Summary - Three Decades of Scenario Planning in Shell

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Cornelius, P., A. van de Putte and M. Romani (2005), Three decades of scenario planning in Shell This paper of Peter Cornelius (Cornelius, P., A. van de Putte and M. Romani (2005), ) focuses on the external environment in which companies operate. Changes in this business environment can create risk/challenges or create important new opportunities. Forecasting the future, usually based on the assumption that tomorrow’s world will be much like today’s will provide an inappropriate tool to anticipate shifts in the business environment. Shell uses scenario analysis which are not projections, predictions, or preferences; rather, they are coherent and credible alternative stories about the future. These scenarios will enable managers to (1) help identify options in the future, (2) help time the decision to exercise the real option and (3) can provide an important input in the process of evaluating it. Scenario planning differs fundamentally from forecasting in that it accepts uncertainty, tries to understand it, and makes it part of the reasoning. Scenarios help prepare for a range of alternative and different futures. A scenario focuses on different instead of one outlook on the future. 1. No single strategy can perform best in all scenarios. 2. Create awareness among managers about external uncertainty (fundamental difference). 3. Learn how to act upon or react to future developments 4. Combine qualitative and quantitative 5. Stretch managers mental models.

Scenarios at Shell have developed over time from rather simple to more complex models based on volumes of oil, energy and socio economic trends. An increasing number of variables has been integrated. The latest scenarios developed by Shell are (1) Low Trust Globalization, (2) Open Doors and (3) Flags. Shell has a track record in anticipating major structural changes in the global energy markets has substantially enhanced the credibility of scenario analysis within the Group. Although not all scenarios were...
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