SPP Scenario Planning & Forecasting 5 — Questions and Answers
Question 1: Which element distinguishes a 'stretch scenario' from a baseline scenario?
- It uses only quantitative data sources
- It pushes assumptions beyond comfortable norms to challenge strategic thinking (Correct answer)
- It represents the organization's most likely performance trajectory
- It is produced exclusively for investor communications
Correct answer: It pushes assumptions beyond comfortable norms to challenge strategic thinking
Stretch scenarios deliberately adopt extreme but plausible assumptions to stress-test strategic thinking beyond familiar comfort zones.
Question 2: In the context of SPP, 'horizon scanning' primarily serves to:
- Audit current operational performance against targets
- Detect early signals of emerging trends and potential discontinuities (Correct answer)
- Benchmark financial ratios against industry peers
- Prioritize existing strategic initiatives by ROI
Correct answer: Detect early signals of emerging trends and potential discontinuities
Horizon scanning systematically monitors the environment for weak signals and emerging issues before they become mainstream.
Question 3: When two scenarios share the same axis value (e.g., both assume high economic growth), a scenario planning team should:
- Accept the overlap as it reflects real-world uncertainty
- Revise the axes because the scenarios are not sufficiently distinct (Correct answer)
- Merge the two scenarios into a single narrative
- Weight the shared scenario more heavily in strategic decisions
Correct answer: Revise the axes because the scenarios are not sufficiently distinct
Scenarios must differ meaningfully on both axes; identical axis values indicate the driving forces were not properly differentiated.
Question 4: A company identifies that its current strategy is only viable in one of four scenarios. The appropriate strategic response is to:
- Execute the strategy and accept the risk
- Develop options or hedges that reduce single-scenario dependency (Correct answer)
- Choose the favorable scenario as the official forecast and plan accordingly
- Delay all strategic decisions until the future becomes clearer
Correct answer: Develop options or hedges that reduce single-scenario dependency
Over-reliance on a single scenario is a strategic vulnerability; options, hedges, and real options reduce that concentration risk.
Question 5: Which forecasting error occurs when an analyst gives excessive weight to recent events when predicting future trends?
- Regression to the mean
- Recency bias (Correct answer)
- Base-rate neglect
- Hindsight bias
Correct answer: Recency bias
Recency bias causes analysts to over-index on the most recent data points, distorting longer-term trend assessments.
Question 6: The 'three horizons' framework in strategic planning is used to:
- Assign probabilities to three competing scenarios
- Balance investment across current core business, emerging growth, and future options (Correct answer)
- Categorize competitors by their planning time horizons
- Sequence scenario development in three annual iterations
Correct answer: Balance investment across current core business, emerging growth, and future options
The three horizons model helps organizations simultaneously manage today's core business (H1), build new engines (H2), and seed future options (H3).
Question 7: In quantitative scenario analysis, 'sensitivity analysis' helps strategic planners by:
- Ranking scenarios by organizational preference
- Identifying which input variables have the greatest effect on outcomes (Correct answer)
- Determining the probability distribution of each scenario
- Translating qualitative narratives into financial statements
Correct answer: Identifying which input variables have the greatest effect on outcomes
Sensitivity analysis varies one input at a time to show how much the output changes, revealing which assumptions most drive results.
SPP Scenario Planning & Forecasting 5
Which element distinguishes a 'stretch scenario' from a baseline scenario?