Scenario planning is a fantastic model but be aware that you can find yourself in a warren and never find your way out.
The problem is, where do you stop?
Theres lots online on Scenario planning and how you should conduct the exercise and I’m not saying my way is any better or worse but I do think the method I explain later in the blog helps you to reign in on the important facts and avoid needless waffle.
What is Scenario planning?
Well, it’s a model that falls into various categories:
Horizon or Environmental Scanning
What is the point of it?
Scenario planning is predominately a proactive exercise but let’s face it, its impossible to think of absolutely everything that might happen. I have a couple of examples below:
Brexit – we all knew it was on the horizon and a possibility at the time. We could have simply ignored the fact it could have implications for business or just not given it a second thought or we could have sat back and thought, hang on… what will this mean and how will it effect me? For those trading within Europe there were significant factors to think about and formulate back up plans to counteract expected issues. This would be proactive scenario planning.
COVID – who saw that coming?
The majority of responses were reactive. It had happened and we were suddenly and very quickly in unknown waters. Scenario planning here had to be quickly thought through and actions put in place to reconsider risk registers. I would say at this point the module we deliver on Business Risk quickly became a favourite subject choice.
So the point behind Scenario planning is to be ready for events that could happen and that would have an impact on the organisation.
In terms of Risk Management we would mostly be looking for potential threats, how likely the threat is to happen and how significant that would be.
Business cases and strategic planning would look at both threats and opportunities and Ive a good real example of how an organisation undertook scenario planning during COVID and quickly made plans to both protect the company and create a new opportunity.
So onto where do you start and what do you do scenario planning on?
The best way to get yourself to a point where you have made the right choice on what to undertake scenario planning on is to follow a procedure of first a SWOT then a PESTLE leading onto the Scenario planning. You can read about SWOT here… and PESTLE here…..
What are the driving forces?
The PESTLE if done correctly requires you to evaluate each of your findings by assigning a numeric value.
In the PESTLE if you have given a particular factor a high risk rating as a threat or a high value opportunity then these are the factors to take forward into scenario planning.
Lets look at a couple of examples and I’m going to use real examples I have come across from chats with previous students.
The PESTLE raised COVID as both a high risk threat to business continuity but also a high value opportunity.
The business produces medical equipment for specialised surgical procedures. During COVID many medical procedures are put on hold and demand is undoubtedly going to drop.
The business foresees this as a huge risk to sustainability and continuity. It starts to do the scenario planning around the drop in income, furlough and what this will mean for the immediate future but also long term in potential loss of highly valued skilled staff.
The scenario planning also includes potential opportunities again from the PESTLE where it was identified that masks and medical PPE would become mandatory.
The business quickly puts together a business case for temporarily changing the production line from it’s current surgical equipment product to Medical PPE, mainly face screens and visors.
This quick reaction to a serious threat to turn it into an opportunity is a skill developed through effective scenario planning. Some are born with it, naturally able to foresee and assess risk, some develop it through experience but either way it’s an important exercise that can completely change a negative into a positive.
Choose the critical uncertainties
When you undertake a PESTLE it encourages you to put aside the insignificant – those items that are either unlikely to happen or if they do will have a small impact. This is why I like to use the PESTLE to find the facts and implications that will filter out what needs looking at in detail and what can be discarded. It stops you wasting time on things that don’t really matter.
So once you have your high value factors you are good to go on scenario planning.
Create realistic scenarios
I personally like to brainstorm and throw ideas about but if you want to formalise scenario planning so it has structure then there are some techniques that help you do this. But here’s the thing.. if you research scenario planning you will come across so many different templates / techniques / models, some of which will even encourage you to purchase software or consultants!
You don’t need this unless you are within a complex high risk environment.
Critical thinking is key and putting this into a format that suits you. Some like to draw it out in patterns, bubbles and arrows showing how something might pan out. Others prefer a business plan format with headers that tell a story and others like to make use of grids and charts. Whatever works for you. Try to avoid templates online as they are more likely to confuse you. Use your own style and focus on the activity rather than the presentation.
At this point you already have your critical uncertainties from your PESTLE that you consider worth looking at in more depth.
Focus on the 2 that you have placed as the highest value whether this be threat or opportunity.
On each one develop realistic possible scenarios of what might happen in the future and at least 2 potential ways to tackle these.
Now you can think about the implications of each scenario on the business – think back to the example I gave on medical PPE, the implications would involve a full change in production of a new product but the business already had facilities and qualified staff in place including clean room, packing, warehouse and all the processes and systems in place for medical production. You can imagine how they have pulled together various potential scenarios and considered each one to find the best scenario.
What I would say is key is a good team and although my students often undertake this exercise on their own for the purpose of the Diploma they undertake with me, what they do realise is that this is a valid and useful tool for strategic planning and risk management.
Hope you have enjoyed this post.
Learners: If you are undertaking an ILM or CMI NVQ in Leadership and management this post will assist your learning for the following unit / criteria:
500 ML45 1.1 Evaluate a range of strategic planning models
500 ML45 1.2 Evaluate the advantages and limitations of a range of analytical techniques
500 ML45 2.1, 2.2 & 2.3 Evaluate political, economic, social (include market factors), technological, legal and ethical factors affecting the development of strategic plans. Then evaluate the application of your PESTLE as a tool for strategy development.
700 ML57 1.1 Evaluate a range of strategic planning theories and models.
703 ML56 1.2 Evaluate the use of environmental scanning techniques and scenario planning models.
703 ML56 1.6 Analyse the usefulness of strategic planning tools and theories
703 ML56 1.7 Assess the relationship between strategy analysis and strategic choice
703ML56 2.1 Evaluate the impact of political, economic, social, technological, legal, ethical and environmental factors on an organization and its markets
703ML56 2.5 Model a range of scenarios relating to an organisation’s intended market position