Right now we’re trying to get through next month! Having an accurate forecast for 2022 is as futile as a forecast for 2020. Why would we want to do scenario planning for 2022?! And what the heck is scenario planning anyways? How does that help us?
Are you asking yourself: How should I forecast my revenues? Adjust my budget?
These are unanswerable questions. With the degree of variability and uncertainty in today’s economic environment they will remain unanswerable for some time.
And that is where the tool “scenario planning” finds its value. It allows you to shift your focus from a point solution, to framing potential scenarios and developing a robust plan of action. One that allows you to pivot as the economic variables unfold.
A colleague, Lisa Perrine of Cibola Systems, has an excellent definition of scenario planning:
“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.”
The process of using scenario planning starts with the evaluation of forces external to a particular company or industry. And for that reason, has more value if you invite others who share a diversity of knowledge and insight on the external forces.
We typically use 7 categories to identify and then narrow down the top external force factors:
- Industry specific
- Customer needs
It is tremendously insightful to hear the conversation as to which forces may have more or less impact on your industry and organization.
The process continues on to identifying one or more axes to plot these factors on. For example, in our COVID-19 environment, the axes may be Slow/Fast Economic Recovery vs Physical Distancing Recovery.
As we place these external forces on the grid, what common themes do we find? And when we place our mind’s eye in the year 2023, what scenarios start to take shape? What are the implications and how might a “fictitious” company best position itself for each scenario? And finally, what are the common strategic threads amongst the 4 scenarios? At this point, these are industry common strategic threads.
It is these industry strategic threads that informs a company’s specific strategic plan forward as it reflects company specific markets, resources, geographic requirements, business model, etc.
Sound complicated? Well, it is and it isn’t. By the very nature of the size of the group and the many different variables, it helps to have a facilitator step the participants through the process. And then it is simply a matter of following the process! Step by step.
My experience is I rarely can forecast the outcome. That is what makes it tremendously interesting and valuable.
What better time, than the time that has been thrust upon us? From chaos comes opportunity. Those that respond to chaos in a strategically sound manner will find that opportunity.