Scenarios are a powerful tool in the strategist’s armory. They are particularly useful in developing strategies to navigate the kinds of extreme events we have recently seen in the world economy.
Scenarios enable the strategist to steer a course between the false certainty of a single forecast and the confused paralysis that often strike in troubled times. When well executed, scenarios boast a range of advantages – but they can also set traps for the unwary.
What is Scenario Planning?
Scenario Planning, also referred to as Scenario Analysis or Scenario Thinking, is a Strategic Planning method that organizations use to make flexible long-term plans. It is changing mindsets about the exogenous part of the world, prior to formulating specific strategies.
Scenario Planning allows the inclusion of factors that are difficult to formalize – novel insights about the future, deep shifts in values, unprecedented regulations or inventions. It integrates with Systems Thinking that leads to plausible scenario storylines where causal relationships between factors are demonstrated.
Scenarios are combinations and permutations of facts and related social changes. It includes plausible, but unexcepted important situations and problems that exist in some small form in the present day. It helps anticipate change, prepare a response, and create more robust strategies. Significantly, Scenario Planning can anticipate the impact of different scenarios in identifying weaknesses that can be avoided or reduced.
However, Scenario Planning can also have its limitations. There is subjectivity in scenario design and it may suffer from various processes and content traps. There is weak integration with other planning and forecasting techniques.
To have a good grasp of Scenario Planning, we have to understand that it is one component of the more complete management system. Hence, integration with existing planning and budgeting systems is essential and, despite its limitations, Scenarios are power tools with high-impact core benefits.
The 3 Core Benefits of Scenario Planning
Expansion of Thinking Scenario Planning obligates us to ask why the past might not be a helpful guide to find surprisingly compelling answers. It will demonstrate how and why things become better or worse resulting in increasing our readiness for the range of possibilities that the future may hold.
Unveiling of Inevitabilities Scenario Planning leads us into realizing that something must happen even if it is not clear. Unexpected outcomes are the most powerful source of new insight uncovered in the scenario development process.
Protection against Groupthink Scenarios protect us against groupthink. Often, the power structure within companies inhibits the free flow of debate. Scenarios allow companies to break out of this trap and provides a political haven for contrarian thinking. While Scenarios do not provide all the answers, it can help executives ask better questions and prepare for the unexpected.
When Scenario Planning Primer Comes Handy
Scenario Planning is not rocket science. People do not routinely create robust sets of scenarios, create contingency plans for each of them, watch to see which scenario is emerging, and live by it. Scenarios are in fact harder than they look – harder to conceptualize, harder to build, and uncomfortably rich in shortcomings. A good one takes time to build, and so a whole set takes a correspondingly large investment of time and energy.
But having a guide in undertaking Scenario Planning can enable companies to better come up with more dynamic scenarios. A Scenario Planning Primer provides the core benefits of Scenario Planning, as well as its pitfalls and the Rules of Thumb in Scenario Planning.
Scenarios do not provide all the answers. But Scenarios can help executives ask better questions and prepare for the unexpected. In today’s volatile times, Scenario Planning has become a very valuable tool.
Scenario Planning is also a tool commonly used by management consultants. If you are a consultant or interested in other common consulting frameworks, we have compiled a library of hundreds of business frameworks found here.
David Tang is an entrepreneur and management consultant. His current focus is Flevy, the marketplace for premium business documents and FlevyPro, a subscription service for consulting frameworks and tools. Prior to Flevy, David worked as a management consultant for 8 years. His consulting experience spans corporate strategy, marketing, operations, change management, and IT; both domestic and international (EMEA + APAC). Industries served include Media & Entertainment, Telecommunications, Consumer Products/Retail, High-Tech, Life Sciences, and Business Services. You can connect with David here on LinkedIn.