To deal with uncertainty: a lesson from Shell

Shell is, probably, the most emblematic case of application of Scenario Planning, having used this methodology (widely divulged in the business circles from the 60´s onwards) in his success route through the instability of the oil market.

In the beginning, Scenarios were not more than evolutions of the traditional approaches, meaning that, instead of a unique linear prevision, a probabilistic evaluation of different futures was carried out, identifying a projection as the most probable.

Starting from the recognition of this system’s failures, Shell started to base its Scenario Planning on qualitative causal thought (moving away from linear projections), appealing to the need felt by decision-makers of understanding and anticipating the structural changes of the society. Using the method of Herman Kahn (the precursor of Scenario Planning in the USA), namely when it comes to distinguishing between uncertainties (crucial) and pre-determined elements (that can be anticipated), Shell built multiple histories of plausible futures (Scenarios) which could be used to test strategic decisions and options. Therefore, each Shell project was evaluated in terms of two or three Scenarios (considered as equally plausible), generating two or three different results for the company (one for each Scenario). The decision to proceed or not with the project was taken according to the different results of the projects, tested in the several Scenarios.[2]
Scenario Planning strengthened the construction of projects and the decision-making, testing it against a collection of alternative futures. This added value, that is not the only one of Scenario Planning, is more and more decisive in a business context (and also, for example, in the regional and cities context) which is more complex, competitive and uncertain, where the anticipation and perception of structural changes (for example, in the markets and technologies) can mean a huge difference between success/survival and unsuccess/ decay.


[2] For a more detailed presentation of the evolution of Shell’s Scenario Planning take a look at Kees van der Heijden book in which this small introduction was based on: “Scenarios: the Art of Strategic Conversation”, John Wiley & Sons, 1996”.