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Scenario Planning: A Tool for Strategic Thinking

Scenario Planning

Managers who can expand their imaginations to see a wider range of possible futures will be much better positioned to take advantage of the unexpected opportunities that appear.

By identifying basic trends and uncertainties, a manager can construct a series of scenarios that will help to compensate for decision-making errors from overconfidence and tunnel vision. That’s what scenario planning does. 

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Scenario Planning: A Tool for Strategic Thinking

Scenario Planning: A Tool for Strategic Thinking

https://sloanreview.mit.edu/article/scenario-planning-a-tool-for-strategic-thinking/

sloanreview.mit.edu

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Key Idea

Scenario Planning

Managers who can expand their imaginations to see a wider range of possible futures will be much better positioned to take advantage of the unexpected opportunities that appear.

By identifying basic trends and uncertainties, a manager can construct a series of scenarios that will help to compensate for decision-making errors from overconfidence and tunnel vision. That’s what scenario planning does. 

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Status quo bias

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Common Explanations for Status Quo Bias

These explanations are all irrational for preferring the status quo:

  • Loss Aversion: When we make decisions, we weigh the potential for loss more heavily than the potential for gain.
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  • Cognitive Dissonance: In decision-making, we an option as more valuable once we have chosen it. Considering an alternative can cause cognitive dissonance.
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  • Rationality vs. Irrationality: We may choose to keep our current situation because of the potential transition cost of switching to an alternative. It becomes irrational when we ignore choices that can improve a situation because we want to maintain the status quo.
Status Quo Bias examples
  • When offered several sandwich options, individuals often choose a sandwich they have eaten before.
  • In 1985, Coca Cola reformulated the original Coke flavor and started selling a "New Coke." Although blind taste tests found many consumers preferred New Coke, consumers continued to buy Coke Classic. New Coke was discontinued in 1992.
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Cognitive biases

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Optimism Bias

Is our tendency to overestimate the odds of our own success compared to other people's. 

Overly optimistic predictions can be dangerous, leading us to waste time and resources pursuing unrealistic goals. In the real world of business, things don't always work out for the best, and it serves us well to know when conditions are not on our side.

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  • Be skeptical of your own rosy expectations for your work. 
  • Assume projects will be more difficult and more expensive than you initially think they will. 
  • Don't trust your good ideas to manifest through positive thinking - be ready to fight for them.
  • Trust the numbers. Numbers are firm but fair, and getting intimate with your business's cash flow can help you make more rational decisions.

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