Combining scenarios with numerical models
August 20, 2014
We often find that we are asked to develop scenarios to get a longer term view of the future, and then use the scenarios to set values for parameters in an existing model to derive numerical values.
Examples are
- Working with Helios for Eurocontrol, we were asked to derive scenarios for air traffic in 2050. The existing model for traffic to 2035 was to be used to provide the numerical estimates. Much of the model could be flexed in this way, but other areas needed a deep knowledge of the model to see how to incorporate (emulate) major changes in flying behaviour in relation to GDP, and increases in importance of “over-flights” for instance between Asia and Africa.
- Working with Experian for the Construction Skills Council, we were asked to derive quantitative scenarios for the construction work force in 12 years ahead. SAMI and Experian worked closely together and the scenarios were developed to provide the standard inputs to Experian’s existing short term model. A deep understanding of the model allowed data input changes to accommodate a few parameters that were beyond the model’s normal use. This was also aided by the relatively short timeframe of this project, and the reduced likelihood of extreme changes.
The practical problems that arise in such exercises are
- Access to a person with detailed knowledge of the way in which the model was created, and which parameters are important in determining the factor to be modelled – eg air traffic. It is very rare that a model is built so robustly that all of the underlying assumptions are clear to a reader who only has the spread sheet.
- Ability to change the model and check that it gives the same results as before for previous timeframes or domains. This is important for the credibility of the new results to stakeholders.
When building a model from scratch to explore a set of scenarios, the links between the scenarios and existing budgeting or forecasting systems present similar challenges.
Written by Gill Ringland (gill.ringland@samiconsulting.co.uk) and Nick Jackson (nick.jackson@samiconsulting.co.uk).
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SAMI Consulting 
Highly pertinent post, as illustrated by the following example. In the summer of 1992, I attended the Oxford University Business Summer School, run by academics from the University’s School of Economics. As part of our course we ran a simulation exercise using the School’s global economic model – which, we were told, was based on that used by HM Treasury. Groups of delegates got to “play” the parts of different economies. The Group representing the UK found that the model was built in such a way that the UK economy was tied into the rest of the EU, and thus had little or no scope for independent action, as its economic fortunes were also dependent on those of the wider EU…..
…. as history now shows, in the autumn of the same year, the UK dropped out of the Exchange Rate Mechanism, and shortly after began a steady period of growth, significantly outstripping the rest of the EU. The anecdote neatly illustrates the added value of scenario planning, in being able to see beyond the assumptions that are built into models and to help to challenge and update those models.
This US report on “The Effect of Socio-Demographics on Future Travel Demand” – http://bit.ly/1pKxnVn – claims to have a unique mix of systems dynamics modelling and scenario analysis.