Forecasting and Scenario Planning

 

Forecasting and Scenario Planning

Tokyo Electric Power Company Holdings, in 2007, held its first daily “Electricity Load Forecasting”. The purpose was to identify “new methods” for forecasting electricity load within the service area of TEPCO Power Grid, Incorporated ("TEPCO PG") (TEPCO's, 2017). The new electricity forecasting method aims to use data science to improve forecasting accuracy and gain new knowledge of electricity usage in Tokyo (TEPCO's, 2017). Participants were tasked to forecast not less than ten days of electricity usage for September of 2017 (TEPCO's, 2017).

Tokyo Electric Power Company allowed participants to use its innovation site, “TEPCO CUUSOO”, to provide their power forecasting methods. The reason the company invited participants to use electric consumption data and its website/API to develop a new electricity forecasting method was to determine an efficient way to supply electricity to its customers (TEPCO's, 2017). Its previous electricity forecasting method, which was developed based on previous experience and expertise of employees was found limited in servicing its customers supplying electricity efficiency. The additional reason the company solicited a better forecasting method using historical electric consumption data from participants were to select a model that best determines daily electricity usage in Tokyo (TEPCO's, 2017). Participants were tasked to forecast not less than ten days of electricity usage for September of 2017 (TEPCO's, 2017).

Tokyo Electric Power Company relied on historical customers' electricity consumption data to determine the electricity needs of its customers. The forecasting methods only predict what will occur in the forthcoming (electricity consumption) by relying primarily on data from the past and present. The forecasting methods to predict the use of electricity were limited to predict rapid and considerable changes in electricity usage. A weak spot of applying the forecasting methods is its inability to consider assess risk, which is associated with the dynamic events in electricity that could change the demand for electricity from one service area to another. Hence, the forecasting model built by the participants can be limited to only “understanding” the total electricity usage of the next day (or given time frame). The models will not account for new events in their test statistics. A scenario planning approach would enable the company to build a better electricity usage model.

Scenario Planning and Innovation

A company’s ability to innovate, employ creativity, utilize the appropriate technology, and enhance adaptability to excel at activities that create value (Kaplan and Norton 2004). Scenario planning leads to an increase the innovation capabilities (Sarpong and Maclean 2011). Scenario planning draws retrospective and prospective sensemaking (Ramirez & Selin, 2014). Hence, scenario-type planning support innovation and planning changes by focusing on identifying old and new events and taking into consideration of new opportunities, which were not considered in the forecasting method. Scenario planning would benefit the company by exploring possible sources of power loss, disruptions, and increasing efficiency in delivering electricity, which is not considered in the forecasting method.

Scenario planning would shape the electricity sharing innovative strategies and electricity transition scenarios, which require immediate attention when delivering daily electricity to users. As the demand and price of electricity are growing, scenario planning would lead the company to explore additional opportunities, which allows it to partner with other organizations to build solutions that increase the efficient use of electricity. Scenario planning further enables the company to come up with efficient electricity management approaches, which enables to reduce of the unforeseen risk associated with the cost of production of electricity.

Unlike forecasting, scenario planning involves “imagination and intuition are combined with rigorous analysis. It also attends to experience, professional and cultural biases, representational heuristics, and rationality limitations” (Ramirez & Selin, 2014, para. 9). Predicting the demand for future electricity usage in Tokyo can not be only confined to historical usage data. It is not possible to accurately forecast the future. Because of the qualitative nature of forecasting, a business can come up with different scenarios depending upon the interpretation of the data (Mrrdula, 2015).

Scenario planning in innovation involves environmental scanning, which provides essential inputs of the company's external environment (Balarezo & Nielsen, 2017). It should include understanding the relationship between environmental factors contributing to the efficient distribution of electricity. Some of the elements that need to be considered to understand and predict future electricity usage in Tokyo, therefore, can take layers of different inputs, which includes organizational issues, governance of electricity, working conditions, environmental factors, technological factors in producing electricity, electricity demand driving factors, electricity driving forces.

The application of scenario planning should include the adoption of advanced electricity transmission and distribution technologies, preparing for possible earthquakes, and the company coming ups strategies to deal with low natural-gas prices. The company may need also to account for engaging inappropriately divesting its traditional business practices to establish a more efficient and competitive one.  The company needs to include the treats it is facing and its potential opportunities.

            The electricity demand varies depending on the nature of usage by customers, the prices customers pay for electricity, and the patterns of usage. Also, competitors of the company play an important role in affecting set prices customers pay for electricity. Partners who are distributing and selling electricity to customers determine price rates and the image they create in customer’s minds about the company determining their preferences and length of stay with the company as a customer. Regulatory bodies determine localization (monopoly) of energy usage and impose restrictions on the company's different regulations leading the company to produce eco-friendly energy.

Scenario Planning for Future Innovation                                                                                          

                Scenario planning can be directly used to make innovation purposeful, safe, and systematic. The rule of scenario planning involves starting to gather information to generate an innovative idea, exploring the unknown. The starting point in scenario planning is to evaluate what is currently known, create a genuine and shared view of the current status of the idea that supports future innovation. The other rule of scenario planning is generating new ideas through evaluation of why an idea is different. This rule may require scenario planners and participants to challenge the status quo, and demand to build new information obtained from different fragments concerning the innovative idea. Challenging the status quo may lead the scenario planning to recognize the application or existence of new technology that supports innovation. Scenario planning enhances creativity and provides a useful tool in identifying potentially disruptive technologies; mapping out possible development paths for such technologies; and developing organizational capabilities to exploit the opportunities presented by disruption (Drew 2006).

                  Scenario planning leads to an increase the innovation capabilities (Sarpong and Maclean, 2011). In scenario planning generating new ideas results in alternative possibilities. A group of qualified individuals can list down the possible futures and associate attributes ideas that share commonalities. The idea is to behind this activity is to identify emerging themes, which are conditional to steer of descriptions of current trends in support of innovation. Supported by a process of intentional challenge and the approach in systematic innovation, the new information will emerge from different existing innovations.              

Social impact in innovation relates to “outcomes-led adaptive thinking and action [was] taken by businesses, government, social purpose organization and knowledge creators that contribute to creating a positive, meaningful and sustainable change for the benefit of society” (Hadad & Gauca, 2014, para. 25). Social impact is an integral part of scenario planning, which is not considered in a forecasting method. Customers' demand and supply chain are concerned about the environmental and social impact of customers who are using electricity in Tokyo. This being the case, people’s lifestyles determine their habits and behavior concerning the consumption of resources and the generation of waste, which is considered to have the greatest environmental impact in terms of electricity usage.

Scenario planning future enables the company to consider “changing consumer lifestyles, reducing obsessive consumption, and evaluating the advisability of accumulation” (Figueroa-García, et al., 2018, p.2). Scenario planning that involves social impacts in using electricity enables the company to have “a distinction between efficiency and growth, by which a reduction in growth does not mean sacrificing efficiency, but the consideration of this as a dimension of the limits of environmental sustainability based on responsible consumption” (Figueroa-García, et al., 2018, p.2).

            In scenario planning, a key is a prerequisite in understanding and implementing new approaches in the electricity allocation process that should start with the well-being of the society that uses the electricity. When a company is looking at the future with the aid of scenario planning it is also to evaluate how its actions will affect societies and beyond. Hence, scenario planning will allow the company to examine how changing climate, the health of the people, aging populations, and increasing income inequality is affecting electricity consumption in Tokyo.  If these factors are not incorporated in scenario planning the long-term trends in the use of electricity could ultimately impend the social-sector steadiness and create the potential to pressure on the company’s fiscal sustainability. Also, neglecting the long-term trends can damage the company’s economic growth and negatively alter the well-being of individuals impacting the most vulnerable first.

Scenario planning can be superior and then traditional forecasting methods. Scenario planning presents a better level of flexibility and readiness than merely a quantitative forecasting model. Building scenarios enable the electricity company to respond and not predict regarding events permitting the company the ability to develop better electricity management approaches, assess risk measures at various levels.

References

Balarezo, J., & Nielsen, B. B. (2017). Scenario planning as organizational intervention: An integrative framework and future research directions. Review of International Business   and Strategy, 27(1), 2-52. 

Drew SAW (2006) Building technology foresight: using scenarios to embrace innovation.            European Journal of Innovation Management 9 (3): 241-257.

Figueroa-García, E.,C., García-Machado, J.,J., & Pérez-Bustamante Yábar, D.,C. (2018).  Modeling the social factors that determine sustainable consumption behavior in the community of Madrid. Sustainability, 10(8), 2811.

Hadad, S., & Gauca, O. (. (2014). Social impact measurement in social entrepreneurial organizations. Management & Marketing, 9(2), 119-136.

Ramírez, R., & Selin, C. (2014). Plausibility and probability in scenario planning. Foresight :  The Journal of Futures Studies, Strategic Thinking and Policy, 16(1), 54-74.

Mridula, S. (2015). Developing an enario for growth - a case study. Advances in Management, 8(8), 10-16.

Sarpong D, Maclean M (2011) Scenario thinking: a practice-based approach for the identification of opportunities for innovation. Futures 43: 1154-1163.

TEPCO's first "electricity load forecasting technology contest" initiative to encourage accurate forecasting of electricity load. (2017, Jun 20). JCN Newswire.