INABILITY TO MAKE SENSE OF COMPLEXITY
There is a tendency to focus on what can be modelled or extrapolated from today’s trends; what is not modelled is discounted or assumed away. As a result, scenario planners often concentrate on "known unknowns" rather than on "unknown unknowns". But future states of the world can emerge from parallel developments whose interactions are unforeseeable, unforeseen, or unseen, and cannot be predicted from a linear extrapolation of past developments.

Rational, quantitative thinking is easier to deal with than complex, open-ended reasoning. However, the metrics used can fail to reflect reality, and worse, inhibit thinking about underlying complexities in the operating environment.

What can be done: Scenario planning should not be reduced to a simplistic engineering exercise in which driving forces are the inputs, and scenarios, the outputs. Instead, these raw ingredients can interact in bewildering ways to produce unpredictable outcomes and patterns in the eco-system. So in addition to driving forces, look out for potential discontinuities, emerging issues, black swans, wild cards and other strategic surprises.

THE PROBLEM OF RETROSPECTIVE COHERENCE
The current state of affairs always makes sense, but only in hindsight. The current pattern, while logical, is only one of many patterns that could have formed, any one of which would have been equally logical. While the present situation is the result of many decisions taken along the way, retrospective coherence says that even if we were to start again and take the same decisions, there is no certainty we would end up in the same situation.

What can be done: Be aware that the lessons of history are not enough to guide us down the right path into the future. Furthermore, approaches and policies that have worked well in the past may actually prove dysfunctional when applied to the future.

POOR OR MISSING INCENTIVES
Even if individuals and organisations are mentally prepared for a future contingency, they often do not have the incentives to hedge against it. Hedging is costly, and risks—as the global financial crisis shows—spill across boundaries in ways that make it impossible for a single country to hedge against fully. In the financial crisis, some participants were even incentivised, on a local basis, towards risky behaviour that contributed to the crash. So it was much easier for observers who were not beneficiaries of bank bonuses, such as economist Nouriel Roubini, to contemplate and anticipate a crisis.

The strategic planner often has a hard time challenging the official future, especially when that future is consistent with an organisation’s biases and preconceptions. The planner who brings up radical alternatives risks being branded as lacking a sense of reality; he has a real incentive to make scenarios more palatable. But in so doing, he also reduces the impetus for the organisation to confront its uncomfortable futures and prepare for them.

What can be done: Futurist Peter Schwartz once said that the scenario planner should aim to be a court jester—he must be able to say the most ridiculous things and get away with it. The scenario planner is supposed to help us suspend
our disbelief.

FRAGMENTATION OF RISK
Hierarchies tend to optimise at the agency level, sometimes at the expense of global optimisation, because information flows most efficiently within vertical silos, rather than horizontally across organisational boundaries. Ministries will tend to have tunnel vision in the way they look at risk. But one arm of government doing something that perfectly matches its "local" performance goals can create a big downside for the rest of the larger system.

What can be done: Take a whole-of-government view and ensure that incentives do not result in perverse behaviour. Avoid the fragmentation of risk by breaking down vertical organisational silos, promoting the horizontal flow of information, and encouraging whole-of-government strategic conversations.

~ Peter Ho