What is Scenario Planning?

Have you ever tried to predict the future? .

Not many people get it right: particularly when conditions in the business environment are changing as rapidly as they are now.   The alternative to prediction is a strategic management technique known as scenario planning.
 

Creating Scenario Worlds
While the term "scenario" is widely used in business contexts, we use it to mean a specific methodology in which the users create a set of stories of the future at a particular point in time.   These stories represent alternative futures for a particular business environment.  They are designed to provide a context for decision making, address an issue or set of issues that must be dealt with in the present.  Each of these stories is fundamentally different from one another but each is:

  • internally consistent (it makes sense)
  • plausible (we can see how the world might turn out that way).
These scenarios are meant to define a set of possible outcomes that, when taken together, describe a reasonably complete range of possibilities.

Using Wild Cards

More extreme future possibilities (such as total melt down in Y2K) are known as "wild cards".  They are not likely to happen, but, if they did, would have an enormous impact.  It is worth considering the most significant of these just for the experience of having pondered the possibility before a crisis situation occurs.  If it does occur, the response is more likely to be "Oh yes, we have thought about that" rather than panic or stunned inertia.

Challenging Assumptions

Most sets of scenarios, however, stay within the bounds of what is considered plausible while at the same time striving to stretch the "conventional wisdom". The conventional wisdom is the framework in which the management team unconsciously structures their view of the world based on their shared history and past successes.  One of the scenarios should capture this view.  The others should consider what happens if these assumptions are incorrect.  What if the world turns out differently?  A set of two scenarios is often sufficient to challenge the conventional thinking.  The set should be limited to no more than four in order to facilitate the management team's ability to remember the basic elements of each and to be able to work with them.  A catchy name helps too.  Every possibility does not need to be captured in the scenarios but enough "stretch" needs to be represented to cause the management team to think beyond their traditional mental models.
 

Need to make a Major Decision?

Once the scenarios have been developed, they can be applied to the issue that was originally identified.  Strategies are developed to address the issues within each of the scenarios.  When analyzed across the set of scenarios, strategies fall within three broad categories:
  • No brainers: These strategies are said to be robust -- they work no matter which scenario occurs.
  • No winners:  These strategies don't work in any of the scenarios.  The biggest surprise here is that these are often the solutions that would have been used if the scenario planning process had not caused the management team to consider the outcomes.
  • High risk/High reward: These strategies work in one or more scenarios but they may lead to complete disaster in others.  Do you bet the company?  Often the answer is "yes" but with two caveats:
      • 1.) you place all your corporate weight behind making the desirable scenario occur -- the scenario process can help you identify key leverage points for intervention, and
      2.) if it is clear from the events that are actually unfolding that another scenario is closer to reality, be ready to switch strategies and implement those appropriate to the situation at hand.

Practice, Practice, Practice and Be Ready to Move

Scenarios can be considered management practice fields -- they afford the management team the opportunity to try out solutions in a wide range of conditions in a completely private and non threatening environment.  None of the scenarios will occur precisely as written.  The value is in having gone through the process and developed the skill to imagine the unimaginable, to see the signposts as they occur and to be ready to react appropriately with forethought.  Scenario planning gives management the ability to:
  • address strategic issues before a crisis occurs,
  • develop robust strategies that work in any future, andrespond to change more quickly and effectively than competitors.