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How to use scenario planning
- Identify your driving forces: the big shifts in society, economics, technology and politics in the future and see how it will affect your company.
- Identify your critical uncertainties: pick 1-2 of the driving forces (with the most impact).
- Develop a range of plausible scenarios: Form a kind of matrix with your two critical uncertainties as axis and depending on what direction each of the uncertainties will take, you are now able to draw four possible scenarios for the future.
- Discuss the implications: discuss the various implications and impacts of each scenario and start to reconsider your strategy: set your mission and your goals while taking into account every scenario.
MORE IDEAS FROM THE ARTICLE
It aims to define your critical uncertainties and develop plausible scenarios in order to discuss the impacts and the responses to give for each one of them. If you are aware of what could happen, you are more likely to deal with what will happen.
It involves identifying a specific set of uncertainties, different “realities” of what might happen in the future of your business.
- Don't fall into the trap is to be paralyzed by the multitude of possibilities. Keep it simple and focus on two major uncertainties.
- Don't believe that you have to choose one particular scenario and build your strategy around it. Scenario planning is not about choosing just one option for the future but rather dealing with all of the possible outcomes to develop a strategy that will stand the test of all scenarios.
- When developing your different scenarios, try to not look at the short term. Do not hesitate to look far ahead, anticipating what the market and competitors are going to be over the next years.
RELATED IDEAS
While providing a set of scenarios, four is a good number to showcase a rich set of plausible futures.
- They should ideally have the details of the likelihood or probability of the success or failure and be customized to fit the context.
- Events of the past are generally unreliable indicators of the future due to a drastic change in the environment.
- The scenarios listed should serve a purpose which is a low signal at present but has the potential to turn into a much higher signal in the future.
- Any given field will have its own set of unique scenarios.
Finance has its own heuristics in a time of uncertainty.
- Commercial organizations are often slow to react to changes to their forecasts.
- Working capital often increases, consuming cash and restricting liquidity.
- Companies often become motivated sellers when asset prices are low.
Companies should use data and information technologies to regularly run scenarios to review and challenge economic, business, and sales projections.
Once a strategic plan is set, resources must be aligned to focus on that contribution. Great strategic executives know how to use data to generate new insights about how they and their industries make money. Examining patterns of performance over time — financial, operational, customer, and competitive data — will reveal critical foresight about future opportunities and risks and allow proper resource management.