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GOOD PRACTICES IN RISK MANAGEMENT: SHELL SCENARIO PLANNING

A useful tool in risk analysis is scenario planning. More and more organizations are incorporating this tool into their strategic planning. The planning of scenarios, or scenario planning , is used to map the possible outcomes of a decision and, of course, the risks and opportunities inherent in the outcome. It is a tool that, given the impossibility of predicting events, can generate adaptability to the uncertainty of the future.

In the 1960s, Shell initiated the creation of a team responsible for scenario planning, which has developed a methodology that has allowed them to anticipate major changes and disruptions in the energy industry. The postwar period of the Second World War seemed to guarantee the stability of oil prices. However, in 1965, the team that would later be known as Shell Scenario Planning , was asked to think about reasons that would cause volatility in the energy market.

Thus, they began an analysis that led them to consider events in Israel, Iran and other countries in the Middle East, which they identified as a risk factor. They did not predict the explicit creation of OPEC, but they did manage to determine that a stable oil price scenario was more unlikely than it appeared. As a result of this work, Shell was prepared to face the energy crisis of 1973 and decided to incorporate scenario planning permanently into its decision-making strategy. Different media have attributed to this methodology the anticipation of events, the reappearance of Russia as an emerging power, the liberalization of global markets in the eighties and the emergence of China as the largest consumer of energy worldwide.

Far from assuming the ability to predict events, Shell explains that it is just this inability that makes the Scenario Planning office necessary . Geraldine Wessing , Shell analyst, explains that we can only imagine the future based on past experiences. This sometimes leads decision makers to assume that the current course of action is the one that will remain, just as many oil companies assumed that the price of oil would remain stable after the Second World War.

The scenarios do not predict events, but help to understand the technological, social, demographic and political forces that affect companies and the way they evolve. Understanding these forces, in turn, stimulates the analysis of problems from multiple perspectives. This helps to contemplate trends that could impact the interests of organizations.

 

 

Approach Political Risks to provide you with the necessary advice in the implementation of scenario planning strategies to understand the trends that will impact your organization. Write to info@riesgospoliticos.com.mx .

 

Photo by Nicholas Jeffway on Unsplash

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