Scenario Planning Amid Radical Uncertainty

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“What’s the best-case scenario that you can logically describe?” According to the author, as an academic and adviser who has spent more than 30 years forecasting future intersections of people and the political economy through the lens of technological change, he is often asked that question. His answer is always the same: Best-case scenarios do not exist. Neither do worst-case scenarios. Human-powered futures are always a mix of misunderstood and unimagined downsides and upsides. What’s different from one era to another? The range and breadth of uncertainty that decision makers must navigate as they try to amplify the upsides and reduce the downsides of change.

That’s important because politicians, CEOs, financial markets, and everyday people have one thing in common: They abhor radical uncertainty. It makes their purpose and mission seem impossible.

Radical uncertainty is entirely different from conventional risk, which positively powers markets and creates opportunities for leaders to make decisions with potentially outsize political and economic payoffs. Risk has boundaries and relevant data; it can be priced and hedged because it represents a partially knowable probability distribution among outcomes. That’s why the saying “no risk, no return” makes sense and why we comfortably talk about and understand “risk-on” and “risk-off” behavior in markets and politics.

Radical uncertainty has none of those positive characteristics. When events move far outside the boundaries of what we know from the past, and when the shape of the probability distribution can’t be mapped, business and political systems tend toward paralysis. People become deeply anxious. Markets gyrate. C-suite confidence corrodes and decision-making freezes up.  

There is clear evidence for each of those effects right now in the United States’ political economy.  The common thread is radical uncertainty engineered by the Trump administration’s notable first six months. Whether you support or oppose the Trump agenda, the fact is that no American administration of at least the past century, and possibly ever, has created such radical uncertainty around such a broad swath of the American political economy, even within the first 100 days.

According to the author he has spent much of his academic career studying what happens in moments like these — times of high-stress decision-making, when people and organizations are functioning (often badly) under radical uncertainty. It’s been a natural extension of that research to advise companies and governments about how to better navigate these moments and deploy and refine tools and methods that can help them make better choices. There are two important lessons about scenario planning to share from that experience.

1. Beware Overindexing on Short-Term Signals.  First, certain identifiable and dysfunctional patterns of information processing and decision-making are painfully common. The most visible is overindexing on very short-term signals, whether it be a single day’s news headlines or a social media post. People tend to chase what looks (for a short time) like a high-salience signal or interpretation, which leads them to oscillate too fast and too far between optimism and pessimism.  Another dysfunctional tendency often creeps in to compensate when people feel overwhelmed: the search for false certainty that may stop the exhausting struggle.
2. Rethink Preparation.  The second lesson I’ve learned is that there is a way to do better. Scenario thinking starts from a different premise: that we cannot predict the future and therefore shouldn’t try. It was pioneered at Royal Dutch Shell in the 1970s and developed for use outside the energy sector by my colleagues and me at Global Business Network and the Monitor Group in subsequent decades. Particularly during periods of high uncertainty, and by necessity under radical uncertainty, the guiding principle for strategic decision-making needs to be preparation, not prediction. The goal is robust strategy development that is designed to perform regardless of where reality lands on the map.

The key to scenario thinking is to render that landscape map of what is possible expansively and broadly enough to incorporate what is actually possible rather than what a person or an organization wishes were possible because it would be easier to handle. That means stretching the boundaries of the critical uncertainties — those factors that are at once both the most important and the most uncertain — a little bit further out than seems plausible now.

An expansive scenario map provides a better foundation. Such maps help leaders make sense of incoming evidence in a systematic way: They can place each piece of evidence on the map where it belongs and carefully watch the evidence accumulate over time so they can continually adjust their estimates of where the future is likely to land. Radical uncertainty will eventually begin to stabilize into something more akin to risk. Decision makers who can track that process accurately and not jump too soon (or too late) have the long-term advantage.

Scenario thinking is a model that generates a more accurate reflection of the world we’re living in right now. It is also less vulnerable to arbitrage by people who might want to exacerbate radical uncertainty in an intentional way, to advantage their goals at the expense of yours. And scenario thinking is manageable for human decision makers, who can’t hold an infinite number of possibilities in their minds at once and should not trust an opaque generative AI model to try to do so for them.

3 key takeaways from the article

1. “What’s the best-case scenario that you can logically describe?” According to the author, as an academic and adviser who has spent more than 30 years forecasting future intersections of people and the political economy through the lens of technological change, he is often asked that question. His answer is always the same: Best-case scenarios do not exist. Neither do worst-case scenarios. Human-powered futures are always a mix of misunderstood and unimagined downsides and upsides. What’s different from one era to another? The range and breadth of uncertainty that decision makers must navigate as they try to amplify the upsides and reduce the downsides of change.
2. That’s important because politicians, CEOs, financial markets, and everyday people have one thing in common: They abhor radical uncertainty. It makes their purpose and mission seem impossible.
3. During the times of high-stress decision-making, when people and organizations are functioning (often badly) under radical uncertainty, the author shared two lessons he has learned: beware overindexing on short-term signals and rethink preparation because there is a way to do better.  Under radical uncertainty, the guiding principle for strategic decision-making needs to be preparation, not prediction, because we can’t predict.

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