Become better prepared for crisis — and opportunity — with effective Scenario Planning

By: Timm Reiher

Change is inevitable for every company. Creating plans designed to stand up to anything the future holds is essential to business growth and keeping up with the competition. Not only does comprehensive contingency planning allow your organization to pivot at a moment’s notice when necessary — it can also help drive long-term strategy.

Integrated Scenario Planning (ISP) is an effective framework for developing agile responses to the unexpected. It can help ensure that your organization remains flexible —  an attribute that may save it from disaster in the long run or help it take advantage of ideal opportunities at the perfect time. Throughout the process, you may find that learning some of the skills integral to scenario modeling will require instruction and oversight from experienced professionals in the field.

The Benefits of Scenario Planning

The right mindset is essential when dealing with the unknown, and creating a reliably effective scenario plan starts by asking what-if questions:

  • What if the supply of a critical component suddenly dries up?
  • What if a competitor catches us off-guard with a surprise product launch and hijacks our market share?
  • What if your most reliable customer(s) start declining rapidly due to a drastic, unforeseen shift in their industry?
  • What if another black-swan event causes a global financial crisis akin to 2008?
  • What if while in the middle of a downturn, the economy and our market bounces back faster than anyone is predicting?

(The specific questions vary widely between organizations, but the latter question could be the most impactful. The only thing worse than enduring a downturn in our business is not being prepared for the corresponding upturn or rebound, thus getting burned twice.)

Scenario Planning is a structured way for organizations to think about the future and manage change. It enables you and your leadership team to think through and devise responses for potential eventualities. As such, it should be incorporated into the strategy of every well-functioning business so that business leaders act accordingly — and in a timely, effective manner — when projected scenarios come true. Proper scenario analysis and planning help ensure short- and long-term preparedness for sudden challenges, opportunities, and occurrences that don’t fit neatly into either category.

When leaders within the organization understand the possible effects of various events (positive or negative), your business can prepare for various  possibilities, create robust response plans, and adjust more effectively. From finance and HR to research and development, leaders across your business can leverage ISP to implement solutions and response plans in preparation for many scenarios.

A Worthwhile Investment

An effective scenario plan will require time and resources to construct. While this may seem overwhelming at first, it can ultimately save time and money down the line. Invest in providing your team with the necessary information to get them where they need to be. The best Scenario Planning process is consistently renewing as it adapts to the internal and external environmental changes.

Fact-driven, Leader-directed Scenario Planning

When creating a well-designed scenario planning process that works, it’s important to consider a few valuable aspects of your objectives. Initially, businesses should make a rough-cut outline and update the strategy regularly. Because the market — and other external factors affecting your organization — fluctuate constantly, you should be able to adapt your Scenario Planning process accordingly. Agile Scenario Planning must be a fundamental element of your company’s strategic plan for decision-making in the now and projections for the plausible future.

For Scenario Planning to be effective, the data must be trustworthy. Organization leaders should anticipate change to the best of their ability with the support of relevant, reliable information from trusted sources. These can include historical data, current metrics, financial modeling and projections informed by predictive analytics, direct conversations with teams and their leaders, and much more.

Hiring a Scenario Management Leader

Creating an effective scenario plan requires detailed preparation to support strategic thinking, which is why having a dedicated Scenario Management Leader is necessary for your team.

The Scenario Management Leader should have analytical skills that allow them to go granular on specific key performance indicators (KPIs) when needed — while still keeping an eye on the big picture. This person must also be well-respected throughout the organization, from the C suite to departmental staff; they want to ensure team alignment on specific goals and objectives.

After appointing the leader, it’s important to establish other roles and responsibilities. Each future situation’s possible outcome relies on effective responses from key stakeholders. When employees are confused and unsure, disarray can result causing inefficiencies and bottlenecks, potentially leading to revenue loss or other unintended negative consequences. Successful crafting of clearly defined normative scenarios and strategic management responses requires all team members to work together based on their roles in the plan. This alignment strengthens the organization’s readiness for the future.

Leadership is also key to implementing Scenario Planning alongside Integrated Business Planning (IBP). IBP is a decision-making process that helps organizational leaders align strategy, portfolio, demand, supply, and all the associated financials through focused, exception-driven monthly replanning patterns. IBP involves making projections that cover a rolling 24- to 36-month horizon, and Scenario Planning is a key area of IBP’s Reconciliation phase. Senior leaders must keep this and other key IBP phases (including product, supply, and demand management) top of mind to ensure that the contingencies and response plans devised through Scenario Planning fit into the business’s ultimate goals.

Where does Scenario Planning fit among teams?

The risks and opportunities associated with multiple scenarios become clear by their outcomes. These may relate to everything from the financial bottom line and measurements of supply chain efficiency to the company’s climate change response or other social and governance issues.

The teams covering these areas can all benefit from developing department-specific scenario plans and envisioning how they could influence the organization. Team leaders must ensure that Scenario Planning fits into a mature IBP process while enabling flexible planning and implementation.

Why investing in a scenario plan is important

Scenario Planning includes generating potential scenario narratives for every IBP cycle. It should take into consideration how external and internal factors have changed. When the entire team understands their part, the scenario plan can save the business during crises and thrive during times of great opportunity.

Through a well-executed scenario plan, organizations develop agile responses to sudden, impactful events. Crises and moments of critical uncertainty are what some may equate with these types of  response plans. However, effective Scenario Planning can — and should — also account for unexpected, potentially positive opportunities. Investment in a Scenario Planning strategy allows organizations to account for all potential future conditions, driving better overall performance and decision-making.

Considerations for comprehensive, conscientious Scenario Planning

The foundation your scenario plan provides can help your organization become more agile in responding to external factors, whether they’re developments that surprise your company and its leaders or upcoming events stakeholders have been anticipating.

Determine the underlying assumptions

To best take advantage of Scenario Planning’s potential, it’s critical to understand the underlying assumptions directly and tangentially related to it.

Consider this example: You assume your company’s market share for a particular product will grow 10% over the next year. Ideally, that assumption didn’t come out of thin air and had some basis in factual evidence: Perhaps past growth trends supported reasonable projections for future expansion. You may have noticed growing demand or concrete evidence of competitor weakness. Thorough scenario planning involves returning to the “what-if” speculation we discussed earlier: namely, what if your 10% growth assumption is wrong?

Upon asking that question, you start speculating why it might turn out wrong: Your competitor might rebound. Demand might evaporate within one of the product’s target demographics because a different product meets that group’s needs more effectively (regardless of which is “better”). Living costs might increase, so your product becomes a “would-like-to-have” rather than a “need-to-have.”

You would have needed to acknowledge your initial underlying assumptions and what drove them. Then, look for opposite evidence to support the other end of the spectrum to plot those (reasonable) scenarios. When developing scenario plans and responses, keep the following questions in mind:

  • What future events are probable (and notable, either positively or negatively)?
  • What would be their impact on the company’s established plans or goals?
  • What is the focal issue (or issues) driving each plausible scenario?
  • Is there empirical evidence supporting the underlying assumptions connected to every hypothetical  scenario?
  • What are the responses needed to mitigate the risk or maximize an opportunity?
  • What are the potential triggers for the scenarios that will require action?
  • How should I respond to scenarios in ways that can benefit the organization?

During this time, work with key stakeholders to create a concrete list of underlying assumptions for  each future scenario your organization is planning.  The result will help the process to be streamlined and stabilized. Conversely, you must ensure never to base your scenario planning on assumptions that don’t have any significant hard data supporting them.

Maintain flexibility

Your scenario plan should be a dynamic and shifting strategy that, whenever necessary, changes with new information as it is received. Make adjustments based on data and feedback to improve your Integrated Scenario Plan. As team members observe the effectiveness of this part of the process over time, their faith in the viability of ISP as a whole will grow.

The perils of failing to plan

Some serious disadvantages can arise if you fail to implement a Scenario Planning template for your organization. For one, think about the consequences of this inaction in terms of your competition. Suppose your competitors are planning for outside-the-box scenarios, and you aren’t. In that case, you could fall behind when your industry experiences an economic downturn — meanwhile, your rivals will be stable or, at the very least, better off than you.

Mispredicting an outcome while having a factual basis for your original guess and contingencies for being wrong is one thing. Getting a prediction wrong based on assumptions with little to no basis in evidence and failing to plan for your error is quite another. It’s practically an invitation to hubris — and, more importantly, the risk of reputational damage. Whether your organization’s leaders lose the trust of other stakeholders, your company loses face to its customers, or some combination of both. This setback can be devastating. And it’s not just incorrect assumptions of the positive leading to unpreparedness for the negative that can cause this. Failing to embrace a growth opportunity because of similarly flawed thinking means risking the same poor consequences.

Keeping these ideas at the forefront helps ensure that Scenario Planning supports — and grants flexibility to — your organization’s overall strategy. One of the best advantages of a well-defined scenario plan is that leaders and business teams can potentially bounce back from an unexpected risk even stronger than they were — or similarly benefit from having embraced and successfully leveraged unforeseen positive opportunities.

Enlist expert assistance to perfect your Scenario Planning

The challenge of crafting and implementing a comprehensive scenario plan can seem daunting. Connect with experts experienced in this particular discipline to get your ISP process off the ground.

At Oliver Wight, our goal is to help your team strive to improve processes and increase revenues. We work to ensure that you and your team will have a greater overall understanding of how to implement new strategies —  and  maintain and adjust them as needed. Seeking guidance from seasoned professionals is an excellent way to get started, especially if you need  someone on your team who is well-versed in cutting-edge business strategy.

To learn more about IBP and how Scenario Planning plays a part, contact an expert from Oliver Wight who can guide you through the process.

Look at this webinar given by Pamelyn Lindsey and Timm Reiher, who compellingly share their comprehensive knowledge of the subject.

If you’re thinking about overhauling or revising your future planning, consider attending our Integrated Scenario Planning Course for a deep dive into what it can bring to your business.