Importance of Scenario Planning In Strategy Making

[MSONGA The Consultant]

Every organization operates in a volatile, uncertain, complex and ambiguous environment. To play diligently, organization leaders must be prepared to respond to risks as well as opportunities brought by the environment. Scenario planning is a technique developed in the nineteenth century by the military for the conduct of war games. The technique is used to assert some control by identifying assumptions or predictions about what may happen in the future. Peter Schwartz is considered as the person who extended the technique to the business world with some significant success during the 1960s and early 1970s when he was at Royal Dutch Shell. As a result, the technique is sometimes called the “Shell Method”

By building organizational awareness of what could happen, scenario planning helps organization leaders to spot warning signs of challenges and respond accordingly. When a worst-case event arises, scenario planning documents add tremendous value by playing out multiple immediate steps to contain damage. The plans are also valuable for best-case scenarios.

Types Of Scenario Planning
It is essential to understand the various forms of scenario planning and how to apply them.

1. Quantitative Scenarios: This kind of scenario planning deals with financial models that allow for presentation of best-and worst-case versions of the model outputs. These models can be quickly changed by altering a limited number of variable factors.
2. Operational Scenarios: This is one of the common types of scenario planning most organizations undertake. This type of scenario planning, specifically explores the immediate impact of an event, the scenario then provides short-term strategic implications.
3. Normative Scenarios: These scenarios are less objective planning and more geared towards statement of goals. The goals are not necessarily about an organizational vision, but more about how the company would like to operate in the future.
4. Strategic Management Scenarios: These are often the most challenging scenarios for organization leaders, it is due to the fact that it requires a broad industry, economic and world view.

How to Use Scenario Planning
Scenario development process holds 4 critical steps. The process to create scenarios is very simple. You will have to:

• Identify your driving forces: To begin with, you should discuss what are going to be the big shifts in society, economics, technology and politics in the future and see how it will affect your company.
• Identify your critical uncertainties: Once you have identified your driving forces and made it a list, pick a few (those that have the most impact on your business). For example, two of the most important uncertainties for tech-companies are rapid technological change, geopolitical, economic volatility, and talent acquisition and retention
• Develop a range of plausible scenarios: The goal is now to form a kind of matrix with your two critical uncertainties as axes. Depending on what direction each of the uncertainties will take, you are now able to draw possible scenarios for the future.
• Discuss the implications: During this final step, you should discuss the various implications and impacts of each scenario and start to reconsider your strategy: set your mission and your goals while taking into account every scenario.

Why Scenario Planning is Important ?

• Improved information-based decision making: Scenario planning allows you to play out different future scenarios. So, when the market shifts, or interest rates spike, you understand the possibilities and what business levers to pull and why.
• Risk management: Scenario planning helps identify potential threats and mitigate risks.
• Increased agility: Prepare for the unexpected, so that when scenarios play out that you have modeled you are able to quickly adjust.
• Enhanced long-term vision: Ensure your organization is ready to take on future challenges and future growth.