September 1985

Harvard Business Review

“It is fashionable to downplay and even denigrate the usefulness of economic forecasting. The reason is obvious: forecasters seem to be more often wrong than right. Yet most U.S. companies continue to use a variety of forecasting techniques because no one has apparently developed a better way to deal with the future’s economic uncertainty.

Still, there are exceptions, like Royal Dutch/Shell. Beginning in the late 1960s and early 1970s, Shell developed a technique known as “scenario planning.” By listening to planners’ analysis of the global business environment, Shell’s management was prepared for the eventuality—if not the timing—of the 1973 oil crisis. And again in 1981, when other oil companies stockpiled reserves in the aftermath of the outbreak of the Iran-Iraq war, Shell sold off its excess before the glut became a reality and prices collapsed.

Undoubtedly, many readers believe they are familiar with scenarios. But the decision scenarios developed by Shell in Europe are a far cry from their usual U.S. counterparts. In this article and a sequel to come, the author describes their evolution and ultimate impact on Shell’s management.”