Monday, September 8, 2014

Scenario planning and strategy

Scenarios can be very strong planning tools qualitatively, and get you the best time-value result.

Scenario planning, also called scenario thinking or scenario analysis, is a strategic planning method that some organizations use to make flexible long-term plans. (Wikipedia). The value of scenario planning is to uncover significant risk in the strategic plan. Assuming the risk is indeed significant, then the question of how far do you go to create contingency plans to address the issues.
A high-level scenario planning approach can be useful. And you can get 80% of the benefit of thinking through a scenario in a short time... without the need for too many details (in part because with a real disruptive force, it's hard to be sure of anything - and the details might even give a false sense of certainty in predicting the actions of many players). What valuable about even quick high-level scenario planning is that you can often establish a set of What-if scenarios with agreed-to response plans in place. Scenarios can be very strong planning tools qualitatively, and get you the best time-value result. You can use your scenarios to explore how your current strategies will or will not help you against possible disruption and compare your strategies to your current competitors and even invented future competitors. What strategies or small low-risk steps you might take now that can better position you to more quickly identify or turn the disruption to your advance? This will allow your organization to gain time to prepare, rather than relying on a reaction approach or waiting to develop a strategy after monitoring indicates the disruption is in progress.
A good middle ground is to estimate a range of potential impacts for each scenario; then itemize the steps and costs required to create a detailed plan once the disruption appears to be certain. This gives immediate guidance and allows everyone to anticipate costs and effort if/when the market changes. Be cautious about the use of an "As Expected" case as it tends to feed internal biases and reduce the perception of the feasibility of other scenarios. All of your scenarios need to be plausible. Differentiate the scenarios planning exercise from quantitative financial planning with none of the scenarios being the quantitative expected case. By sharing a simplified table that identifies the drivers and trends underlying each scenario using a high/ medium/ low quantity measure, the comparison can still be made to your quantitative plan around specific assumptions.
When you think of scenario planning, think of risk management. One common practice is to identify measures that provide insight into whether an identified risk is becoming real and to meter any investment to deal with it based on the monitored results. That way, large investments are avoided if they ultimately turn out to be unnecessary. Is your market sector volatile or relative stable? Does it have many innovators who are also big and aggressive? Who plays the biggest part in the sector, competitor, customer or the policy maker? You might want to approach it from the risk management perspective considering each risk in terms of its immediacy, impact on the organization and the organization’s ability to absorb the shock and survive to repair itself in the worst case scenario. You might want to contextualize the discussion using the dimensions proposed in the balanced scorecard framework with supporting evidence to illustrate your decision to stay in high-level for each dimension.
While scenario planning can benefit from computer simulations, scenario planning is less formalized, and can be used to make plans for qualitative patterns that show up in a wide variety of simulated events.


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