic conversation' in the organization. The aim here is to bring new concepts and understanding to users, and, ultimately, to change mental maps."
* "To search for corporate resilience (My italics, as this was one of my major issues in RMR, January 2002), including making risky decisions more transparent. This involves identification of threats and opportunities and the creation and assessment of options."
* To trigger a formal strategic planning process, including the assessment of existing strategies and plans."


Scenarios should be the primary tool for risk assessment for today's risk manager.

Within Shell, the Global Business Environment team develops global scenarios every three years, as well as producing more focused scenario work on individual countries, regions and for selected businesses. . . . They help us to grapple with uncertainty, risk and immense complexity.

Ged Davis, "Scenarios and Enterprise Risk Management," The Conference Board, New York, October 23, 2002

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