Corporate Eye

Shell’s Scenarios and Risk Management

In a recent post I reviewed Black Swans and mentioned that I would have a posting about Shell Oil’s use of scenarios to identify future risks and opportunities.

shell scenarios 1 Shells Scenarios and Risk Management

First, what are scenarios?

Scenarios are pictures of possible futures facing an organization. They are developed via an amalgam of perceived trends and intelligence on possible actions of stakeholders. External factors such as economics, competition and market conditions are considered. Quantitative and qualitative tools such as econometrics/ statistical forecasts, Delphi technique, and surveys may be used. The results of all analyses are organized into comprehensive pictures of a number of possible futures. Shell pioneered this technique in the early 1970s and they still use it.

The Scenario page is nestled in the About Us/Strategy section. The main page offers much useful information — definitions, videos and a link to current scenarios — and great use of visuals and a slide-out menu of links to related information.

shell scenarios 2 Shells Scenarios and Risk Management

Access to scenarios in future decades is viewed by simply clicking on the year. In the upper right, see Blueprints: clicking on the + icons provides additional information about the scenario.

Deloitte (PDF) offer some useful advice on Scenarios and Corporate Governance –

Why do scenario planning?

The Risk Intelligent Enterprise utilizes risk information to influence strategic planning in three key ways:

  1. Risks are identified and analyzed when considering strategic alternatives and developing business/organizational strategy

    • Risks of the strategy
  2. Risk appetite serves as a guidepost in setting strategy and allocating resources.
  3. Once business/organizational strategy has been selected, risks that might affect the organization’s ability to implement key strategies are identified and managed
    • Risks to the strategy

Common risk management challenges include:

  • Failure of modern risk management
  • Information filtering
  • Mental models

Desired results may include:

Better understanding of risk

  • to the strategy
  • of the strategy

Shared commitment and approach to:

  • manage key risks to within risk appetite
  • exploit risks where the organization has a strategic advantage

Want to know more? Here are some additional worthy resources–

The use and abuse of scenarios McKinsey Consultants

Why Scenarios? Global Business Network

 Shells Scenarios and Risk Management
Ed Konczal has an MBA from New York University's Stern School of Business (with distinction). He has spent the last 10 years as an executive consultant focusing on human resources, leadership, market research, and business planning. Ed has over 10 years of top-level experience from AT&T in the areas of new ventures and business planning. He is co-author of the book "Simple Stories for Leadership Insight," published by University Press of America.

 
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