Chapter 11.

Scenario Planning
This Chapter begins to focus on the final objective of the study, that is, engaging water
supply stakeholders in water futures scenario workshops to develop water scarcity scenarios and
to discuss likely water district responses to such scenarios. This chapter first provides an
introduction to scenario development or planning. Following the introduction is a review of two
recent water district efforts to develop a reasoned approach to alternative futures they may face.
This review will help us draw similarities and differences between such efforts and the future
scenario approach we followed. The next chapter will detail the process we followed and the
results of the workshops.
Introduction to Scenario Planning
Scenario planning allows a community to consider a variety of plausible futures by taking
into account the possible interactions among a variety of driving forces in the socio-ecological
system. Scenarios spell out plausible alternative futures and highlight the risks and
opportunities associated with each. In contrast to predictive models, in which uncertainty is
estimated based on probability distributions of key drivers, scenarios are effective when
uncertainty about key interacting drivers is high and we do not know their probability
distribution. Scenarios go beyond traditional trend extrapolation by considering hypothetical
boundary conditions and using expert knowledge of various kinds to imagine radically different
futures. Rather than focusing on the prediction of a single outcome, scenarios consider a large
suite of alternative futures.
While the term scenario is used throughout science and decision-making, scenario
planning is a specific method developed originally to assist business managers facing an
uncertain and volatile future (Kahn and Wiener, 1967). Since then, scenario planning has been in
wide use in business, education, environment, defense and other fields (Chermack, Lynham and
Ruona 2001)(Keough and Shanahan 2008).
Scenario planning begins by identifying focal problems or decisions. The next step is to
identify a large range of driving forces. This helps to highlight important and long-term, rather
than urgent, dynamics of the system. Driving forces that are predetermined (e.g., the aging of a
population) are separated out to reveal the most significant uncertainties, which are then ranked
by locally knowledgeable participants to determine what key driving forces are most significant
and difficult to know. Based on these results, a preliminary matrix can be constructed along two
orthogonal axes representing each uncertainty (Vant Klooster and Van Asselt 2006). The matrix
can be used to develop a set of distinct scenarios. Each scenario must then be fleshed out by
considering the role of the previously identified driving forces. Plans or decisions, which have
already been proposed or are subsequently developed, are then evaluated against each scenarios.
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The decisions and plans that are most robust (i.e., perform best under uncertainty) are those that
play out acceptably across all scenarios. Those that play out well against only a few scenarios are
noted. Each of these steps needs to be undertaken in close consultation with a representative set
of officials and stakeholders to ensure that local knowledge is blended with scientific expertise.

Essential Components of Scenarios

Scenarios are built around three essential components:

drivers or compelling influences;

relative certainties or inevitable events; and
key uncertainties elements.

The process of building scenarios starts with looking for compelling influences or major
drivers, the forces that affect the outcome of events. Typically, these are characterized by the
acronym STEEP, standing for Social, Technological, Economic, Environmental, and Political
factors that affect events. STEEP is an alternative framework to SWOT (Strengths, Weaknesses,
Opportunities and Threats) for the analysis of external factors in strategic planning. Social
factors, for example, include demographic changes. Demographic changes, in turn, can impact a
business organization by reducing or increasing labor supply or the demand for certain products.
STEEP analysis can also be used to analyze issues of concern to a community, country, or the
world, as in the National Intelligence Councils Global Scenarios to 2025 (2008) Demographic
changes, such as increasing population will impact energy demand, or an increasingly aging
population can impact demand for health services. After identifying and exploring the driving
forces, scenario planners must search for the other two components. It is easy to assume that
these are three separate and distinct categories, but there are overlaps among them.
Every enterprise is driven by particular strategic factors. Some of them, such as leadership
and motivation, are found within the organization. Others, such as economic forces, originate
outside. Many factors, particularly external ones, are not immediately obvious. Identifying and
assessing these basic factors is one of the objectives of the scenario method. It is also the place to
begin building scenarios.
Relative certainties, predetermined elements, or sure things do not depend on any
particular series of things happening. With driving factors, the events will play out only if the
influences continue. An event can be forecast, but not with certainty. But if the event seems
virtually certain, no matter which scenario comes to pass, then it is relatively certain.
Key unknown elements exist in every plan. Scenario-planners seek them out to prepare for
them. Uncertain elements are intimately related to and sometimes confused with driving factors.
Planners identify uncertain elements by questioning their assumptions about sure things.

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Sometimes an inevitable event becomes an uncertain element and upsets a scenario. In the
1970s, forecasters predicted that our national oil reserves would be exhausted by the 1990s. They
were right about population growth and an ongoing level of energy consumption, two inevitable
events they had identified correctly. But people, organizations, and the nation changed their
habits. Vehicles and housing became more energy efficient; and although the nations oil
production peaked, oil companies invested in more expensive extraction methods, and the nation
imported more oil.
Driving factors, relative certainties, and key uncertain factors give structure to our
exploration of the future.
Scenario Narratives
A scenario describes how certain compelling influences might reasonably behave, based on
how those influences have behaved in the past. Of course, the same set of influences might
behave in entirely different ways in other narratives. Scenarios usually explore three or four of
those alternative ways, based on the narratives that best address the focal issues. Outlining a
narrative is usually a team effort. The scenario building team is brought together because they
have some understanding of the focal strategy or issue that a decision maker or manager might
confront. The team engages in one or more brainstorming exercises to develop a set of initial
ideas. These exercises are aimed at answering some key questions, such as:

What are the driving factors?

What elements do we think are uncertain?
What is relatively certain? and finally,
How about a scenario like ________________? Or _______________? Or
____________?

Note that scenarios often (but not always) come in threes. When business firms examine their
future environment, they often construct three very different plausible narratives of what might
happen to the American economy within their planning horizon. More and more frequently the
"scenario set" includes these three models plus one other. But more than four scenarios tend to be
too complex; the team members cannot keep track of their ramificationsto say nothing of the
managers, who may become involved only in the late stages.

One is the "more of the same, but better" scenario (not really a "do nothing," but a
continuation of present trends with an effort to improve on some aspects). Preparing this
kind of scenario resembles some aspects of long-range planning.
Scenario two is "things are worse" (perhaps even a "disaster").
The third common model is "fundamentally different and better" (because of some basic
changes).
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Typically a fourth scenario is a variation of the third scenario type. While the third model might
be structurally different, the fourth scenario would depict visionary change.
Steps in Developing Scenarios
Although there are variations in the method for developing scenarios, a main school of
thought that grew out of the Shell model of scenario planning characterizes the process as an
eight step process, and in line with the process outlined by Peter Schwartz (1991) and Global
Business Network, and also known as the Intuitive Logics approach (Chermack, Lynhamm and
Ruona 2001). Figure 11.1 identifies the eight major steps in this process. The order of the steps
may not be consistent in every case. For example, in some cases, the planner may start with a
story line first and ask, "If this narrative plays out this way, what decisions will my managers
likely want to take?" But every step is essential, and most scenario-building exercises use this
process.
Figure 11.1 Steps in the Scenario-Building Process

Source: Adapted from Peter Schwartz (1991).

The steps in the scenario-building process are: step one, recognize the focal issues or questions;
step two, identify the key forces in the local environment; step three, brainstorm the driving
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factors or compelling influences in the macro-environment; step four, weight and rank key forces
(2) and driving factors (3) by importance and uncertainty; step five, select the criteria or general
scenario logics according to the matrix drawn in Step 4; step six, amplify or flesh out by
returning to (2) and (3); step seven, determine the implications of each scenario; and step eight,
choose indicators to monitor the unfolding situation.
Figure 11.2 Scenario Axes as Starting Points for Scenarios

Driving force 1
Endpoint 1a

Driving force 2
Endpoint 2a

Hypothesis 3

Hypothesis 2
Variable 1

Hypothesis 1

Variable 2

Endpoint 2b

Hypothesis 4
Endpoint 1b

Step 5 in this process is crucial for the development of alternative scenarios. It is at this
stage that the two most important and uncertain drivers are selected. These two drivers become
the axes that will generate the four scenarios. See Figure 11.2 for a depiction of how the two
driving forces are used to generate alternative scenarios.
These 8 steps are focused on the development of plausible scenarios. But the ultimate
use of scenarios is to assess the feasibility of existing strategies to meet the challenges posed by
the alternative scenarios. We will discuss this further in the next Chapter.

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Recent Use of Scenarios in Water Planning in Southern California

Water infrastructure can be costly, has a long life-span, and its implementation can be
lengthy. Water agencies often have to plan under uncertain conditions. In this section, we review
two examples of how scenarios have been used by two Southern California water agencies in
planning for their future. The Inland Empire Utilities Agency (IEUA) chose the Robust Decision
Making (RDM) approach to evaluate the actions included in its 2005 Urban Water Management
Plan (UWMP), by taking into account a number of possible futures in which climate change
figured predominantly. IEUAs approach was based on existing modeling tools, but relies also
on the expert judgment of the agencys staff and officials to make predictions on future
uncertainties. It addressed the uncertainty by multiplying the number of possible futures (450)
and by reducing the performance factor to the final cost of water production and of water
shortage for the water agency.
To understand alternative future roles that it could play in Southern Californias water
supply, the Metropolitan Water District of Southern California (MWD) chose to compare the
effect of four different bundles of investments in a variety of water sources and water
management practices. This approach relied on-in house modeling tools. It addressed the
institutional uncertainties of MWD, but does not consider the uncertainties related to climate
change.
Robust Decision Making for the Inland Empire Utilities Agency

Similar to a certain extent to scenario planning, Robust Decision Making (RDM) is also a
method for reducing uncertainty that treat[s] uncertainty with multiple, rather than a single,
views of the future and evaluates alternative strategies with a robustness, rather than an
optimality, criterion(Lempert and Groves 2010, 961). The method relies on formalized
information and existing water system management models, while taking advantage of the
computational possibilities of existing software to generate a wide number of possible (not
plausible) futures that are than fed to its water system management model.
Lempert & Groves (2010) applied an RDM method to the long term decisions included in
IEUAs 2005 UWMP and assessed how the 2005 UWMP would perform under a number of
possible future conditions.

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At first, the team carried out three preliminary steps:

1. Identify 6 uncertainties that might affect how the plan would perform in the future
through interviews with IEUAs planners; the major uncertainties were: as future local
climate, future water demand, impact of climate change on imported supply, response of
groundwater basin to urbanization, future costs, degree of achievement of management
strategies;
2. Define key performance metrics to use in the evaluation: annual water demand, annual
supply mix, projected shortages, cost of supplying and treating water and the cost of
incurring in shortages.
3. Develop a simulation model for the agencys water management system (in a well known
modeling environment), that includes the most relevant characteristics of the system
itself: supply sources (precipitations, groundwater, imported and recycled water), demand
(indoor, outdoor, agriculture).
Then, the team developed a regionalization or downscaling of the climate models included in
the IPCC 4th Assessment Report, that resulted in temperature variations from 2000 to 2003
ranging from a 0.4 C cooling to a 2.75C warming and in precipitation variations that ranged
from a 27% decrease to a 19% increase. Subsequently they developed estimates on the possible
variations of the other uncertainty factors through interviews with local officials and with IEUA
staffers and they represented the major uncertainties and the assessment factors in the water
management system model. By modeling the effects of the 2005 UWMP, the team highlighted
its vulnerability to future climate and regional changes. At this point, new adaptive strategies,
such as improving water use efficiency, expanding the recycled water system and expanding
conjunctive uses, were included in the model.
In the second part of the modeling exercise, the research team generated 450 plausible
futures by combining the 6 uncertainty factors and evaluated IEUAs management strategy using
the water management system model. Through this process the team identified the combination
of uncertain factors that would increase IEUSs water costs the most. Subsequently, the team
evaluated how adaptive strategies would reduce the agencys costs and found that adaptive
strategies such as storm-water capture and conjunctive uses generate the largest costs reductions
and reduce future vulnerabilities of water supply.
By comparing the water management system under a wide number of possible futures, the
team and IEUA management tested how adaptive water management strategies such as water
conservation, storm-water capture and conjunctive uses reduces future water costs and improve
water management performances in a wide range of circumstances.
This modeling approach to planning for an uncertain future incorporated several important
drivers, characteristics of the agency, and performance measures, and used the existing plans of
the agency to assess its vulnerability to key uncertainties in a wide set alternative agency
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scenarios to engage the agency in an assessment and revision of its plans. Note that the method
used has a single agency focus and there is an absence of social and political drivers.
MWDs Integrated Water Resource Plan
Since 1996, the Metropolitan Water District of Southern California (MWD) has been
developing Integrated Water Resources Plans (IWRMP) that take into account the diversity of
water sources that constitute Southern Californias water supply and has committed the agency
to a range of investments to maintain its core infrastructure, develop new water sources, and
support water recycling, desalination and water conservation.
The planning process, however, had been conducted mainly by projecting demand in the
future and optimizing the investments to meet that demand. To update the IWRMP in 2008, the
agency initiated a participatory process that involved all the member agencies, elected officials
and community groups to collectively discuss strategic directions for the future of water supply
in Southern California.
After analyzing the current constraints of Southern California water supply, a wide
number of water management strategies, ranging from water conservation, recycling,
desalination, up to the construction of a new infrastructure that would render Northern California
water conveyance system more reliable, MWD conveyed 4 strategic policy workshops to
examine how different mixes of water management strategies and different levels of MWD
involvement in these strategies would address the future of water reliability in Southern
California more effectively (MWD 2010).
For the purpose of analysis, three different bundles of water management strategies involving
MWD, imported water and local resources at different levels were assembled in the following
scenarios:
Current Approach;
Imported Focus; and
Enhanced Regional Focus.
Socio-demographic, water management and infrastructure variables (Table 11.1) were
projected to 2035 with MWD proprietary Integrated Water Resources Plan Simulation Model
(IRPSIM). The model estimates water surplus and shortage and provides time series and
probabilistic outcomes of resource use and regional surplus and shortage conditions in frequency
and magnitude (MWD 2010, 2-32).

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Table 11.1 Common variables for comparing strategic policy approaches

Common to all the approaches

Demographic projections
Conservation compliance
Input from Carlsbad desalinator (starts operations in 2012)
Input from local resources as currently projected
CRA is filled at capacity
SWP hardware solution is put in place
MWD can use its 4.9MAF worth of water storage
Source: MWD, 2010
At this point MWDs staff developed investment mixes and implementation timelines for
each of the strategic policy alternatives and predicted the magnitude and probability of future
shortages as well as costs and rates implications for each alternative for years 2015, 2025 and
2035.
The result of the comparison is illustrated in Table 11.2.
Through this exercise led MWDs board found that it is in the regions best interest for
Metropolitan to continue to explore ways of increasing regional reliability and not limiting itself
to singular areas like addressing Delta issues(MWD 2010, p. 2-41). The agency, however, did
not embrace one of the strategic paths discussed through this process, but, as a result of the
process, concluded that its future strategy would include the adoption of adaptive management
practices, developing its core supplies, diversifying its role in developing local water supplies
and playing a catalyst role in regional collaboration.
MWDs scenario exercise was a model-based process which explored different policy
strategies that the agency can pursue in the future, including roles focused on securing imported
water supply or on securing regional sources of supply, can meet the demand and reliability
objectives of the agency.

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Table 11.2 Results of the strategic policy alternatives assessment

Current Approach

Imported Focus

Enhanced Regional Focus #1 Enhanced Regional Focus #2

Local Supplies

Additional local groundwater

Limited investments in local
recovery or seawater desalination resources
of up to 46,000 AF are
implemented beginning in 2015
and increasing to full yield in
2025, accounting for the
additional $12 million in Demand
Management Programs and
decreased sales

Delta

A Delta fix is implemented in

2022, improving the SWP to
yields approximating those
estimated prior to the court
rulings and Biological Opinions
to protect Delta smelt and
Chinook salmon

Regional-scale local projects are Regional Scale local projects

implemented at 30,000 AF in were initiated in the interim
2015, increasing to 351,000 AF with a implementation of only
by 2025, and 463,000 AF by
40,000 AF in regional project
2035
in 2015.

Metropolitan would focus on

Delta improvements will not be
implementing an interim and a completed by 2035
long-term Delta solution to
improve the reliability of the
SWP, while also improving the
reliability of the CRA.

Delta improvements completed

in 2022, improving the SWP to
yields approximating those
estimated prior to the court
rulings and Biological
Opinions to protect Delta
Smelt and Chinook salmon.

Supply reliability in 2035

with no storage

78%

71%

74%

72%

Supply reliability in 2035

with storage

96%

95%

96%

96%

191,000 AF

191,000 AF

249,000 AF

369,000 AF

$1,501 per AF

$1,483 per AF

$2,048 per AF

$1,536 per AF

Shortage magnitude
Estimated rate in 2035

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Both exercises reviewed in this section were single-agency focused and driven by
specific models that incorporated much information on supply and demand factors of the
respective agencies. They both facilitated discussions among agency stakeholders on the pros
and cons of existing plans and alternative strategies. The scenario planning workshops that we
conducted for this project followed the scenario planning methodology described in this chapter,
including the identification of a broader set of driving forces, and the choice and development of
scenario axes that provided the basis for the scenarios developed. We also incorporated multiple
agencies and their interests in our workshops.

Findings

Scenario Planning is a Methodology for Long-Range Strategic Planning in Contexts of

Uncertainty. Contexts of uncertainty typically involve situations far enough in the future that
forecasts and probabilities are not available.

Focal Issues or Decisions Drive the Scenario Development Process. Scenario planning
exercises are driven by a policy interest that guides the choice of drivers, and scenario narratives.

Trends and Models Form the Scientific Basis of Scenario Planning. The scientific basis of
scenario planning lies in the use of empirical trends and models in the analysis of social,
technological, economic, environmental and political drivers.

Choice of Most Important and Uncertain Drivers Form Backbone of Scenarios. The scenario
development process typically revolves around the choice of the two most important and
uncertain drivers. These two drivers are used to form the axes of a matrix that is used to generate
alternative plausible scenarios. Based on the matrix, stakeholders flesh out the scenario
narratives.

Ultimate Use of Scenarios: Assessing the Feasibility of Policy Options. Once plausible
scenarios are developed, groups of stakeholders can use them to determine the feasibility of
available policy options to address the focal issue or decision in the future.
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Recent Use of Scenarios by Water Agencies in Southern California. There is an increasing use
of scenarios in strategic planning, with many approaches. Two recent uses of scenarios in water
management illustrate their increasing use and variation. IEUAs use of robust decision-making
provided the agency with a model-based analysis that incorporated several important economic
and environmental drivers, including climate change, characteristics of the agency, and
performance measures, and used the existing plans of the agency to assess its vulnerability in a
large set of alternative agency scenarios. The scenarios were used to engage the agency in an
assessment and revision of its plans. In a separate exercise, MWD used another model based
approach to generate alternative scenarios for the agencys role which varied from a central role
in securing the reliability of imported water, to a central role in securing alternative regional new
water supply sources. Through its modeling capacity, MWD was able to develop scenarios for
alternative future roles that still ensured the reliability of water supply for the region but at
varying costs.

276

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