Scenario planning – tool for uncertain future
During uncertain economic situations when long term business planning fails, companies need to be resilient and adapt to survive in the competitive market. The recent lockdown imposed by many countries across the world due to COVID - 2019 is one such example of an uncertain situation. Many companies struggle to survive during such uncertain times and seek tools or advice that can help them take better critical decisions.
Scenario planning is a planning tool used to make flexible business plans to deal with major, uncertain shifts in the organization’s environment. It helps to determine what is required for the organization to succeed if potential changes occur and update the strategy accordingly.
What is Scenario planning?
Scenario planning can be used to identify uncertainties by scanning the current situation (internal & external factors) and predict the plausible potential futures to help understand how different situations will affect the business. It allows a company to create a resilient strategy & review the flexibility of the existing strategy against the various possible future alternative. It helps to identify & address business challenges beforehand that otherwise could be neglected.
Steps in the scenario planning process are explained below:
Identify the big shifts in society, technology, economics & politics, etc. in the future and how it will affect the company. Brainstorm on the uncertainties caused due to these changes and identify the top 2 critical uncertainties. Then develop a two-by-two matrix with the top two uncertainties as to the axis. Depending on which direction each of the uncertainties will take, draw four possible scenarios for the future as shown below:
Analyze each of the 4 scenarios by focusing on the major company’s issues at stake. The whole motive is to challenge the assumptions in a hypothetical environment before managers decide on a certain course of action by raising and testing various “what-if” scenarios and their implications. Discuss the various implications and impacts of each scenario and shape the ongoing company’s strategy taking into account every scenario. Iterate the process as often required.