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Scenario Planning

The future is inherently unpredictable. If you had that oracle to provide you with perfect knowledge of how your business environment will change, would the information allow you to make better decisions? Arie de Geus, (Author of “The Living Company” and long-time director of group planning at Royal Dutch Shell) believes that an individual firm, no matter how big, is unable to influence the forces that mould its business environment.

For this reason, he developed a technique to improve forecasting. It is called scenario planning. Scenario planning can be used effectively by a company of any size. The process creates a number of possible futures (scenarios) for your industry. Some optimistic and some pessimistic. These are then explored to understand their implications for your firm. Robust plans can then be developed to enable your firm to be successful in the future.

Scenario planning is most useful when it is integrated into your Strategic Planning process. The following steps in the process of evaluating the impact of scenarios on your business are suggested.

Step 1         Describe your preferred situation for your firm
Define your preferred future and set your proposed future Targets (Economic, Personal and Societal).

Step 2         Identify possible futures and their impact on the business
A number of events mould the future. They occur in what is known as the macro environment and are usually grouped together for convenience under five trend headings: An example of each includes:
Social: Demographic trends such as population growth,
Technological: Ease of Communications through information technology
Economic: Globalisation, E-commerce
Environmental: Environmental impact management
Political: Establishment of trading blocks.

Step 3         Select a likely scenario
Now select the most likely scenario of the future for analysis.

Step 4 Define what the business will look like if the scenario becomes a reality
What changes will this scenario bring about for your business? Which ones will definitely happen? How will these changes impact on the business in the longer term? What changes are essential for you to address It is impractical to address all possible changes. It is therefore necessary to prioritise them.

Step 5 Compare this with your preferred future
What impact will this scenario have on your preferred future? (As described in Step 1 above). What can you control? What can you influence?

Step 6 Consider alternatives and their consequences
What steps need to be taken to minimise the influence on your business, of events totally beyond your control? What opportunities will these changes create for your business? Can you still achieve your preferred future? What changes are necessary (1) to your preferred future (2) to your plans for getting there?

Step 7 Consider the obstacles
What blocking forces will prevent you introducing these changes? What can you do about them?

Step 8 Identify resources that you will need.
Identify what resources you will need to achieve your (revised) preferred future in the new scenario.

Step 9 Select a plan of action and implement it.

Step 10 Address the actions to be taken

Steps 9 and 10 should be completed as part of your normal planning process.

Having assessed these possible futures and made plans to address them, you can proceed with confidence, even though it will be necessary to constantly test your strategies against the unfolding reality.

If you would like more detailed information about this topic, email David and he will send you the Fact Sheet by return email...it's free!