A Theoretical Framework for Incorporating Scenarios into Operational Risk Modeling

In this paper, I introduce a theoretically justified framework that incorporates scenario analysis into operational risk modeling. The basis for the framework is the idea that only worst-case scenarios contain valuable information about the tail behavior of operational losses. In addition, worst-case scenarios introduce a natural order among scenarios that makes possible a comparison of the ordered scenario losses with the corresponding quantiles of the severity distribution that research derives from historical losses. Worst-case scenarios contain information that enters the quantification process in the form of lower bound constraints on the specific quantiles of the severity distribution. The framework gives rise to several alternative approaches to incorporating scenarios.     

Integral scenarios: Reframing theory, building from practice

Australian futurists have been working with a range of integral theories over the past decade to inform new approaches to scenarios. Chief among the integral theories explored is Wilber's All Quadrant, All Level, All Lines, All States, All Types (AQAL) meta-theory. This emerging and diverse set of scenario methods, falling under the term ‘integral scenarios’ as reviewed in this paper, have mostly been developed in practice and to date, have not been represented in futures journals. This paper contextualises integral scenarios with a summary of the theoretical background to their development before arriving at a generic scenario generation process together with a set of utility and quality criteria. This generic framework and criteria are then used to situate a range of case studies of integral scenarios, outlining their features, benefits and limitations. Finally, the areas of potential for further development are highlighted—for both refined and wholly new types of integral scenario methods.     

Futures of privacy protection: A framework for creating scenarios of institutional change

The future of privacy is a topical issue in the context of debates on mass surveillance and the increasing prevalence of social media sites in everyday life. Previous scenario studies on privacy have focused on macro trends and on forecasting technological developments, and claims about causal influences have remained implicit. This article presents an alternative approach for constructing scenarios of privacy protection. The article focuses on privacy protection as a social institution and builds on the theory of gradual institutional change. The article presents a scenario framework which includes three stages: (1) outlining the dynamics of privacy protection, (2) tracing historical processes and constructing a causal narrative, and (3) creating event-based scenarios. The resulting scenarios are narratives of plausible chains of events which are based on the results of the previous stages. The key difference to typical scenario approaches is the focus on specific actors and types of event sequences in privacy protection. The argument is that by lowering the level of abstraction in this way, researchers and decision-makers can gain a more profound understanding of possible future challenges in privacy protection and of key leverage points in the institutional change process.     

Multi-scale narratives from an IA perspective: Part I. European and Mediterranean scenario development

Desertification in the Northern Mediterranean region can be effectively managed only through an understanding of the principal ecological, socio-cultural and economic drivers. Scenarios can play an important role in the understanding of such a complex system. Following the fundamentals of Integrated Assessment, narrative storylines were developed that are qualitative, participatory, and highly integrated. Multi-scale long-term (2030) storylines were developed for Europe, the Northern Mediterranean, and for four local cases. This paper discusses the methodology and results of the process of developing European and Mediterranean scenarios. In Part II, the local scenario development by means of scenario workshops is elaborated upon. European and Mediterranean scenarios were based on a set of three existing European scenarios, that were adapted to fit the specific issues in the Mediterranean region, using the so-called Factor-Actor-Sector (FAS) framework. Resulting scenarios were Convulsive Change (disruptive climate change); Big is Beautiful (oversized EU and powerful multinationals); and Knowledge is King (technological development and mass migration). It proved possible to use and enrich a set of existing European scenarios and to translate them to fit the Mediterranean region. A possible use of this type of narrative storylines is further illustrated in Part II.     

Soviet society: Current trends and forecast scenarios

As perestroika drives the USSR towards free market socialism, the country's socioeconomic development depends on a number of factors that are only now taking shape. The transition is inconsistent and painful because there is no clear concept of the overall process. In order to overcome current difficulties the Soviet leadership must adopt a coherent transitional model. This article looks at the underlying trends of the current situation in the USSR and presents three scenarios for the development of Soviet society. Focusing on the dynamics of internal factors, the scenarios differ in terms of social orientation, degree of radicalism, approach to problems and proposed relationship between central power and the republics and regions. The extent of political support for each scenario is examined, and their potential for realization is assessed.     

Using scenarios to explore UK upland futures

Uplands around the world are facing significant social, economic and environmental changes, and decision-makers need to better understand what the future may hold if they are to adapt and maintain upland goods and services. This paper draws together all major research comprising eight studies that have used scenarios to describe possible futures for UK uplands. The paper evaluates which scenarios are perceived by stakeholders to be most likely and desirable, and assesses the benefits and drawbacks of the scenario methods used in UK uplands to date. Stakeholders agreed that the most desirable and likely scenario would be a continuation of hill farming (albeit at reduced levels) based on cross-compliance with environmental measures. The least desirable scenario is a withdrawal of government financial support for hill farming. Although this was deemed by stakeholders to be the least likely scenario, the loss of government support warrants close attention due to its potential implications for the local economy. Stakeholders noted that the environmental implications of this scenario are much less clear-cut. As such, there is an urgent need to understand the full implications of this scenario, so that upland stakeholders can adequately prepare, and policy-makers can better evaluate the likely implications of different policy options. The paper concludes that in future, upland scenario research needs to: (1) better integrate in-depth and representative participation from stakeholders during both scenario development and evaluation; and (2) make more effective use of visualisation techniques and simulation models.     

Goal-based socio-technical scenarios: Greening the mobility practices in the Stockholm City District of Bromma,Sweden

This paper presents a new five-part method for developing goal-based socio-technical scenarios. In the first part, Scenario ‘Seeds’ are identified or created. The Scenario Content part focuses on the question of what could be changed and by whom, a fundamental element being iterative identification of objects and actors of change. Scenario Outcome focuses on the question of how to assess the potential contribution of these changes, estimated through modelling the scenario in terms of energy usage systems. Scenario Process explores the question of how to develop and represent a scenario in terms of a process of governance. Scenario Content, Outcome and Process are then combined into a Final Scenario which is further assessed and evaluated using qualitative methods. The development of Scenario Content is tested and exemplified in this paper through a scenario study of green mobility in the district of Bromma in Stockholm, Sweden. Preliminary findings indicate that by supporting explicit inclusion of actors and ‘the social’ aspect, the what-who iteration in Scenario Content also helps identify opportunities and obstacles of a social character, thus contributing to creation of socio-technically more consistent and comprehensive scenarios.     

Testing the rhetoric: An approach to assess scenario planning's role as a catalyst for urban policy integration

Policy integration has become a high-priority objective for urban planning and management. At the same time, the transportation and urban planning fields have increasingly employed scenario planning approaches, not only to develop long-term strategy, but also—potentially—to strengthen organizational networks and encourage collaborative action. Yet these latter supposed outcomes of scenario planning remain under-theorized and largely untested. In this study, we propose a methodology, based on established theories of collaboration, to test the ability of a particular type of scenario planning to encourage collaboration between participants. We demonstrate the approach using a scenario planning process undertaken within the transportation and urban planning community in Portugal. The pre-/post-test experimental design uses a survey designed to assess participants’ propensity for future collaboration by measuring change in individuals’ perceptions and understandings. The results suggest that the process likely modestly increased participants’ propensity to collaborate, primarily by strengthening inter-agency networks. The effects on participants’ views and understanding remain inconclusive. We suggest that specific challenges in applying this specific scenario planning approach to public sector contexts may limit the method's potential in achieving inter-organizational collaboration. Nonetheless, only more widespread efforts to formally test the scenario planning rhetoric will reveal the true impacts on organization change.     

Non-performing loans and the cost of deleveraging: The Italian experience

The massive stock of Non-Performing Loans (NPLs) in Europe has forced regulatory and supervisory authorities to promote debate on their management and timely disposal. Simultaneously, the transition to IFRS 9 created the need for higher provisioning and for weighting sale scenarios in the assessment of NPLs. This study, using a scenario analysis based on the Italian experience of the NPL resolution process, focuses on the cost of deleveraging by comparing the alternative strategies of direct sale and securitization. The study highlights the impact of the assumptions derived from the portfolio assessment and the additional cost arising from the uncertainties surrounding the appropriate recovery procedure. It demonstrates that securitization minimises this cost, while estimating the benefit derived from the support of State-backed guarantees. These findings provide useful insights for policy makers, suggesting the promotion of further measures that aim to reduce the transfer of value from banks to third parties.     

The contribution of scenario analysis to the front-end of new product development

The front-end of new product development involves the identification and analysis of product or service opportunities, idea generation, and the selection of new product and service concepts. It is often referred to as non-routine, dynamic, and highly uncertain. Authors have made attempts to improve the manageability of this phase by proposing several methods and techniques. This paper explores the possible contribution of scenario analysis to increase the quality and effectiveness of the front-end of new product development process by linking a set of functions of scenario analysis as is recognized in the literature as possible solutions to various front-end problems. Two case studies are used to explore if and how the scenario analysis functions contribute to the front-end of new product development process in an empirical setting.     

Island futures—Does a participatory scenario process capture the common view of local residents?

Scenarios are often developed by small groups of motivated individuals, but how representative are they of community views of desirable futures? A scenario process in the coastal community of Vega in central Norway was complemented by a survey among 200 community residents in which respondents rated a preferred development option from a series of future choices and dilemmas. While the scenario process produced novelty and diversity in thinking about the future, the common community view reflects a more traditionalistic view of the future. Tourism was identified as a key economic opportunity in the scenario process, but the larger island community has little faith in tourism as a future cornerstone of economic development and would rather rely on traditional sectors like agriculture and fisheries. The scenarios brought out richness in future development options, highlighted place identity and support for heritage conservation based on wise use of natural resources. The scenarios were less suited for making decisions about economic investments, but produced salient information about opportunities, uncertainties and complexities of the future. Findings show the need to compliment scenario processes where a small group explores “possible futures” with surveys to explore the wider populations’ views about “preferred futures”.     

Problem structuring for transitions: The case of Swiss waste management

Transdisciplinarity is considered an appropriate approach in supporting transitions of complex socio-technical systems as such transitions demand highly contextualized real world knowledge and valuations. This holds especially true for the problem identification and structuring (initial) phase of a transition project, which aims at supporting goal formation based on a sound understanding and representation of the system's current state and its dynamics. Throughout this phase, it is important that all relevant perspectives in terms of expertise and interests are considered and adequately fed into a process of knowledge integration. This paper presents in its first part the structuring for complex transitions (SCT) procedure aiming at this requirement. The procedure has been specifically designed for problem structuring in socio-technical systems in the initial phase of a transition project. The results of the procedure provide sound inputs for the next project phases and the transition methods applied therein, but can themselves already be used as fruitful orientations in strategy development. The second part of the paper briefly outlines the application of the SCT procedure to Swiss waste management. This application involved 48 participants who reached consensus on relevant impact factors and developed a shared vision for managing a complex transition process in the area of waste management. The approach is marked by high feasibility and socially robust results.     

Using signposts in future studies: Lessons from the Justice for tomorrow project

Within the field of future studies, the scenario method is frequently applied. In the literature it is often stressed that it is important to know as soon as possible which of several scenarios is closest to the course of history as it actually unfolds. However, tracking scenarios via early warning mechanisms or signposts, is not a common practice. A standard methodology seems to be absent. Within the context of the Justice for tomorrow project, a scenario project of the Dutch ministry of Justice, we developed and applied a signpost method. We used this method to answer the question of how actual developments relate to the development paths depicted in the scenarios. In this paper we evaluate our approach. We explain what lessons can be learned regarding the use of signposts in future studies.     

Scenarios based on sustainability discourses: Constructing alternative consumption and consumer perspectives

This paper describes a research based scenario project on sustainable consumption in Belgium. In the Consentsus project a scenario method was developed and tested by the research team to assess scenarios both as learning and participation tools for sustainable consumption. By using a decomposition analysis a solid ground was laid to adequately summarize three guiding principles on how to reach a (more) sustainable consumption: eco-efficiency, de-commodification and sufficiency. These ‘pure’ strategies – showing significant similarities with concrete discourses – were then translated into a participative process: two expert-driven workshops and interim research yielded three future images of food consumption as well as indications on their boundary conditions. These three images reflect significantly diverging approaches on how to organize practices related to food consumption. This structural diversity allowed us to address an archetypical consumer, i.e. a generalized consumer based on the specificities of the scenarios. These consumer perspectives do not aim at indicating real (even potential) groups, but aim at illustrating how the environment of interactions around the consumer fundamentally changes throughout the three sustainability discourses. It is argued that thinking through alternative modes of consumption is of importance to support and elucidate debate in governance arenas that address transitions towards a more sustainable consumption.     

Endowing cognitive mapping with computational properties for strategic analysis

A number of cognitive, causal mapping and simulation techniques exist for dealing with the growing importance of environmental uncertainty. After briefly commenting on some of the more salient extant approaches, this paper offers a new one for consideration by the scenario planning community. Comprehensive Situation Mapping (CSM) is a powerful analytical tool combined with a process for framing and debating strategic situations. The CSM approach combines the problem framing features of causal mapping with a dialectical inquiry process patterned after Churchman's. Like the better approaches to planning through cognitive mapping, it facilitates the “backward analysis” of the underlying strategic assumptions. Its novelty is that it also allows the “forward analysis” of a situation by computing the potential change scenarios. Initially developed for manual application, the principles of CSM were originally tested in appropriate case studies. The contribution of the present paper is to present its theory and point out that its future potential is even greater: in concluding we indicate that, by using recent distributed artificial intelligence (DAI) technology, a fully computerized and interactive prototype is now being set up for commercial applications.     

City foresight and development planning case study: Implementation of scenario planning in formulation of the Bulungan development plan

This article discusses the formulation of the Bulungan Development Plan (2002) that sought to formulate a 25 year city vision. The foresight process included how to prepared the process, implemented the scenario planning method, created consensus amongst stakeholders, and formulated graphic and narrative scenarios that explored alternative future for Bulungan. Based on these scenarios, the stakeholders formulated a vision for the city's preferred future. The vision is “excellence in agro industry supported by qualified human resources”.Project debriefing showed that unlike traditional forecasting or market research, the methods of foresight, especially scenario planning, is a more appropriate and powerful planning tool for integrated regional development. The main reason for this is that the future is unpredictable, and scenarios allow stakeholders to make sense of complexity.     

Tourism at Costalegre,Mexico: An ecosystem services-based exploration of current challenges and alternative futures

Tourism, as all human activities, is dependent on the natural environment and its respective ecosystem services (ES). Different user groups manage and consume these touristic ES differently, resulting in discrepancies and potential conflicts. Despite the urgency to find inclusive local approaches for sustainable development, tourism studies still analyze socio-economic and ecological impacts separately and lack integrated social–ecological approaches to improve foresight in tourism planning. Based on a growing concern regarding the future of Costalegre on the Jalisco coast of Western Mexico, we analyze through interviews, surveys, and participant observation the dependence of tourism on specific ecosystem services and conduct a scenario analysis which shows present and future implications for the social–ecological system. Furthermore, this analysis shows in detail how different scenarios change ES provision and people's livelihoods. Key findings include identifying freshwater provision and cultural ES as the most important touristic ES. At a regional scale, peasants in ejidos are the main ES stewards, whereas high-class tourism facilities constitute important local stewards. Benefits, mainly access to freshwater and the beach, are unequally distributed, provoking conflicts among different ES user groups that may escalate in the near future. Improved communication between all user groups and strengthening of key political actors seem to be the most immediate recommendations to ensure the long term sustainability of this particular region. This work may contribute to improved planning and decision-making as our ES based scenarios are a first step to integrate social–ecological knowledge into improved decision-making. At a local scale, the study reveals the most likely future development options and their social and ecological consequences. It could also serve as a baseline for informed policy making.     

Multi-scale interaction in local scenario-building: A methodological framework

Despite the recent popularity of multi-scale scenario exercises, a review of the literature reveals missing elements regarding local-scale scenario-building. Scenarios built at the local level are often downscaled from higher-scale scenarios or developed within the boundary conditions of global and national scales without taking local circumstances thoroughly into account. On this background, this paper discusses the issue of scale in local scenario development and develops a formal methodological approach for local-scale scenario-building in general. The paper underlines in particular the role of local agency in coupling the larger scale and the local scale. To better illustrate how the proposed approach helps in designing local scenarios, lessons drawn from two local scenario development practices are also employed. Hence, the paper contributes to the formalisation of local scenario-building, which is believed to enhance the validity and credibility of local scenario outputs in the policy sphere.     

From data analysis to storytelling in scenario building. A semiotic approach to purpose-dependent writing of stories

Scenario building is one of the activities that companies frequently carry out in order to understand and communicate aspects or strategies about the future. Methodologies related to scenario building include, in one way or another, two phases, one oriented to the research of data and analysis, and the storytelling focused on communication. This paper identifies the transition from one phase to the other as a cause of loss of consistency and information that can jeopardize the whole process. It also develops a framework to build narratives or stories from the data obtained in the first phase, turning to diverse semiotic concepts in order to bridge this transition. This methodology is illustrated with an example obtained from Telefonica technology scenarios.     

Institutional evolution as an emerging focus in scenario planning

In this paper, we argue that institutional evolution should occupy a center stage in scenario development. During the last two decades, strategy models have neglected the institutional milieu, partly because analytical approaches to link institutional milieus and business contexts were underdeveloped. However, theoretical developments in institutional economics accomplished during this time period make it possible to connect the consequences of institutional evolution to strategy development. Further, with the increasing globalization of commerce, and the attendant complexity and turbulence in institutional evolution, particularly in emerging economies, significant opportunities for strategy related action may reside not in product markets but in institutional arenas. Institution-focused scenarios are therefore increasingly needed. We outline the key linkages between the institutional milieu and business contexts and illustrate how scenarios incorporating institutional parameters can shed light on the strategy context in the case of emerging economies.