Selecting a portfolio of actions with incomplete and action-dependent scenario probabilities

In order to address major changes in the operational environment, organizations can use scenario planning to (i) build scenarios that characterize different future states of this environment, (ii) assign probabilities to these scenarios, (iii) evaluate the performance of alternative actions across the scenarios, and (iv) select those actions that are expected to perform best. In this paper, we develop a portfolio model to support the selection of such actions when (i) information about the scenario probabilities is possibly incomplete and (ii) actions can affect these scenario probabilities. This model helps select action portfolios which are resilient in that they perform relatively well in view of all available probability information, and proactive in that the actions they contain can help steer the future as reflected by the scenarios towards the desired direction. The model is illustrated with an example based on a reported case study for the selection of R&D projects at a high-tech company.

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