Foresight meets Decision Support (i.e. where it should always be)

The Water Utility Climate Alliance (WUCA) recently developed a white paper to present and evaluate Decision Support Planning Methods (DSPMs) to water utilities interested in incorporating climate change into their planning now.  The paper, 'Incorporating Climate Change Uncertainties into Water Planning' is available at http://www.wucaonline.org.

As reported on the Malcolm Pirnie site Ed Means says: "DSPMs consider multiple future conditions to incorporate more and greater uncertainties into the planning process and can be useful not only in planning for climatic uncertainty, but also in planning for uncertainty about regulatory, environmental, economic, social, and other variables affecting water utilities... There are several basic approaches that can be used:

Classic Decision Analysis
Classic decision analysis is a probability-based DSPM that systematically catalogues information and mathematically evaluates and ranks alternatives against multiple, potentially conflicting, decision objectives. Classic decision analysis illustrates the process with a decision tree or influence diagram, and handles uncertainty through the use of probabilities.

Traditional Scenario Planning
Traditional scenario planning is a scenario-based DSPM with the main objective of developing a plan that best prepares the water utility for a plausible range of uncertain circumstances. Scenarios are developed by identifying critical uncertainties and driving forces (e.g., climate, water quantity, water quality, demand, social and regulatory change, technology, economics) to create a range of future conditions that go beyond extrapolation of current trends and represent surprising but plausible conditions.

Robust Decision Making
Robust decision making is a framework that combines features of both classic decision analysis and traditional scenario planning, providing a systematic way of developing a water management strategy to best adapt to a wide range of plausible future conditions. It involves generating multiple future hydrologic/demand scenarios as well as developing multiple water resources strategies and optimizing the strategies using statistical tools.

Real Options
Real options is a method to help water managers identify water supply strategies that adjust over time and balance risks using traditional discounted cash flow approaches. Flexible investment strategies are sought that can be
risk-adjusted with time and deferred into the future. Uncertainties in real options are handled through the use of probabilities. Results are flexible in that they may incorporate delaying and phasing of facility projects.

Portfolio Planning
Portfolio planning is used in the financial world to select a portfolio containing a mix of assets or strategies that minimize financial exposure due to future market scenarios. Uncertainty is handled through the use of probabilities and Monte Carlo simulations, and minimized through hedging. Few applications in the water industry exist for this DSPM.

Better decisions in uncertain times - McKinsey Quarterly

McKinsey Quarterly has an article “Dynamic management: Better decisions in uncertain times” (signup required) which tackles the holy grail, the veritable raison d'etre of foresight work: how to make better decisions under conditions of uncertainty.

Highlights:

• Learning by doing – Use techniques such as scenario planning, or 'stage-gating' to stoke new think about the future.
• Create workshop-based adult-learning techniques – Manage ambiguity and complexity by developing case studies to surface and debate alternative courses of actions.
• Change how decisions are made – Redesign decision making processes to enable rapid surfacing and formal designation of issues considered critical.
• Rethinking corporate budgeting processes – to make it more flexible and specifically allow for range of outcomes.

The tagline wisdom: 'Companies can’t predict the future, but they can build organizations that will survive and flourish under just about any possible future.'
That's the holy grail. Easier said than done, but these practices and techniques are the basis, and certainly 'a million percent' better than calculating the future on an Excel spreadsheet, using a moving average, if you know what I mean.