Scenario mapping: helping regulators to imagine possible futures
Within the public service, mapping scenarios for the future is most often used by the executive branch, i.e. those who govern. Paul Moxey is Professor of Corporate Governance at London South Bank University and Fellow with SAMI Consulting and as auditor worked in both the private and public sector. Gill Ringland is Fellow Emeritus with SAMI Consulting and she has written several books on scenarios in various fields of activities. Below they present a short case study on how this works in practice. Their article also argues that scenario planning should be used by auditors, helping them to interact better with their auditees.
By Paul Moxey, Professor at London South Bank University and with SAMI Consulting, and Gill Ringland, SAMI Consulting
Scenario planning to identify risks and opportunities
Scenarios develop awareness and challenge current assumptions, beliefs and paradigms. Scenarios can help anticipate risks and opportunities: they are pictures of how the world might look in the future. Scenarios are used extensively by regulators, such as the European Commission. Similarly, EU Agencies such as Frontex (Border Control) and OSHA (Health and Safety), apply these techniques to explore future risks.
Scenarios however are not forecasts. As Figure 1 below Shows forecasts are over precise. Scenarios are based on plausible ways the future might evolve. Each scenario contains a set of different assumptions about how the future may play out — but the actual future may well contain aspects from more than one scenario! Looking at scenarios can therefore help regulators to imagine possible futures in order to anticipate changed government priorities.
Foresight Case study: UK water supply
In one of our recent assignments, the UK water services regulator (Ofwat) organised a (long) one day workshop with stakeholders to gain new insights about water. Overall, 24 experts from across the industry, consumer groups, government and other regulators participated. SAMI Consulting was asked to assist in identifying the factors affecting the UK’s use of water between 2016 and 2050; imagine how the water industry might evolve; and hence how this may affect the role of the regulator.
During the workshop, participants identified two main questions which will frame the possible future world of water supply:
- will water supply, treatment and ownership be global/national or local/individual?
- will water be on the agenda (personal/community/national) or not?
These questions defined the two axes of the scenarios we then developed (see Figure 2 below).
It is in particular the second question, which challenges current assumptions: public water supply is currently not on the agenda since it is largely taken for granted. However, this might not remain so if, for example, access were curtailed or the cost were to rise significantly in the future. Conversely, the importance of water in many domestic and industrial applications could reduce due to new technologies, e.g. biotechnological waste treatment or waterless clothes washing. This would support the scenario that water supply will not be on the agenda.
Given the long time horizon to 2050, it would be foolish to take anything as for granted. At the same time, some variables — such as the impact of climate change and the growth of new technology — will surely drive the use and supply of water. The effect of these variables will however be different in each scenario.
Determining the big questions is always a matter of lively discussion within a workshop group, while naming the scenarios is often a source of hilarity! The names should be such that you can describe the world to your mother-in law and she says ‘Oh, I get it!’ In this workshop, syndicates competed to provide a set of names –the syndicate which used the names of Hollywood films won, and the four possible future worlds were as in the figure. Taking the ‘Waterworld’ scenario (see Figure 2) as an example, we could imagine newspaper headlines such as ‘Standpipes in Downing Street’ and ‘London faces third year of drought.’
In this scenario, a key challenge would be to ensure the resilience of the water supply infrastructure: innovative and adaptive companies would have an advantage at times of volatile water markets, and traditional water companies might not be able to compete. A major challenge in this scenario would be the cost of building a grid only to be needed at times of regional shortage. Even if introduced just to make customer billing easier, remote metering would enable new developments such as seasonal pricing for water, or surge pricing as a tool of demand management in times of drought. Such changes could be introduced very quickly; and would need an accelerated regulatory response.
In this example, using these scenarios could help the regulator understand how the industry might change and to start discussion with stakeholders on priorities. The scenarios would give the staff confidence in engaging with stakeholders, knowing that a wide range of inputs had converged on determining the big questions. And all the participants enjoyed the process and the challenge of thinking about the future without fear, uncertainty and doubt!
And obviously, we also developed similar scenario stories for the other three quadrants.
But what about audit?
Scenarios could clearly be used in financial audits to consider issues of going concern and viability and in considering the range of uncertainty in considering the risk of material misstatement. We believe that they could be even more effectively applied in non-financial reviews and value-for-money audits. Scenario planning could be particularly useful in the early stages of an audit: both to help in scoping possible risks and, if auditees are involved, improving engagement with the client.
In fact, it seems strange that auditors rarely use foresight tools to help them consider the risks and opportunities associated with the area under their scrutiny. Examples could be high level, Europe-wide reviews exploring the consequences of proposed EU policies and programmes, or for exploring risk in specific budgetary areas.
And a final consideration: the result of using scenario mapping together with the auditees could also be that the audit would then be more about collaboration and less, as can sometimes be the case, about confrontation.
This article was first published on the October 2018 of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.