A top-level guide to scenario planning

COVID creates unprecedented uncertainty, but there are tried and tested ways of preparing for an unknown future.

by Management Today
Last Updated: 01 Jun 2020
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Down to business

Coronavirus and the worldwide lockdown took almost everyone by surprise. While the idea of a global pandemic had been widely touted as a geopolitical risk since at least the SARS outbreak in 2003, it is quite evident that there were few governments - and even fewer businesses - that had seriously prepared for one. 

It’s quite possible COVID will go down in history as a freak event, but it nonetheless illustrates how important it is to prepare for the unexpected.

Scenario planning is a tool designed to do exactly that. Developed by military strategists and first pioneered in a business context at Shell in the 1960s and 1970s, it proved its worth most famously during the 1973 oil price shock, which the company’s scenario planning group had anticipated the year before. The result was that Shell went from being a laggard  among oil majors to being one of the leaders, a position it has retained.

The first step is to identify a small number of the most important external variables that could affect the business. If you were an own-label FMCG company, for example, you might now be looking at the global economy (from a rapid, V-shaped recovery this summer through to a 1930s-style depression), the state of the US-China trade war, changes in consumer behaviour and perhaps the prospect of losing your major retail distributor.

Scenarios are created by turning the dial on these variables and looking at plausible combinations. Planners then imagine the impact these scenarios would have on different aspects of the business, from cash flow through to marketing.  

Finally, a contingency plan is made for each scenario, with long-term business objectives in mind, and with the in-built flexibility to move between plans as events unfold.

As Peter Schwartz - one of the Shell scenario planning pioneers, now at Salesforce - says, “it’s much easier to get the future right when you have several tries at it." 

A somewhat more detailed example of what scenario planning looks like can be seen here in this piece from Paul N Friga, clinical associate professor at the Kenan-Flagler School of Business at the University of North Carolina. 

It’s important to remember that to do scenario planning properly requires considerable care, time, resources and a methodical approach - it isn’t really something you can do on the back of a beermat. However, if you do want to give it a go, here are some pointers to remember.

1) Think carefully about what you’re trying to achieve. For example, writes Oxford professor Rafael Ramirez, “do you want to generate new options for your current business model, or review the major risk factors facing your organisation?” Consider also how you’ll use the results inside the firm - there’s little use in creating a winning scenario plan that then gathers dust in a drawer under the chief executive’s desk.

2) Be prepared for multiple iterations. This is not a one-off project. “Attempting to forecast the future is inherently uncertain. You need to operate with the best information you have today and set targets from which to develop scenarios that might get you there. As information changes so must your plans,” says James Berry, Programme Director for the new online MBA from UCL.

3) Remember to prioritise. “Businesses should have a detailed but flexible plan, which addresses the following seven areas and considers what each means within the context of the company: employees, financial, legal and compliance, suppliers, customers, premises, and management and leadership,” says Tim Foster, partner at BDO Risk Advisory Services. 

4) Listen to your employees. “Remain open-minded as there are a huge number of ways to address specific workforce planning and management scenarios,” says Robert Crossman, director of workforce at management consultancy and software provider, Working Time Solutions. The best plans will have taken into consideration inputs from people across the organisation, and even outside of it. 

Image credit: Yuriko Nakao/Getty Images

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