Scenario planning attempts to eliminate the two most common errors made in any strategic analysis - Overprediction and Underprediction of the company's future. Most organizations fall into this trap. Scenario planning is a strategic planning method that organizations use to make flexible long-term plans. It is an adaptation of classic methods used by military intelligence where a group of analysts generate simulation games for policy makers. The methods combine known facts about the future with key driving forces identified by considering social, technical, economic, environmental, and political trends. In the business world, the emphasis on understanding the behaviour of your opponents is reduced, whilst the emphasis on changing mindsets about the outside world, before making plans, is increased. Scenario planning recognises that many factors may combine in complex ways to create sometime surprising futures. As a company leader you will be experiencing a tsunami of change from driving forces that threaten to sweep you away. You need to adapt if you are to survive in a post-COVID-19 world-let alone thrive. And for this you need plans. But how do you plan for such an uncertain future? In this context, scenario planning helps you assert control in our topsy-turvy world, by identifying assumptions about the future and determining how your organization will respond. By visualizing potential risks and opportunities, you can get on to the front foot rather than constantly reacting to events. As a leader plans provide you with an early warning system help spot deviations from plan. Plans for best-case scenarios will enable you to exploit opportunities, whereas plans for worst-case scenarios will provide you with a menu of possible interventions to contain damage, protect reputation, and remain on track to achieve your business goals. This article describes what scenario planning is and why it is important. It provides best practice examples using Amplify.
Most scenario planning starts with some form of brainstorming exercise to harness the collective wisdom of groups-ideally diverse ones. Professional judgement and expert opinion are necessary inputs but of themselves, insufficient. You require a tool that enables you to create and compare scenarios, to make decisions and to activate and implement strategic plans, with a built-in capability to repeat regularly - as part of an annual business planning cycle, or six-monthly, or maybe even quarterly.
What is the right tool for scenario planning? Maslow said, ‘if all you have is a hammer, everything looks like a nail,’ and as every parent knows, if you give a young boy a hammer, he will go around pounding everything he encounters. The same can be said of consultants and spreadsheets. Excel and Google Sheets do include scenario planning features, and they may work well for a simple case. However, the relationships between a sizeable collection of initiatives and a long list of benefits and investment objectives becomes unworkable. And as the number of links between spreadsheets and workbooks proliferate, expensive errors creep in and version control goes out the window! Time-series planning, and cash-flow forecasting are extremely tricky in Excel. Each initiative cost profile of when money will be spent, and benefit realisation plan of when, and at what rate, the benefit will eventuate adds another layer of complexity. This situation is compounded because benefits, like goals, may be financial or non-financial, with many-to-many relationships with their contributing initiatives. This may extend over several years, during which the scenario planning process is re-run. Do you really want to leave your multi-million-pound investment decisions, at the mercy of an Excel-jockey, who may leave your organisation? Or would you rather use a tool that has been designed for Scenario Planning, that eliminates the possibility of calculation errors and reduces the effort involved - for example by automating initiative selection based on assured results of multi-criteria analysis.
You will need data you can rely on about initiatives, such as estimated cost and schedule, dependencies, forecast benefits and risks, and any other relevant information. The better the data you use to inform scenario planning, the great the level of confidence you can have on the viability of your initiative business case and its ROI. Once you have this information to hand, you can do a cost-benefit analysis to calculate the value for money implications of different options. In the example below Is it best to build a new hospital, improve efficiency of hospital care by using IT and/or upgrade existing facilities? Whatever you decide, you will need to understand their individual and summed cost and benefit profiles and the relationship between the two. You will also need to be confident that, at the end of day, you will have achieved your investment objectives. In this case there are two, namely to ‘improve health outcomes for people in hospital care’ and ‘improved efficiency of hospital care.’
During scenario planning, the viability of various options is appraised in terms attractiveness and achievability. Amplify Scenario Dashboard support this. Consider for a moment a Business Transformation with two goals:
Note: SMART goals are an essential ingredient of good scenario planning but not every goal needs to be financial, or even measurable, as they can still be weighted for relative importance.
Once you have selected your scenarios, Amplify enables you to make a side-by-side comparison of scenarios. In this case, I base the comparison on the goal focus of the scenario. The ‘balanced scenario’ has the optimal mix of increased customers and reduced OpEx. and is within budget and satisfies all other selected criteria. Upon approval by Investment Board, I am able to activate the ‘balanced scenario. The remaining scenarios are archived, and I can then move to the next stage in the planning process.
If you’re serious about Scenario Planning, you do need the right tool for the job. It is not Excel. Click on the video below to see Amplify’s Scenario Planner in action: https://youtu.be/of3X-iLF6wc With a suite of integrated dashboards, multi-criteria analysis functionality, and built-in governance and assurance arrangements, Amplify will provides you with an end-to-end scenario planning process The good news – a modest investment in Amplify for scenario planning will soon pay for itself.