Scenario Planning: Strategy, Steps and Practical Examples

Scenario Planning: Strategy, Steps and Practical Examples

  • Scenario planning helps decision-makers identify ranges of potential outcomes and impacts, evaluate responses and manage for both positive and negative possibilities
  • By visualizing potential risks and opportunities, businesses can become proactive versus simply reacting to events
  • There are a number of templates and formalized frameworks for scenario planning, as we'll discuss. What's important is choosing a method that works for your team
  • We'll look at two fictional firms, a software company and a wholesale distributor, to illustrate the planning process

If anything magnifies the value of scenario planning, it's a pandemic — even if most companies didn't have “economy grinds to a halt” in their modeling. In the context of a business, scenario planning is a way to assert control over an uncertain world by identifying assumptions about the future and determining how your organization will respond.

By building organizational awareness of what could happen, leaders may spot warning signs of brewing challenges and respond accordingly. When a worst-case event arises, scenario planning documents add tremendous value by playing out multiple outcomes and listing immediate steps to contain damage. Plans are also valuable for best-case scenarios — say a product goes viral and demand spikes 300% overnight? What if an acquisition opportunity lands unexpectedly? Are you prepared?

Scenario plans, ultimately, tell a story with many possible endings. Crafting the narrative requires a clear set of assumptions about potential business realities and ensuing outcomes.

What Is Scenario Planning?

For businesses, scenario planning enables decision-makers to identify ranges of potential outcomes and estimated impacts, evaluate responses and manage for both positive and negative possibilities. From projecting financial earnings and estimating cash flow to developing mitigating actions, scenario planning is more than just a financial planning tool — it's an integrated approach to dealing with uncertainty.

But it's more than just a way to recognize and mitigate risk or plan for growth situations. Scenario planning is also about visualizing different representations of an organization's future, based on assumptions about the forces driving the market — some good, some bad.

Scenario planning is a process pioneered by the U.S. military , which today runs exercises looking up to 20 years out to guide R&D efforts.

Why Is Scenario Planning Important?

Scenario planning can provide a competitive advantage by enabling leaders to react quickly and decisively — because a situation has been thought through and actions documented, no one has to scramble when in the midst of a crisis.

Scenario planning also gives executives and boards of directors a framework to make nonemergency decisions more effectively by providing insight into plans, budgets and forecasts and painting a clearer picture of key drivers for business growth and the potential impact of future events.

Scenario Planning Advantages and Disadvantages

A comprehensive scenario planning exercise takes time, effort and money. Should you commit?

Advantages:

  • Scenario planning will help executives understand the effects of various plausible events.
  • Finance, operations and other teams can prepare initial responses.
  • There's an element of knowledge management; by having key personnel take part, the company captures their insights and recommendations.
  • If these stakeholders are unavailable during an actual extreme event, the company has documentation to fall back on.

Disadvantages:

  • Scenario planning is a potentially enormous undertaking. It can be a lengthy process to collect data and driving factors; for large enterprises, plans can take months to create.
  • Factors that impact plans can change quickly. That means scenario planning must be a living process, with constant updates as conditions and assumptions evolve.

We recommend that all companies perform at least rudimentary scenario planning, even if it's in the context of a business continuity exercise. The process itself has real value.

Once you've decided to get started, you need to settle on a format.

Types of Scenario Planning

Quantitative scenarios.

Financial models that allow for the presentation of best- and worst-case versions of the model outputs. These models can be quickly changed by altering a limited number of variables/factors. Quantitative scenarios are also used to develop annual business forecasts . These models assume key variables are known and that relationships among them are fixed.

Operational scenarios

One of the most common types of scenario planning an organization will undertake internally. Operational scenarios specifically explore the immediate impact of an event. The scenario then provides short-term strategic implications.

Normative scenarios

These describe a preferred or achievable end state. These scenarios are less objective planning and more geared toward statements of goals. These goals are not necessarily about an organizational vision, but more about how the company would like to operate in the future. Normative scenarios are often combined with other types of scenario planning as they provide a summation of changes and a targeted list of activities.

Strategic management scenarios

Essentially stories that say little about the company or industry, but more about the environment in which products and services are consumed. These are often the most challenging scenarios for company leaders to put together because they require a broad industry, economic and world view. On the plus side, they give planners freedom to brainstorm decisions and a broad storytelling mandate. In some cases, companies bring in analysts or even so-called futurists .

How to Use Scenario Planning

Typically, macroeconomic expectations are used in conjunction with scenario planning to help the CFO frame near-term expectations for the company and to level-set expectations in departments.

The fundamentals of scenario planning are the same, even if the particulars across industries and within businesses vary. To illustrate this, consider how two fictional companies, a software provider and a wholesale distributor, would approach scenario planning during the COVID-19 pandemic.

Company 1: Gimbloo Software is a young business software company that had been experiencing steady growth until the pandemic. The leadership team hadn't undertaken any scenario planning, but its CFO had lived through both the dot-com bubble and the Great Recession and was ready to act quickly to protect Gimbloo's runway.

Company 2: Before the pandemic, the CFO at established wholesale distributor Tar Heel Direct had prepared three scenarios based on order volume: green, yellow and red. Each scenario encompassed a new set of mitigating actions, using order volume as a metric to trigger when it was time to enact each action sequence. However, the retail freefall meant that Tar Heel Direct found itself operating in the worst-case scenario — red — within a matter of weeks.

Questions both companies considered:

  • What is the issue that we are trying to assess?
  • How far out are we trying to predict?
  • What are the major external factors likely to impact on our scenarios?
  • What are the key internal drivers that we need to address?
  • What are the risks to the scenario?
  • Do we have the right data, technology, bandwidth and skills to develop and maintain scenario plans?

Tar Heel Direct's scenarios are based on order volume and ability to fulfill orders efficiently. Because the negative effects of the pandemic were so sudden, the company decided to set milestones for every 30 days in anticipation of delayed accounts receivable as well as reduced ability of retailers to accept products.

It quickly lost orders from most customers with physical retail locations — infection rates and lockdown orders have a direct impact on sales. Internally, Tar Heel Direct has taken safety precautions for its workers. Social distancing and increased sanitization measures mean that warehouse teams are operating at about 60% capacity. Suppliers and customers are in roughly the same boat, with suppliers being affected too — though not as dramatically as retail outlets. Some incoming product shipments will be delayed, or suppliers may be able to provide only fractions of their normal output.

Tar Heel's leaders are in close communication with suppliers and customers, and the firm monitors government data and industry reports to try to stay ahead of trends; however, the future of retail is uncertain, and it may need to explore new sources of revenue.

Scenario Planning vs. Business Continuity Planning

Scenario planning is often conflated with business continuity planning. While both are structured processes for helping a company navigate the future, scenario planning plays a longer game that considers revenue over time. Business continuity planning is about how your business will react to a disaster, such as a warehouse fire or earthquake.

In both processes, the journey may be as valuable as the final work product. By bringing leaders together to think through what could affect your business, you may head off potential risk.

Meanwhile, Gimbloo's challenges are less dependent on outside stakeholders. Its management and private equity partners met early in the crisis to establish a plan. They came to an agreement that new business and additional sources of funding aren't likely in the next few months, so the key focus is extending runway by cutting discretionary costs and being prepared to adjust headcount. The company's PE partners aren't likely to sit by and watch Gimbloo run out of money, but before providing additional funds, they will want to see that the company has cut wherever possible.

Leadership made the assumptions that recurring revenue would stay largely the same and new deals would surge when the economy reopens. If both hold true, they'd begin scaling back the cost-saving measures. They also added a cushion for churn, down-sells and, in the event of an extreme and protracted downturn, some mid-contract cancellations.

Any significant changes in metrics would trigger another scenario with further cuts.

Scenario Planning Work Approach

Actions to take.

  • Secure commitments from senior management, select team members and organize scenarios around key issues to be addressed and evaluated.
  • Define assumptions clearly, establish relationships between drivers and limit the number of scenarios created.
  • Make sure each scenario presents a logical view of the future.
  • Focus on material differences between scenarios.
  • Indicate KPIs, and refresh scenarios and update assumptions on a regular basis.

Actions to avoid

  • Avoid developing scenarios without defining the issues first.
  • Don't develop too many scenarios – three is a good starting point. Beginning with your best guess at how business will go, add one scenario for things going better and another for things going worse. A good starting point is 50% for best guess, then 25% for things going better and 25% for things going worse.
  • Do not attempt to develop the perfect scenario – more detail does not mean more accuracy.
  • Avoid becoming fixated on any one scenario.
  • Don't hold on to a scenario after it has ceased to be relevant.

3 Steps to Better Scenario Planning

1. identify critical triggers even in the midst of uncertainty:.

When faced with a crisis, finance leaders quickly establish guidelines for how the organization should respond by developing multiple scenarios. These scenarios are built on a set of assumptions around events that affect the survival of the organization and should trigger a series of actions.

In times of crisis, companies need to combine historical data with plausible outcomes to determine ramifications for each part of the organization. Scenario plans can give leaders breathing room to slow down and assess economic, political and environmental factors. These prioritized factors are a critical part of crisis scenarios.

2. Develop multiple scenarios, but keep it simple:

When building multiple scenarios, it's easy for finance teams to feel overwhelmed by the range of potential outcomes. How can anyone properly plan for so many possibilities? Simply put, you can't. That's why it's best to keep it simple. Focus on two to three major uncertainties and build scenarios from there. Finance leaders need to prioritize and develop perspectives about each of the scenarios to help the company navigate.

3. Build a nimble response strategy:

Each scenario should contain enough detail to assess the likelihood of the success or failure of different strategic options. Once this is all in place, finance leaders can create a framework that helps the executive team make decisions. Any decisions made need to be monitored in real-time so the team can be nimble in its ongoing response.

Scenario Planning Matrix

Strategies to manage scenario planning projects.

As has probably become clear, the scope of scenario planning is limited only by leaders' time and imaginations. There must be guardrails on the project to keep the time investment in line with expectations. Here are some key issues in managing scenario planning scope creep:

  • Recognize the importance of the team's time.
  • Spend more time on creation and analysis of problems/questions, less on “what if” tangents.
  • Define important outcomes.
  • Decide how you will put your scenarios to use; that will inform scope.
  • How will you assess success?
  • Recognize an evolving context and narrative.

Tar Heel Direct's models were based on assumptions that didn't work during the pandemic, but the mitigating actions planned in its original scenarios still applied, even with different conditions.

For example, pre-pandemic scenarios used fuel costs as a trigger, anticipating higher prices in a crisis. After spending a few weeks assessing key metrics for the business, the company realized that because diesel fuel is cheap, it can be more competitive on rates and pay truckers better than Amazon — the opposite of what it expected in its original scenario planning. Fuel is so inexpensive, in fact, that sending out partly filled trucks is a more reasonable proposition than it was just a few months ago. Because the company had already planned mitigating steps for scenarios that relied on high fuel costs as a trigger, it was able to work them backwards without additional planning.

Operating at 60% of regular revenue, management assessed what its existing customers needed and got the sales team working on acquiring new customers by thinking out-of-the-box. Tar Heel Direct's next move is to identify small and niche businesses that are operating at reduced capacity and have the sales team contact those that may be having trouble moving partial loads. The projection is that taking these steps will bring revenues up to 80%, which would move the company into a better scenario.

Download Our Scenario Planning Template

This scenario worksheet is designed to be used as a guide through the planning project and should help teams avoid common problems.

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For Gimbloo's part, leaders began running weekly cash forecast scenarios using a variety of inputs, focusing first on collections and hoping for a week-to-week decline in delinquent payments. Next, they examined new bookings, customer churn and customers reducing licenses. The company's forecasts are based on recurring revenue, and factors that affect MRR will trigger new actions.

The company decided to focus on its core value: the service it offers. Leaders decided to take on fewer new customers before making cuts to customer service, cloud services or customer success. It eliminated discretionary expenses, paused hiring and cancelled future marketing events to make up the difference.

If things go poorly and Gimbloo sees a spike of non-renewals and cancellations, leaders plan to seek additional capital from current investors and cut employee costs, such as by furloughs and reducing discretionary bonuses, versus delaying product launches. If it wins new business, the company will begin hiring again and expand its digital marketing footprint.

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Scenario Planning and Modeling: Best Practices

1. assemble the right team:.

In large companies, financial planning and analysis groups should be included. But while finance professionals can certainly lead the scenario planning process, they won't be successful alone. This effort needs to connect leaders from across the organization, including business units and HR.

2. Get the right data:

For finance teams to execute with confidence, they need the right data, going well beyond the general ledger. To create better, more accurate models, finance needs historical and comparative sales data, headcount and expected growth, and of course actuals from the general ledger. They'll also need to understand the costs of producing products and services, which products are foundational and which are additive.

3. Model with basic scenarios:

Finance teams should consider developing basic low, medium and high models. A low scenario is where costs and revenues are challenging. The goal here will be finding cost savings while still delivering quality products in a timely manner. A medium scenario assumes that sales will continue to grow based on last period actuals. This scenario will show how the last period's sales figures compare with forecasts, and what adjustments you need to make on headcount and other departmental spending to maintain trajectory. The high scenario is usually based on demand increasing and sales accelerating due to big changes in the market. The goal is to ramp up capacity without incurring costs that eat into margins.

4. Provide break-even analysis:

This analysis will support, with data, decision-making regarding your cash-flow break-even level. It looks at the minimum sales volume your company needs to keep operating normally and sales compensation plans to see if you need to adjust commissions or bonuses.

Rami Ali is a senior product marketing manager at Oracle NetSuite. Rami has over 10 years of experience in the software industry. Areas of specialized expertise include GTM strategy, product launch, market analysis, competitive analysis, sales enablement, demand generation, content development, project management, digital marketing, responsive web development, SaaS and PaaS. Rami holds a BS in Business Administration and Marketing from Grand View University. He is currently pursuing his MBA.

David Luther is a senior content writer at Oracle NetSuite, covering the latest trends in SaaS, finance and ecommerce. His research and writing have appeared in Forbes, Business Insider, MSN Money, Yahoo Finance and MarketWatch.

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Scenarios in Strategic Planning: Full Guide with Examples

Scenario planning helps organizations increase business resilience and prepare for future challenges. Learn how to formulate different types of scenarios and align them with overall strategy. 

3 Steps to Increase Business Resilience with Scenario Planning

Key topics of the article:

What is Scenario Planning?

  • The Role in Strategic Planning and Risk Management

Could We Be Better Prepared for Covid-19 with Scenario Planning?

The steps of scenario planning.

Examples of the Scenarios:

Formulating Business Continuity Scenarios

Formulating high-priority scenarios, formulating scenarios for monitoring.

Scenario planning is a disciplined way to formulate strategic hypotheses in the context of existing driving forces and their uncertainties .

It helps to:

  • Better prepare organization for the new challenges, and
  • Increase general business resilience – the organization’s ability to better adapt to the ever-changing environment.

Scenarios in Strategic Planning - How to Align Scenarios with Overall Strategy

The Role of Scenarios in Strategic Planning and Risk Management

Any strategy is based on hypotheses and scenarios. What value does scenario planning add to strategic planning?

With scenario planning, we are trying to get a broader picture of the hypotheses by extrapolating the existing driving forces and creating plausible scenarios.

From the viewpoint of the strategic planning process, scenario planning can be used in the strategy formulation step 1 (step 2) together with other frameworks that help generate strategic hypotheses.

5 steps of strategic planning process from defining values, vision, and mission to describing strategy on strategy maps with business goals, KPIs, and initiatives.

The same broad picture of hypotheses helps to understand the risk landscape better. Diverse scenarios and simulations via wargaming 2 help to create more detailed risk models and risk mitigation plans.

Have a look at the PESTEL analysis article published right before Covid-19 became a pandemic. Some of the mentioned trends were:

  • Political stability
  • Economic growth, inflation rates, exchange rates
  • Workspace and lifestyle changes
  • Climate changes, natural disasters

There was no “Covid-19” mentioned (although at that time, there were some serious warnings coming from Asian countries). Still, with those general trends in mind, any organization could start scenario planning by asking a number of “what if…?” questions:

  • What if the political regime changes in the country we are working with? What would be early signs of this? What could be our mitigation strategy?
  • What if the inflation rate rises? What financial indicators could predict this? How would it affect our financial sustainability?
  • What if our best talents prefer to work from home to achieve a better work/life balance? How would we communicate? How would we measure their performance?
  • What if a natural disaster happens tomorrow? What is our business continuity plan?

With scenario planning based on the findings of PESTEL analysis, it looks like we could have scenarios for around 30% of the challenges that we faced during the pandemic and afterwards.

3 steps of scenario planning

Here is a three-step approach to scenario planning by the BSC Designer team:

  • Step 1 . Breakdown Driving Forces into Uncertainties
  • Step 2 . Formulate scenarios and classify them into three groups
  • Step 3 . Formulate response plans and quantify scenarios

Step 1. Breakdown Driving Forces into the Uncertainties

Identify the driving forces for your organization by using:

  • PESTEL analysis to analyze the external environment
  • Five Forces to analyze the competitive landscape

The global driving forces need to be broken down into more specific uncertainties relevant for your organization. Let’s use our PESTEL template to practice it with some driving forces.

Driving Force: Climate Change

In the latest IPCC’s Assessment Report 3 , several climate change scenarios were presented. In essence, the report discusses different warming scenarios depending on the decarbonisation efforts.

PESTEL analysis - driving force climate change

The mentioned scenarios will have a direct impact on the energy industry. For other industries, a complex idea of climate change needs to be decomposed into specific consequences relevant to specific regions and business environments.

A starting point would be to look at the Global Change Research Program or the web of  European Commission , where some specific consequences of climate change are outlined:

  • Extreme weather,
  • Heat waves,
  • Forest fires,
  • Increasing ocean acidity.

Beyond the obvious impact on agriculture, climate change will affect:

  • Supply chain ,
  • Air quality
  • Water quality, and

With these ideas in mind, instead of focusing on climate change in general, your team can focus on a few uncertainties that are most relevant for your region or industry .

Alignment with Sendai Framework

The Sendai Framework for Disaster Risk Reduction 4 was adopted by 187 countries. Designed for national governments and local authorities, it also stresses the need to incentive businesses to invest in risk reduction and business continuity planning. 

Re-Use Risk Model

The adoption of the Sendai Framework by city or regional authorities includes risk assessment (see Priority 1: “Understanding Disaster Risk”). Organizations can update their risk models to incorporate the risks addressed by the local implementation of the Sendai Framework.

Align Scenario Planning

The Sendai Framework encourages authorities to incentivise sectors of business to align their scenario planning with resilience building (see Priority 2: “Strengthening Disaster Risk Governance to Manage Disaster Risk”).

The alignment can be affected:

  • At the governance level ,
  • Through specific risk reduction initiatives, or
  • By aligning with “Build Back Better” recovery programs.

Driving Force: Remote Work

Remote work is here to stay 5 . In 2021, we saw that:

  • 40+ countries introduced special visas for digital nomads
  • Many countries introduced new legislation to regulate remote work
  • Most countries, for example, Spain, focused their legislation on domestic remote work

Remote work - driving force formulated by PESTEL analysis

What are the future challenges of remote work? According to the KPMG report 6 , one of the emerging trends is the cross-border remote working arrangements .

  • Allowing an employee to work from home is not the same as offering the same person to work from another country.

Is this uncertainty relevant for your organization? In our case (we are a team of remote specialists), the broad driving force “remote work” can be projected into a specific uncertainty of “cross-border remote work.”

Driving Force: Cybersecurity Threats

Cybersecurity is another emerging trend. How can we break down this broad driving force into something more specific?

Driving force: cybersecurity

Here are the typical cybersecurity threats we discussed in the previous article:

  • Cyberattacks
  • Insider threats
  • Data corruption

Depending on the data flows in your organization and underlying IT infrastructure, you can pick a few relevant uncertainties. For example, a ransomware threat looks relevant for any organization.

Ransomware is still a very broad uncertainty. For example, its more specific projection could be the uncertainty associated with cloud deployments being the target 7 of ransomware attacks.

Step 2. Formulate and Classify Scenarios

Once the general threats are projected into uncertainties, we need to better formulate the scenarios and agree on how to manage them.

Describe Scenarios as Stories

Shell was one of the pioneers in the large-scale application of scenario planning for business. There are many things we can learn from them, and probably the most important one is that possible scenarios formulated as stories work better. Those scenarios are easier to explain and immediately capture the attention of your team.

Besides formulating basic scenario as:

Ransomware attack on our cloud deployment

think about the story that stands behind this scenario:

“One day, you are trying to login into your online account, and it returns a strange error… Your customers start sending you reports about problems with the service. You are on the phone with IT specialists, but they say that it looks like they don’t have access to … ”

Scenarios in the form of stories are much easier to “sell” to the key stakeholders .

Three Types of Scenarios

Scenarios vary in their urgency and probability. We classify scenarios into three categories:

Scenarios related to business continuity.

High-priority scenarios that resonate with existing strategy and can be implemented right now as a new strategic hypothesis.

Scenarios for monitoring – important scenarios, but without clear alignment with current strategy.

One scenario might fit all three categories. For example, ransomware attack:

  • The scenario is obviously related to the business continuity
  • The best practices for prevention of ransomware attacks will be an excellent strategic hypothesis for existing cybersecurity strategy, so it fits the second category as well
  • Certain parts of ransomware scenarios should be monitored – the new policies of the law enforcement authorities as well as new scenarios of the attacks – the monitoring category

Step 3. Formulate the Response Plan and Quantify Scenarios

Different types of scenarios require different ways to formulate response plans and quantify them. Below, you will find our suggestions for:

  • Business continuity scenarios
  • High-priority scenarios
  • Scenarios for monitoring

Disaster recovery or business continuity planning focuses on scenarios that might affect critical functions of the organization. The potential threats , in this case, are rapidly developing natural disasters, cyberattacks, resource outages, etc.

Business Impact Analysis

Business continuity planning starts with business impact analysis . In simple words, we need to identify disruptions that could possibly affect our organization, identify the key operations affected by those threats, as well as critical recovery time.

The specific threats, in this case, depend on the nature of your business. A common starting point are:

  • Cybersecurity risks
  • Natural disasters
  • Terrorist attacks

Your team can quantify the threats according to their:

  • Probability
  • Early warning time
  • Overall risk priority

Business Continuity Strategies

Once the threat is described, we need to define several plans:

We are now prepared for a case of a risk event occurring. Additionally, we can discuss how to prevent such events or minimize their impact.

Quantification of Business Continuity: Readiness Indicators

Compared to other types of scenarios, the business continuity scenarios typically occur immediately or with a short early warning period. While there are no specific early sign indicators, there are certainly some leading factors that predict the readiness of your organization for a scenario.

An example of ransomware attack scenarios with readiness indicator

For example, we discussed some of the leading indicators in the article about cybersecurity :

  • IT infrastructure complexity
  • Data scheme complexity

By quantifying these leading factors, we can define the readiness indicator for the business continuity scenario.

Quantification of Business Continuity: Lagging Indicators

Additionally, we can quantify recovery plans with some lagging indicators. For example, for a cybersecurity attack, we can track:

  • Time to recover from backups
  • Time to restore the transactions lost between the last backup and attack
  • Estimation of direct and indirect loss

These metrics will help your team to better prioritize their efforts.

Wargaming and Gap Analysis

Compared to other types of scenarios, business continuity scenarios involve fewer uncertainties. The nature of such scenarios is better studied. For example, we might not know where and when the next hurricane will hit, but we know what a hurricane is, what kind of damages are expected, and what we can do to minimize damages.

The business continuity plan can be tested via simulations of the scenarios or wargaming , where the rules of the “game,” as well as expected outcomes, are defined.

For example, what if your company becomes a victim of a ransomware attack? What data can be effectively restored from a backup? Run the simulation of attack to find the gaps and improve weak points.

After testing the scenarios, we will have additional data for the readiness indicator .

High-priority scenarios don’t have such a dramatic impact on critical business operations like business continuity scenarios, but they might significantly affect the execution of existing strategy.

Strategic Hypothesis

Our goal is to align a high-priority scenario with existing strategy. To do this, we convert scenarios into a strategic hypothesis.

For example, one of the actionable aspects of remote work driving force is the need to access the performance of the remotely working team because the existing ways to track the performance might not work well on scale.

Let’s use the CEO scorecard template available in BSC Designer to illustrate the alignment steps. In the Learning Perspective, there is a goal formulated as Build and maintain an engaged team.

The shift to result-based performance assessment is a good hypothesis to test for this goal.

Example of hypothesis aligned with a goal

Quantification of the Hypothesis: Impact Indicators

Typically, the high-priority scenarios already have some kind of impact on business performance. In our example, we can quantify the existing impact of the remote work scenario with these indicators;

  • % of employees working remotely
  • % of tasks completed on “time, in full” (compared to in office tasks)
  • Mismatch between reported performance and actual performance

Details of the scenario formulated in the hypothesis

Additionally, we can find some process-related indicators. For example:

  • % of remote team evaluated according to the new standard

The Cross-border remote work scenario that we discussed above sounds like something that we can see in the near future. We can map it in a separate scorecard with plausible scenarios.

Possible Response Plan

To define the possible way the scenario will be developed, we can speculate on the worst/best cases of developing an uncertainty and put it on scale. For example:

  • Worst case: new legislation makes cross-border remote working illegal
  • Best case: new legislation for cross-border remote work is accepted in many countries and provides detailed guidance

In this example, the legal landscape can be changed, so we formulate response plans for this scenario:

  • Legal consultation according to the current legislation
  • Update business systems to ensure cross-border clauses are added to the agreements
  • Ensure compliance from the viewpoint of cybersecurity and data privacy (for example, by using the dedicated compliance scorecard )
  • Educate the HR team

Quantification: Early Sign Indicators

In contrast to high-priority scenarios, most likely, we won’t find the impact indicators, as there is no impact yet. We can speculate about the possible impact, but it might be too early.

In this case, we can track the qualitative or quantitative early sign indicator . For example, we can look at the projects for new legislation that addresses specifically cross-border remote working.

Early-sign indicator used to monitor scenario

Quantifying the existence and the progress of such projects directly might be time-consuming, so instead, we can find a proxy metric. Typically, the new legislation is widely announced and discussed in the press. We can quantify the number of publications with certain keywords. For example, if I search Google for “cross border remote work,” now I get just 63 results in the News section and 4460 results in classical search. There are some publications by reputable sources like PWC that confirm that the trend exists, but still, there is no sign of specific legislation coming soon.

We can use The number of keyword-specific news on the topic as an early sign indicator for the scenario. This indicator is not bias-free, but it gives us a good estimation.

Changing the Priority of Scenario

What should we do with a scenario when an early sign indicator shows that things have started changing?

Depending on the scale of changes, we have two options:

  • For evolutionary changes, add the scenario as a strategic hypothesis to the current strategy, like we did for high-priority scenarios before, or
  • For disruptive changes, create a dedicated strategy scorecard focused exclusively on the hypotheses of this scenario, like we did for Covid-19 .

Another possibility is that with time, the scenarios lose their relevance. For example, with transition to sustainable energy and distributed energy production, some energy-related scenarios will no longer make sense. In this case, we stop monitoring and archive them.

What’s our Resilience Level Now?

We started with a promise that scenario planning increases business resilience. A logical question would be:

What is our current level of business resilience?

Quantifying resilience, in general, doesn’t make sense. If we do so, we will find out how resilient organization is to the past challenges.

Talking about resilience, we are interested in understanding the readiness of the organization for the future challenges. We can make a reasonable assumption:

Having a diverse picture of the existing driving forces and investing time in discussing scenarios based on those driving forces increases the organization’s resilience

What’s next?

Give scenario planning a try! Reformulating a known saying … the best time to start scenario analysis was a few years ago, then the second-best time is now.

  • Automate strategic planning with BSC Designer by organizing goals, initiatives, risks, and KPIs into scorecards.

More About Strategic Planning

BSC Designer software will support your team on all steps of strategic planning.

Comparative Table of Strategic Planning Frameworks

  • Strategy execution frameworks. Such as the Balanced Scorecard for the overall strategy and the more lightweight OKR framework for specific challenges.
  • Strategy formulation frameworks. SWOT, Three Horizons, Constraints Analysis, PESTEL, Gap Analysis, etc. that help organizations to generate new ideas.

Comparative table for strategic planning frameworks by BSC Designer

  • Aleksey Savkin, “Strategic Planning Process: Mission, Priorities, Goals, KPIs, Initiatives,” BSC Designer, June 18, 2019, https://bscdesigner.com/strategic-planning-process.htm ↩
  • Scenario Planning and Wargaming for the Risk Management Toolkit , The Wall Street Journal, Deloitte, 2019 ↩
  • IPCC’s Assessment Report , AR6 Climate Change 2022: Mitigation of Climate Change, April 2022 ↩
  • Sendai Framework for Disaster Risk Reduction 2015-2030, United Nations Office for Disaster Risk Reduction, 2015 ↩
  • Gartner CFO Survey Reveals 74% Intend to Shift Some Employees to Remote Work Permanently , Gartner, 2020 ↩
  • Current trends in remote working , KPMG, 2022 ↩
  • The Urgent Threat of Ransomware to S3 Buckets Due to Misconfigurations , Lior Zatlavi, 2021 ↩

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A Comprehensive Guide to Scenario Planning in Business

In an ever-evolving business landscape, where unpredictability seems to be the only constant, scenario planning emerges as a beacon, guiding organizations through the fog of uncertainty. This strategic planning method enables businesses to envision and prepare for multiple future scenarios, thus ensuring they are not caught off guard by unforeseen events. The roots of scenario planning trace back to military strategy and have since been adapted by businesses worldwide, evolving into a critical tool for strategic decision-making.

Understanding Scenario Planning

At its core, scenario planning is about preparing for the future – not just any future, but a variety of possible futures. It involves identifying different plausible future scenarios and developing strategies to effectively respond to each. Unlike predictive models that attempt to forecast one definitive future, scenario planning accepts uncertainty and focuses on flexibility.

The role of scenario planning in strategic management is pivotal. It transforms the traditional approach of linear planning into a dynamic process, accommodating changes and unexpected turns. It differs from other methodologies like forecast-based planning or trend analysis, which often rely on past and current data to predict a singular future path. Scenario planning, instead, encourages exploring a range of futures, some of which may defy current trends or expectations.

Key Elements of Scenario Planning

Identification of alternative future scenarios.

The first step in scenario planning is envisioning various potential futures. This process is not about predicting what will happen but about understanding what could happen. It requires a broad perspective, considering factors such as economic shifts, technological advancements, political changes, and social trends. Techniques like PESTEL (Political, Economic, Social, Technological, Environmental, and Legal) analysis and SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis can be instrumental in this process.

Considering both positive and pessimistic outcomes is crucial. For instance, what would be the impact of a new technological breakthrough on your business? Or how would your industry cope with a sudden economic downturn? These considerations help in creating a comprehensive range of scenarios.

Development of New Alternatives

Once the potential scenarios are identified, the next step is to develop strategies for each. This is where creativity and innovation play a vital role. It's about asking, "What if?" and "How can we prepare?" For example, if one scenario involves a technological shift in your industry, how might your organization adapt? What new products or services could you develop? Looking at successful companies that have navigated similar changes can offer valuable insights.

Developing these strategies often involves a cross-functional team bringing diverse perspectives and expertise. This collaboration ensures that the strategies are robust and consider various aspects of the business.

Assessment of the Impact of Each Scenario

Each identified scenario and its corresponding strategy need to be evaluated for potential costs, benefits, and risks. This assessment is not just a financial exercise but also includes considering the impact on brand reputation, market position, customer relationships, and employee morale.

Tools like risk matrices and cost-benefit analysis can be employed here. For instance, a high-risk, high-reward scenario might be appealing, but the organization must decide if it's prepared to handle the potential fallout if things don't go as planned.

Selection of the Most Appropriate Scenario

After assessing each scenario, the next step is to select the most appropriate ones to focus on. This doesn’t mean choosing the most likely scenario but rather selecting those scenarios that offer a balanced view of the future, including both challenges and opportunities. The selected scenarios should be those that the organization can prepare for realistically, considering its current resources and capabilities.

The selection process involves a delicate balance. It's about being realistic in terms of what the organization can handle while also being ambitious enough to push for growth and adaptation. It’s about preparing for the worst while hoping for the best.

Development of a Strategic Plan for Each Scenario

For each selected scenario, a strategic plan needs to be developed. These plans outline the specific actions the organization will take if a particular scenario unfolds. It's important that these plans are flexible and adaptable, as the situation might evolve differently than expected.

The strategic plan should include clear objectives, designated responsibilities, resource allocation, and timelines. It should also have built-in mechanisms for monitoring and feedback, allowing the organization to respond quickly to changes and update the plan as necessary.

Implementing Scenario Planning in Your Business

Implementing scenario planning in a business requires a structured approach:

Initiation: Start by defining the scope and objectives of the scenario planning exercise. Engage key stakeholders and ensure there is buy-in from top management.

Research and Analysis: Gather data and insights from a variety of sources to understand the external and internal factors that could impact the future of the business.

Workshop and Brainstorming: Conduct workshops with cross-functional teams to brainstorm potential scenarios and develop strategies. Encourage creative thinking and open discussions.

Development of Scenarios and Strategies: Refine the scenarios and develop detailed strategies for each, including contingency plans.

Integration into Strategic Planning: Incorporate the developed scenarios into the broader strategic planning process of the organization. Ensure that the scenario plans are aligned with the overall business objectives and strategies.

Review and Update: Regularly review and update the scenarios and plans. The business environment is constantly changing, and the scenarios should reflect these changes.

Challenges and Pitfalls

Overcomplexity: Avoid making the process too complex or theoretical. Keep it practical and relevant to the business.

Bias and Assumptions: Be aware of cognitive biases and challenge assumptions. Encourage diverse perspectives to avoid groupthink.

Inadequate Follow-up: Ensure that scenario planning is not just a one-time exercise but an ongoing process integrated into the business strategy.

Case Studies and Real-World Examples

To illustrate the power and practicality of scenario planning, let’s examine some real-world examples:

Technology Industry Case Study: Consider a leading tech company that used scenario planning to anticipate the impact of emerging technologies. By envisioning various scenarios, including rapid advancements in AI and shifts in consumer privacy concerns, the company was able to develop strategies that capitalized on these changes, leading to the creation of new product lines and a stronger market position.

Retail Sector Example: A major retail chain utilized scenario planning to prepare for different economic conditions. One scenario involved a prolonged economic downturn, prompting the company to develop a strategy focusing on cost-efficiency and value-based products. Another scenario envisioned an economic boom, where the focus shifted to expanding premium product lines and store locations.

These examples demonstrate how businesses in different industries can use scenario planning to navigate uncertainties and emerge stronger.

The Future of Scenario Planning

As we look to the future, scenario planning is poised to become even more critical and sophisticated:

Emerging Trends: We are witnessing a growing integration of scenario planning with advanced analytics and big data. This combination allows for more nuanced and data-driven scenario development.

Impact of Technology: Technologies like AI and machine learning are enhancing the ability to process large datasets and identify trends and patterns that might inform future scenarios.

Predictions for Evolution: The future of scenario planning will likely involve more real-time scenario adjustments, as continuous data feeds provide up-to-the-minute insights, allowing businesses to be more agile in their strategic responses.

Key Takeaways

Scenario planning is not just a tool for large corporations; it’s a strategic necessity for businesses of all sizes in navigating the complexities of the modern business environment. By embracing scenario planning, businesses can prepare for multiple futures, making them more resilient and adaptable. As we have explored, the process involves identifying potential scenarios, developing strategies, assessing impacts, selecting appropriate scenarios, and integrating these into a strategic plan.

As you embark on your scenario planning journey, remember that the goal is not to predict the future but to be prepared for it. In a world where change is the only constant, scenario planning is your compass, guiding your business through uncharted territories to a successful and sustainable future.

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Bob Stanke is a marketing technology professional with over 20 years of experience designing, developing, and delivering effective growth marketing strategies.

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All you need to know about scenario planning

business scenario planning examples

It’s not hard to think of a million reasons why predicting the future would be useful.

Will you get that promotion? Is this new restaurant worth your time? Should you bring a jacket? Will a global pandemic completely change the way we live?

We can’t offer you a crystal ball that will give you all of the answers. But we can tell you about a handy little process that gets you closer to predicting and planning for the future.

Scenario planning.

Scenario planning helps you and your team think through everything that influences your project or business. Then, you’ll look for strategies and action plans that make the most sense in any given scenario.

Plus, you can figure out the early warning signs for any big change. You can make changes faster, giving your business a competitive advantage.

Scenario planning takes some time and effort, but this guide is here to walk you through every step. And along the way, we’ll give you the inside scoop on how monday.com — that’s us — can make your scenario planning efforts so much easier.

What is scenario planning?

Essentially, it’s sort of like researched storytelling. You come up with some “what if” scenarios and follow them to their logical end to understand their impact on your business. Then, you’ll create an action plan for a few possible outcomes.

These action plans are kept on file so teams and businesses can shift at the first sign that one of the different scenarios may be playing out.

It’s a good idea to track these possible strategies in a project management software or another tool — where tasks and project objectives can be easily updated as the future unfolds.

monday.com gantt chart template

Scenario planning can take place at any level of an organization, from a specific long-term project to strategic planning for the business as a whole.

For instance, 51% of organizations are planning to take action in the next 12 months on emerging technologies that will have a business impact.

Scenario planning helps stakeholders at these organizations understand what technologies might pose the biggest threat or challenge to them, and plan ahead to address those challenges.

Project managers might use scenario planning to try to avoid losing an average of 37% of their budgets due to failures. They can identify uncertainties — such as resource availability due to the COVID-19 pandemic, the success or failure of other business initiatives, and approval from key stakeholders.

And it’s not just for predicting worst-case scenarios — it’s just as useful for making a plan for a positive impact on your business too.

Thinking through possible futures like this means you’ll be able to react more quickly to changing circumstances. You’ll mitigate risk, protect your business, and be primed for catching good opportunities at the right time.

8 steps in the scenario planning process

If you’re feeling a little overwhelmed at the thought of trying to predict even part of the future, never fear.

We’re here to walk you through a scenario planning exercise step-by-step.

These steps are the most logical way to get from total uncertainty about the future to anticipating a few specific scenarios.

At the end, you’ll have a few different scenarios and action plans for possible futures. Plus, you’ll get insight into which strategies will likely have a positive impact regardless of the uncertain future.

1. Identify the key issue or question

Figure out what question is at the core of your uncertainty.

For example, 49% of executives plan to make big investments in technology over the next few years. A scenario planning exercise in this area could ask “What technology will be most important in 5 years?”

2. Brainstorm business factors that could affect the key issue

List out everything that could potentially impact your question, from the mundane to the wild. This could include customer expectations, new competitors, supply chain changes, and more.

3. Outline external forces that will impact the issue

Next, look at non-business factors using a PEST analysis. Consider political, economic, social, and technological forces and how they would affect how your team moves forward.

image showing the 4 factors in PEST analysis

( Image Source )

4. Create your list of critical uncertainties

Look at all the factors you’ve listed and determine which ones will have the biggest impact on your business and have the most uncertainty around them.

You’ll likely end up with a few clusters of closely related items that will determine what course of action you take.

5. Narrow down the possible futures

You can’t create an action plan for every potential outcome, so narrow your multiple scenarios down to between 2 and 5 that will give you the most valuable insight into the future.

One way to do this is by creating a scenario matrix with your top 2 uncertainties making up each axis.

6. Tell the full story of each chosen scenario

Take each scenario to its logical end.

If a critical uncertainty goes in one direction, what will you do next? How will that change other parts of the business or project? Keep asking these questions until you have a complete plan that gets you to your end goal.

You can even use project planning as a way to create visualizations of potential futures and your related actions.

monday.com product roadmap template

7. Look for options that make sense in every potential scenario

As you review your completed scenarios, identify the strategies that show up in most or all of them. These are solid options for your next actions and are considered reliable predictions of the future.

8. Define your early indicators

At some point, you may need to diverge from your common strategies and start reacting to a single scenario.

By recognizing the early signs that you’re following a single outlined scenario, you’ll be able to pivot quickly to mitigate the impact on your business.

Thinking through the future in this much detail allows for the organizational agility that 35% of executives say is critical for achieving future success.

And creating a dashboard — like this one — for your project or business KPIs can help you catch those early indicators as soon as they happen, making you even more responsive to new factors.

monday.com project management dashboard

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3 common project pitfalls to look out for.

When you’re conducting a scenario analysis on a project level, there are some key factors you’ll likely want to pay extra attention to.

The 3 pitfalls below are common struggles for most projects, so you’ll want to include them in any scenario planning you do.

Alternatively, you can use scenario planning to reduce some of the uncertainty around these problems.

  • Poorly defined project scope or goals: 37% of projects fail due to a shift in business priorities, and 33% fail due to a change in the project objective. Avoid this by clearly setting your project KPIs early and sharing them with everyone involved.

If you think outside factors might affect your scope, try some scenario planning to give you a direction to take regardless of what your organization decides.

  • Unclear roles and responsibilities: poor project planning often leads to uncertainty about who will do what in a project — and it leads to failure in 31% of projects. If your scope is unclear, your roles probably will be too.

Use project management software — or better yet, a complete Work OS like monday.com — to keep track of who’s doing what and make sure nothing falls through the cracks.

  • Inadequate resources: this is one of the most common and frustrating project pitfalls, but scenario planning can help.

Analyze different scenarios based on what you can get done with a certain level of resources, and set clear and realistic timelines and expectations based on those scenarios. If your resource availability changes, you’ll be ready to shift right away.

monday.com has this handy view for seeing just how much bandwidth your team has. Worth considering.

monday.com resource capacity view

monday.com helps you anticipate and track your future

monday.com is a Work OS that helps teams build the tools they need to be successful.

monday.com operates as a single source of truth for everyone in your organization, so everyone can access your action plan for these alternative futures.

You can share files, collaborate within the platform, and integrate with other tools like Dropbox or Slack, so you’ll truly only need to sign in to monday.com.

You can even set automations to make sure that everyone always knows what they’re responsible for. And if something changes, your automations — and the flexible project planning tools — can help you shift direction almost immediately.

monday.com automations menu

Scenario planning offers strategies for an uncertain future

Scenario planning can be complex. It requires a lot of information and collaboration to do it well.

monday.com keeps all your scenario planning in one place. It streamlines your workflow and makes it easier to change course when the unpredictable future finally becomes clear.

Try out monday.com today and see just how far you can go in seeing the future.

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Overcoming obstacles to effective scenario planning

When scenario planning has worked well, it has proved enormously useful to a wide range of organizations as a tool for making decisions under uncertainty. First popularized by Shell in the early 1970s, the approach should be a natural complement to other ways of developing strategy—especially when executives are as concerned about geopolitical dynamics as many are today. It would probably be more widely used if it hadn’t been such a disappointment to many executives. In fact, 40 percent of those we surveyed in 2013 described it as having little effectiveness.

That scenario planning often underdelivers, in our observation, can be a simple matter of insufficient experience. Companies that infrequently use the approach lack the organizational muscle memory to do it right. Managers who are familiar with it assume they can just delegate it to subordinates. Those who are new to it can get caught up in the details, focusing on the assumptions behind sensitivity analyses, for example, without stopping to think about whether the uncertainties they’re testing are the most important ones. Furthermore, in our experience, scenario planning can be hampered by the same deep-seated cognitive biases that it should be used to address, such as anchoring, neglecting low-probability events, or overconfidence.

Fortunately, an understanding of how such biases undermine scenario planning can mitigate their impact on decision making generally, and improve the effectiveness of scenario planning itself. Management writers, including our McKinsey colleagues, have spilled oceans of ink writing about scenario planning. 1 1. Charles Roxburgh, “ The use and abuse of scenarios ,” November 2009. In this article, we hope to provide a practical cheat sheet that helps managers become more aware of, and learn how to address, the most common biases that afflict the approach (exhibit).

Counter the tendency to make decisions based on what you already know: Availability bias

Scenario planning begins with intelligence gathering to understand and define a strategic problem. A planning team identifies emerging trends and potential disruptions that may affect the business. The output is typically a long list of trends, along with a high-level assessment of each trend’s potential impact.

At this point, the process is most susceptible to the tendency people have to base decisions on information readily accessible in the decision maker’s mind—an availability bias. For example, it’s easy to fall into the trap of focusing on trends within your own industry or geography or on only part of a problem, perhaps because that’s where information is most easily gathered. All this leads to blind spots.

When scenario planners make an effort to understand the confluence of technological, economic, demographic, and cultural trends within and beyond their own countries, they’re more likely to generate valuable counterintuitive ideas. For example, when a North American equipment manufacturer conducted a scenario-planning exercise about the growing importance of China, it began by focusing on the opportunity to sell equipment there. The assumption was that Chinese producers would buy the equipment to build products for their own local end customers—and that the company would need to make major investments to meet the Chinese producers’ needs.

But when scenario planners looked closer, they realized there was another way for the company to participate in the growth of this market: it could sell equipment to buyers elsewhere, who were also targeting end customers in China. Given the buying power of Chinese producers, local regulatory issues, and the strong position of other global players, scenario analysis suggested that the company would be better off doubling down on equipment sales to non-Chinese companies that were rapidly penetrating this market.

Beware giving too much weight to unlikely events: Probability neglect

As scenario planning progresses, attention turns to the unknowns. The company evaluates and prioritizes emerging trends by their potential impact and their degree of uncertainty and then builds scenarios around the handful of residual uncertainties that typically emerge from the process.

The challenge here is that attempts to quantify what is intrinsically uncertain often lead to overscrutiny and analysis paralysis. Low-probability events can also easily be dismissed as outliers or overemphasized, creating a false sense of precision. Assigning low-probability events excessive weight, or completely ignoring them, is a phenomenon called probability neglect.

In scenario planning, it’s critical to avoid the temptation to rush to model trends and uncertainties before assessing them qualitatively to set them in perspective and generate intuitions about how trends may collide and interact. This assessment should embrace several realities: some elements of the future are so uncertain they can’t be quantified with any precision; simply evaluating the uncertainties’ relative materiality to the business is valuable; and there are different levels of uncertainty, as our colleagues explained in a previous McKinsey Quarterly article. 2 2. Hugh G. Courtney, Jane Kirkland, and S. Patrick Viguerie, “ Strategy under uncertainty ,” McKinsey Quarterly , June 2000.

Following the financial crisis of 2008, it was common to say that everything was so unpredictable that planning was meaningless. Nonetheless, a telecommunications company used scenario planning to reduce the uncertainty to a manageable set of plausible scenarios. The starting point for reducing uncertainty was looking for ways to get beyond the fact that the company had no idea what GDP growth would be over the next few years. That was true, but when planners started looking carefully at different products and services in the portfolio, they realized that offerings at different stages of the life cycle had different levels of dependency on the macroeconomic environment. The company’s diverse range of products and services included some that probably wouldn’t have a bleak sales outlook even in severe downturns. These qualitative assessments helped the company to model the likely evolution of its markets more intelligently. That helped managers to bound the uncertainty, to create a set of leading indicators (beyond GDP) for each business to monitor, and to make the subsequent strategic dialogue far more tangible, with far less fear.

Counter assumptions that the future will look just like the past: Stability bias

As managers build scenarios, the implications for each uncertainty are extrapolated into the future to project different outcomes, and the combination of those outcomes becomes the basis for scenarios. The challenge, when managers anticipate the future, is to overcome a natural tendency to assume that it will look a lot like the past.

Properly executed, scenario planning prompts participants to convert abstract hypotheses about uncertainties into narratives about tangible realities. It can thus help decision makers to experience new realities in ways that are both intellectual and sensory, as well as both rational and emotional. Good narratives, as Chip and Dan Heath have argued, not only help us perceive alternative futures but also inspire us to act in response to them. 3 3. Lenny T. Mendonca and Matt Miller, “Crafting a message that sticks: An interview with Chip Heath,” McKinsey Quarterly , 2007 Number 4.

This experiential aspect is essential, and it’s here that a critical mistake often occurs: decision makers outsource the creation of scenarios to junior team members or external vendors and reengage only in the final stages. This is problematic, in our experience, because when senior leaders aren’t part of the process of developing scenarios, they are less likely to make sense of or act on them. Their natural bias toward stability is therefore more likely to hold sway. Case in point: a team in one North American manufacturer presented demand scenarios for the next decade to senior executives many times, but to no effect. Not until those executives debated, stress tested, and experienced the scenarios for themselves, in exercises such as writing a story framed as a retrospective written in the future, a so-called premortem 4 4. In a premortem, you pretend to be writing at some point in the future to explain the failure of a course of action that’s contemplated in the here and now. The idea is to get some idea of the problems before those actions are implemented. —did they commit themselves to strategic action and apply the insights of the scenarios to set new directions.

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Combat overconfidence and excessive optimism.

Once scenarios are defined, decision makers turn their attention to identifying the risks and opportunities that each scenario represents and compare them with those of the current business plan. At this point in the process, they will develop a new portfolio of potential strategic actions and contingency plans—as well as a clear understanding of the organizational, operational, and financial requirements of each.

Countless business initiatives fail because executives underestimate uncertainty and the chances of failure—and instead move directly to action. Many organizations reinforce this kind of behavior by rewarding managers who speak confidently about their plans more generously than managers who point out how things might go wrong. 5 5. Dan Lovallo and Olivier Sibony, “ The case for behavioral strategy ,” McKinsey Quarterly , March 2010. Overoptimism and overconfidence lead to projects that run over budget or time, to mergers and acquisitions that fall short of estimated cost and revenue synergies, and to business plans with unreasonable growth expectations.

Overoptimism and overconfidence can be countered by scenario planning but can also infect it. To stay on the right track, managers should avoid the temptation to choose the scenarios they deem most likely and to focus planning efforts solely on them. A good reality check is whether your scenario planning forces executives to consider unpalatable though plausible scenarios.

In the early 2010s, for instance, one energy company sought to assess the implications of oil and gas prices in North America for the company’s portfolio of projects and investments. Of the pricing scenarios that managers created, one significantly challenged the attractiveness of several major business initiatives. The intense debate that ensued highlighted a number of important issues and turned out to be a dress rehearsal for challenges the company and the industry would face in the coming years. Evaluating the portfolio against all scenarios, good and bad, also made it clear that some initiatives would yield returns only in the most optimistic case. The company decided to put them on hold.

Initiatives were further evaluated by two other criteria. The first was their “optionality”: how easy they would be to scale up or down. The second was the flexibility of the timelines—influenced, for example, by how much equity the company held in each initiative. The resulting portfolio contained no-regrets moves (projects or investments financially sound under all scenarios), real options (which required lower up-front investments but could be scaled up when the time was right), and big bets (demanding a large up-front investment to reserve the company’s right to play in the space in the future). Such a portfolio avoids favoring what seems to be the most likely scenario, while allowing the organization to place (or opt out of) calculated choices, depending on how the market evolves.

Encourage free and open debate: Social biases

In an interview with  McKinsey Quarterly in 2010, Daniel Kahneman, winner of the Nobel Prize for his work in behavioral economics, said, “I’m really not optimistic [that individuals can debias themselves]. . . . If we could elevate the gossip about decision making by introducing terms such as ‘anchoring,’ from the study of errors, into the language of organizations, people could talk about other people’s mistakes in a more refined way.” 6 6. “ Strategic decisions: When can you trust your gut? ,” McKinsey Quarterly , March 2010. Kahneman’s intuition matches our strategy-development experience, which is why we emphasize making scenario planning part of a company’s modus operandi rather than a one-off exercise. In fact, without institutional support, the biases described previously can be reinforced and amplified by the social biases of groupthink and “sunflower management” (the tendency for groups to align with the views of their leaders). Embedding an awareness of uncertainty, scenarios, and biases gives people the language and the license to keep one another in check.

A sustained ability to manage through trends and scenarios can also confer competitive advantage. IBM, for example, has been developing its annual Global Technology Outlook report for more than 30 years. Consistently refreshing this perspective has enhanced IBM’s technological foresight and is, the company argues, an important enabler of “sound decisions and investments in future technology directions.” 7 7. Global Technology Outlook , IBM Research, 2008, ibm.com.

To embed scenario thinking, organizations must institutionalize new mental habits and ways of working. This, our colleagues have argued, means that leaders must simultaneously instill a conviction that change is needed throughout the organization, role model the desired new behavior, reinforce processes and systems to counter bias, and ensure that the company acquires or builds the skills needed to support the new approach. 8 8. Emily Lawson and Colin Price, “ The psychology of change management ,” McKinsey Quarterly , June 2003. To help the organization make better decisions under uncertainty, top managers should freely acknowledge their susceptibility to bias and create an open environment that welcomes dissent. At the same time, they must challenge themselves and their people to embrace new habits of thought—such as thinking the unthinkable—when the company undertakes scenario planning.

Drew Erdmann is a principal in McKinsey’s Washington, DC, office, where Luk Yeung is a specialist; Bernardo Sichel is a principal in the Lima office.

The authors wish to thank Manuel Prieto for his contributions to this article.

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HBR IdeaCast podcast series

Future-Proofing Your Strategy with Scenario Planning

A conversation with consultant Peter Scoblic on scenario planning lessons from the U.S. Coast Guard.

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Peter Scoblic, cofounder and principal of the consultancy Event Horizon Strategies, says that too many companies are short-sighted in their strategy-making and don’t effectively plan for different potential futures. Using examples from the U.S. Coast Guard, he explains how thoughtful and ongoing scenario planning exercises can help organizations decide which investments will allow them to thrive in varying circumstances and navigate many types of crisis. Scoblic is the author of the HBR article “ Learning from the Future .”

ALISON BEARD:  Welcome to the HBR IdeaCast from Harvard Business Review.  I’m Alison Beard.

We live in volatile, uncertain, complexed and ambiguous times.  VUCA is the acronym we’ve all used to use and it’s a really tough environment in which to make business decisions.

Technology is advancing rapidly, geopolitics are unstable, and we’re so interconnected that it’s truly impossible to predict the future.  Sometimes world changing events like 911, the global financial crisis, or a world spanning pandemic take us by complete surprise.

So, how do we plan and prepare anyway?  How do we make sure we’re ready for the next emergency? Today’s guest says that leaders and organizations need to develop strategic foresight and that involves inclusive, in depth and ongoing scenario planning.

Peter Scoblic is cofounder and principal of the consultancy of Event Horizon Strategies, and a senior fellow at the International Security Program at New America.  He wrote the HBR article, “Learning from the Future: How to Make Robust Strategy in Times of Deep Uncertainty”.

Peter, thanks so much for joining us today.

PETER SCOBLIC:  Thank you so much for having me.

ALISON BEARD:  So, scenario planning has been around for quite some time.  What’s different about how organizations should be using it now?

PETER SCOBLIC:  Well, I think that the difference between the way that organizations often use it and the way that it should be used is that it’s sometimes seen as a one-off exercise, at moments of perhaps extreme crisis or in moments where leadership is trying to determine a particular strategy going forward.  Sometimes it’s the kind of thing that you tack onto the end of a corporate retreat.

The way that I think scenario planning ought to be used and strategic foresight ought to be used more generally is in an iterative fashion.  A constant cycle between imagining the future and acting in the present.  So that you reduce the potential for surprise and you increase your ability to sense, shape and adapt to the future as it emerges.

One of the conclusions that I’ve come to in my research is that imagination is a woefully undervalued strategic resource.  And that what organizations can benefit from tremendously is the institutionalization of imagination.

ALISON BEARD:  I think time becomes the issue though, right?  Because we are in this fast-moving world and leaders, organizations, teams are trying to adapt to it, to respond to what’s happening now on the ground.  And so, it’s really hard to shift to that long-term focus all the time.  How do you work with companies to do it?

PETER SCOBLIC:  The short-term is a constant demand.  We’re all subject to the tyranny of the present – whether it’s coming in the form of countless emails in the inbox, or the need for quarterly earnings reports, or the stresses of putting out the various sub crisis that have emerged from the pandemic.

There are no futurists in foxholes.  When there’s incoming fire it’s all that you can think about.  But I think that leaders and managers tend to overestimate the amount of time and resources that it takes to incorporate thinking about the future and iterating on visions of the future into their planning.

One of the in-depth case studies that I’ve done was of the U.S. Coast Guard.  And one of the things that amazed me was actually how few resources they dedicated to their strategic foresight program, to their scenario planning exercises, and yet it was able to have an outsized impact on Coast Guard strategy and a positive one, I think.

Often when you talk to foresight experts you’ll hear them say, we really need to change the culture of organizations so that they’re focused on the future.  And that is a really heavy lift.  That’s an almost impossible thing to do.  What the Coast Guard showed me was that you could do foresight in what I call a scrappy fashion.

ALISON BEARD:  So, what exactly did the Coast Guard do?

PETER SCOBLIC:  So, in 1998, Admiral James Loy, who was then the Commandant, the top officer in the Coast Guard, recognized that the organization was not adequately prepared for the changes it was likely to face in its operating environment.  And the Coast Guard had traditionally been a very, very reactive, short -erm focused organization.  They liked to say that they are constantly deployed, conducting search and rescues operations, drug interdictions, maritime safety operations, what have you.  And he saw this as having taken over the organization to the point where there was no sense of strategy.

So, he decided to hold a scenario planning exercise.  And he established a small strategic planning shop that reported directly to him, gave them a few hundred thousand dollars a year, which they used to bring in an outside consulting firm, and they held a scenario planning exercise called Project Longview.  Which envisioned a range of alternative far futures that they then sort of back stepped from to develop a set of robust strategies. And the effort was so successful in the ways that it helped the organization to adapt after the 9/11 attacks, that the Coast Guard then institutionalized the process, made it regular.

ALISON BEARD:  And so that’s obviously a military organization.  But you think that the lessons learned are applicable to the private sector as well?

PETER SCOBLIC:  Absolutely.  I think that if anything, the fact that a small military organization like the Coast Guard could pull this off so well, suggests that organizations that are both larger and that have more flexibility can do so far more easily.  It’s important to remember that as a military organization, the Coast Guard is very hierarchical.  It is subject to the budget dictated by Congress.  There are a lot of constraints that the Coast Guard is operating under.  For firms and for other organizations that have somewhat fewer constraints, there’s a lot more flexibility.

ALISON BEARD:  So, if I’m the leader of an organization, what would be the first few steps that I would take to get this going?

PETER SCOBLIC:  The first few steps I would take would be to, you know, socialize the idea among maybe the immediate top leadership.  But to the extent that you have the authority to put into place a strategic foresight process, I would set up a small office dedicated to that purpose that reports directly to you.  And then, to the extent that you need to engage outside resources, including consulting firms that specialize in this sort of thinking.  Have them work both with your strategic planning team and then a core team of individuals from throughout the organization to paint a broad picture of the trends that are likely to affect the organization in the coming years and even decades. And the potential uncertainties that it faces, and how those things could combine to create a range of possible futures.

And then, through that process, paint a picture of the futures the organization might encounter and involve the rest of the leadership in the organization in creating a set of what I would call robust strategies.  Strategies that would serve the company well, or the organization well, no matter which one of the futures that you outlined came to pass.

ALISON BEARD:  So, I want to pick apart that process a little bit.  You talk about imagination.  How do you find people who are going to be able to think out of the box and imagine those future scenarios that maybe they’ve never seen in their own experience?

PETER SCOBLIC:  It’s funny.  I feel like imagination is both the most difficult hurdle to get over and also the maybe most overestimated hurdle, or the hurdle whose height is most overestimated.  When I talked about the Coast Guard example, the people that were chosen to lead this project were not necessarily people who had been identified specifically for their strategic prowess.  Most of them were operators.  They were pilots, or ship drivers.

At the same time, it is absolutely a challenge to take people who are more analytical in their day to day work and ask them to envision a far future that in some ways is going to seem so divorced from our own, as to be silly.  But there are ways to engage the imagination.  Simply asking a group of executives to envision that they are a competing organization – a firm in their competitive space that they face every day, can radically expand their perception of reality and of what is possible, and what the competitive space actually looks like and what their own company’s competitive advantage is.

ALISON BEARD:  And are you pulling in people from all levels of the organization?

PETER SCOBLIC:  I think it’s important to pull in people from both all levels of the organization and from different functions within the organization.  This is a case where diversity absolutely matters, in all senses of the word.  Because what you want to do is as you say, get people to think outside of the box.  It’s very difficult to do that if you don’t recognize the box that you’re in.  It’s far easier to do if you have to interact, if you’re an engineer who has to then interact with designers, or you’re an accountant who has to operate with someone who is in the field in a different way.  Simply interacting with colleagues that you might not encounter on a day to day basis can broaden your mind significantly.

ALISON BEARD:  And so then after this initial brainstorming you settle on several future scenarios that you want to explore further?

PETER SCOBLIC:  That’s right.

ALISON BEARD:  And how do you narrow in on which ones you should choose?

PETER SCOBLIC:  I think what you want to do is articulate the set of futures that best captures the potential environments you might be facing while still remaining plausible.  So, you want futures that are distinctive of each other, that are plausible and that therefore together represent as much as you can of the possible future.  It’s impossible to imagine everything that might occur, but you want to capture as wide a swath of it as you can.

So, for example, when the Coast Guard ran Project Longview, they identified four forces for change that they thought would significantly impact the future.  So, they looked at the role of the Federal Government, whether it was sort of narrow, or whether it was expansive.  They considered the strength of the U.S. economy.  Would it be strong or would it be weak?  Would the threats to U.S. society be wide ranging or would they be fairly narrow?  And then being the Coast Guard they asked themselves about the potential demand for maritime services.

So, they sort of looked at these four dimensions and if you took the extreme values for each of them, you could generate 16 possible worlds.  And then they looked at those potential combinations and said OK, so here are five that we think are distinct from each other and they’re a little bit out there, but they’re still plausible.  These could happen.

So, they described a world called “Taking on Water.”  And that was a future in which the U.S. economy was struggling and there was significant environmental damage.  They had a somewhat ironically titled future “Pax Americana” in which the United States had been humbled by its efforts to intervene in the world.  And instead, it was confronting a world filled with political instability and economic unrest, but it was doing so from a position of relative weakness.  They had one called “Planet Enterprise” in which transnational corporations had really become the dominate actors internationally.

And so, you can see how the fundamental things that were sort of the most conspicuous characteristics of each of these future worlds were very different.  And the question was, OK, if we’re the Coast Guard and that is the future that we’re going to have to be operating in, what would we need today to best set us up for that world, for that future?

ALISON BEARD:  So you see how all these different scenarios play out for your own organization and then where do you take it from there to make sure that it’s actually changing what you’re doing currently?

PETER SCOBLIC:  So, this is no small challenge.  It is one thing to identify strategies that make sense in the face of these futures. It can be a much, much different thing to actually implement those strategies. The idea being that the futures that you can create, put some guardrails around uncertainty.  I t’s neither true nor useful to say that absolutely anything can happen.  But let’s paint a picture of the things that could happen and identify strategies that would serve us well no matter which one of those things happened.

The Coast Guard for example came up with this set of 10 strategies that all made tremendous sense to them.  The Coast Guard had traditionally been siloed into roughly two halves.  There was a side that handled maritime issues, more sort of safety, environmental regulation and then there was the more operational side that people who flew helicopters and conducted operations and so on an so forth.

Those two halves of the Coast Guard didn’t really talk to each other particularly well.  And what they realized was that in no future did it really make sense for the Coast Guard to be divided in that way.  That going forward, the missions that they were likely to face was likely to involve both halves of the organization.  But tearing down siloes within an organization is not an easy thing to do.  That’s a massive restructuring.

The Coast Guard began to experiment with it little by little, in certain ways, but it actually took the shock of 9/11 for them to recognize that the entire structure of the organization needed to be rethought.

ALISON BEARD:  But the idea is to get momentum for it before that crisis hits?

PETER SCOBLIC:  Absolutely.  Absolutely.  But one of the, one of the benefits of strategic foresight of, in this case, the scenario planning process, was that it not only articulates strategies that you want to act on in the present, but even in the event that you are not able to act on those strategies immediately for whatever reason, whether it’s a lack of resources, or a lack of consensus, it does provide a foundation so that if crisis hits you are able to respond more nimbly.

ALISON BEARD:  Are there any private sector organizations that you’ve seen do a really good job of this so far?

PETER SCOBLIC:  There are organizations that are beginning to.  The iconic organization that has scenario planning as a continual part of its strategy process is Shell.  Which really brought scenario planning into the corporate world back in the 1970s and in fact, one of its, one of its progenitors wrote two articles for Harvard Business Review in the 80s, detailing their process.  That process in an updated form continues to this day.  But there aren’t a tremendous number of organizations that have successfully institutionalized it.

ALISON BEARD:  Because we have been hit by this surprise pandemic, which some people did predict, but no one really prepared for, I’d love to just explore how a company might have engaged in strategic foresight and scenario planning to plan for this new reality we’re in now.

PETER SCOBLIC:  Yeah.  It is a bit, it’s difficult to call it a surprise as you suggest given the number of exercises in various forms that have been held over the decades about the possibility not only of a pandemic, but post 9/11 and the anthrax attacks of a bioterror attack.  It’s difficult to call it a surprise given that we have dealt with pandemics in just the past decade and the fact that the Obama administration left the Trump administration a playbook on how to handle this exact sort of thing.

I think companies in a range of sectors can think about potential disruptions that they might face and how they would effect operations.  That doesn’t mean that you have to anticipate the precise nature of the disruption.  Nobody precisely anticipated what this pandemic would look like even if they thought it could happen someday.  But that’s not the only sort of disruption there might be.  We can certainly envision terrorist attacks.  We can certainly envision natural disasters. It’s worth asking to what extent your firm or your organization can cope with disruptions of that kind.

Or, even if you’re not thinking about disruptions and you’re simply thinking about a range of futures, what do the trends suggest that your organization would want to be doing now, no matter which potential future emerged?  Whether that had a massive disruption in it or not.  I was reading the New York Times this morning which has a story about how the ubiquity of the fax machine in health insurance claim processing or just in the health industry general, has served as a bottleneck to both treating people during the pandemic, and gathering information.

And as I was reading that I thought to myself, if you are a healthcare organization, and five years ago, or 10 years ago, you had sat down and said OK, well what are the trends and the potential uncertainties that we face?  One of the trends you likely would have identified was an increasing trend towards digitization and an increasing amount of information as the patient base grew older and so on, as just as the population increased.  It strikes me that a strategic foresight exercise held in the healthcare industry would have identified as a robust strategy a desire to develop, or a need to develop a more streamlined digital way of processing information.  That would have been a robust strategy that would serve us well.  When Washington State has to call in the National Guard to do data entry because its systems are so antiquated it suggests that something’s gone wrong.

ALISON BEARD:  Do you see companies in some sectors doing a much better job of this than others?  Like our tech companies much more creative about thinking about the future than say old school industrial companies.

PETER SCOBLIC:  I think that tech companies are more creative in thinking about the future in the sense that they have a much greater sense of agency.  They believe that they can shape the future. And of course, like we, companies can shape the future to some extent, but there’s also a tremendous amount that lies outside of our control.  And so, not only do you need to be able to shape the future, you need to be able to adapt to it as it emerges and you need to be able to sense it as it begins to emerge in the present.  A number of tech companies are very good at beginning to sense change and where things are headed and take advantage of that.  And a lot of older companies in more placid industries are less so.

I think one of the key management competencies of the future, if not the key competency, is going to be able, is going to have the flexibility to change your mental model of how the world works.  We all carry around in our heads these ideas of how the world works, maps of what reality looks like.  But in incredibly uncertain times, when the territory is shifting so fast, our minds have trouble keeping up.  And so, companies in industries that haven’t had a shake up in a long time tend to be less flexible.  And companies who, companies that are, who, for whom you know, change is part of what they are trying to drive, do tend to be a bit better.

ALISON BEARD:  Should leaders derive strategies solely from these kinds of exercises?  Because surely they also have to take a short term factors into account, even when we’re not in crisis mode?

PETER SCOBLIC:  Absolutely.  Strategic foresight is not meant to be the be all and end all of the way an organization behaves.  One of the key ideas in business scholarship is the notion of ambidexterity.  That organizations need to be able to act in the present and think in the future.  They need to be able to both sort of exploit their existing competencies and explore new ones.  So, you need to be able to learn how to make widgets better and more efficiently, at the same time you have to be able to think about well, what’s the next widget going to be that’s really going to drive my segment, that’s really going to matter to my organization?

What strategic foresight lets you do is link those two things.  The problem is that the short term and the long terms sort of require different ways of thinking.  They require different organizational structures.  They can require different allocations of resources.  The nice thing about strategic foresight is that it’s not simply about thinking about the far future and creating some kind of science fiction world that you can think of, hey how well would we do in that world?  It’s about linking the present and the future more tightly.  So that the thinking that you do, do about the long term actually improves your performance in the short term.  The two things are not in contradiction.  They’re actually complimentary.

ALISON BEARD:  Peter, thank you so much for joining us today.

PETER SCOBLIC:  It’s my pleasure.  Thank you for having me.

ALISON BEARD:  That’s Peter Scoblic, cofounder of Event Horizons Strategies and author of the article, “Learning from the Future: How to Make Robust Strategy in Time of Deep Uncertainty,” which you can find in the July/August 2020 issue of Harvard Business Review or at HBR.org.

This episode was produced by Mary Dooe.  We get technical help from Rob Eckhardt.  Adam Buchholz is our audio product manager.  Thanks for listening to the HBR IdeaCast .  I’m Alison Beard.

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Scenario planning in the business and hr paradigm: what you need to know.

What is the scenario planning process in business?

Table of contents

Types of scenario planning.

  • Scenario planning examples  
  • Alleviate scenario planning for HR  

Learn from the past to plan

  • Practice with scenario planning implementation  
  • Review your plan s regularly  
  • Stay present and active in scenario planning  

Onward to the future

Would you like to make a business plan for the next five years that’s based on data? Then take seven minutes to read about scenario planning.

Forecasts of possible changes, trends, and events are usually based on social, political, economic, environmental, and technological assumptions. But changes may well derail any basic assumptions and trends, leaving your employees reacting to change rather than leading it.

To understand what trends will strongly impact your organization and make effective decisions, you need to use scenario planning. In this post, you will discover scenario planning examples, techniques, and practices.

First, let’s go over the basics and figure out what scenario planning is.

What is scenario planning?

Scenario planning is a way of formulating strategic hypotheses about existing drivers and their uncertainties. The US military came up with the concept of scenario planning, and it’s been used in training to guide research efforts for more than 20 years.

Gradually, businesses started adopting scenario planning. After all, it allowed them to identify ranges of potential outcomes, estimate impacts, evaluate responses, and manage both positive and negative opportunities.

For the HR industry, scenario planning has also brought benefits, especially for workforce managers. They can not only perform workforce planning themselves but also make it an automated process .

Guide to scenario planning

Source: BSC Designer

Scenario planning allows leaders to respond quickly and decisively. When a situation has been thought out in advance and managers have documentation about what they should do in the given situations, no one has to scramble during a crisis.

Scenario planning also gives executives and HR managers a framework for more effective non-emergency decision-making, providing insights into plans, budgets, and forecasts while painting a clearer picture of key business growth drivers and the potential impact of future events. Here are four types of scenario planning you can use in your company:

  • Quantitative scenario planning is used for developing annual business forecasts. Quantitative models assume that you and your managers know the key variables and how they interact.
  • Operational scenario planning examines the immediate impact of an event and foresees short-term strategic consequences.
  • Normative scenario planning describes a desired or achievable end state. It’s less objective compared to other types of planning and more goal-oriented.
  • Strategic scenario planning is less about the company or industry and more about the environment in which products and services are consumed.

Scenario planning examples

There are many examples of scenario planning. We review those relevant to HR.

The main idea is to have a competency model for each scenario. Sometimes, the model will include changes in the work organization. For example, many companies prefer to be adaptive to their workforce and encourage internal mobility . Thus, they move from a job focus to a role focus.

This change in focus usually requires a different competency model, with more competencies and skills related to the ability to change roles or perform multiple roles. Here are four scenario planning examples that worked in talent management:

  • Getting ready for quick decisions . Shell used scenario planning in response to the 1973 oil shock. They had a plan in place that they could execute if the scenario came to pass. As a result, there was a rapid growth in downsizing the workforce .
  • Building resilience or adaptation and effectiveness . Another classic scenario planning move is to create a scenario-resilient organization . For example, healthcare, education, grocery, public works, transportation, and some manufacturing entities focused on protecting workers during COVID-19. They implemented precautions that physically isolated workers from each other and took measures such as health checks.
  • Shaping the future . A classic example of this scenario planning is the Mont Fleur scenario , developed in South Africa at the end of apartheid. Disparate groups of stakeholders, some violently (literally) opposed to one another, came together to find a way towards a better future and to avoid the worst outcomes.
  • Designing new workforce architectures . CMS used strategic planning to model the effect of business and workforce changes on service line profitability. By analyzing data, the company identified gaps based on future workforce demand and developed talent management measures to efficiently.

Optimize your scenario planning

Solve your mission-critical HR tasks, such as translating business objectives into workforce demand. Use the template for strategic scenario planning to manage all essential data in one place.

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How does scenario planning integrate with HR?

Scenario planning for HR and business allows managers to anticipate possible future outcomes and proactively develop strategies to address them.

“HR needs to use this business opportunity to show that these things matter.” – Carla Patton, PHR, director of HR at RAPP

Here are several scenario planning examples that can give a unique perspective to HR managers and contribute to successful scenario plans.

Alleviate scenario planning for HR

HR should participate in business and scenario planning meetings to understand the business’s challenges and how strategic talent management can help solve them.

Every plan for every business scenario depends on an efficient and prepared future workforce . Therefore, HR should take the lead in proactively developing a workforce strategy that can withstand any possible scenario. Because people connect all aspects of the business, HR is in a great position to bring key stakeholders together and help plan meeting scenarios.

We don’t know for sure what will happen in the next three to five years, but we can analyze past information to make predictions. HR managers should collaborate with other business leaders to develop scenario plans and review internal and external data to develop specific goals.

“As HR professionals, it’s critical to do this brainstorming to make sure we have the right staff, the right skills, and even the right training and resources to help us in the future.” – Robin Throckmorton, founder and president of the SPHR

Because HR touches every level of business operations, HR managers have access to company-wide data. Get past data from your HR processes to establish a baseline and gauge the success of past plans. For example, performance appraisal and pre-hire assessment data can help you identify gaps in your current workforce that could impact future scenarios.

Practice with scenario planning implementation

Organizations can prepare for contingencies through advanced training.

For example, in extreme economic instability and volatility, companies may hesitate to commit to large numbers of full-time workers and prefer to use contract workers. You can start preparing such infrastructure as gig economy by bringing employees, contractors, or temps into the same team or department.

Most scenarios also involve the increased use of automation and artificial intelligence technologies. As artificial intelligence and automation will become even more critical to work in the future, you can start building the infrastructure for them now. Try incorporating automation into different teams and roles within the company to identify the skills your workforce will need to work alongside this technology, allowing you to scale automation and AI seamlessly.

Review your plans regularly

Scenario plans typically last three to five years but should be reviewed annually by your management team. When the pandemic started, many companies didn’t expect it to last for so long and probably expected to go back to everyday life in one year. However, this assumption left them in limbo, unable to fully embrace remote or hybrid work in the long term.

The COVID-19 pandemic underscores the need for regular scenario planning. However, we should also emphasize that scenario planning isn’t only for bad days; it’s also critical when things are going well.

Business continuity planning for any scenario allows you to act quickly and decisively when the time comes.

Stay present and active in scenario planning

Integrating business scenario planning with HR helps business leaders become more aware of the business’s external forces. Developing and implementing scenario plans can help you better understand your business strategy and priorities.

Include scenario planning in your executive team’s regular meetings.

Make sure your HR team has everything needed to redefine what normal means for your company. And remember: They can only do so by anticipating the future. Therefore, scenario planning is critical to your business and to HR’s ability to steer your organization towards a brighter future.

HR faces many challenges, and there is no correct answer for everyone. Organizations should understand the factors that affect their industry and create scenarios that help them anticipate change, challenge assumptions, and avoid surprises. Here’s where a strategic workforce planning tool can help.

smartPlan is a powerful digital modeling app that enables you to design and plan the future of your workforce.

What is smartPlan for?

With smartPlan, you can identify and analyze future workforce risks. For example, Merk analyzed global labor market skills with smartPlan. As a result, the company translated business goals into a new way of working, addressed skills gaps, and created new workforce implementation plans. You also can take advantage of scenario planning tools in your company. Contact our team to find out how smartPlan can solve your HR challenges.

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  • Scenario Planning

What is Scenario Planning?

Scenario Planning is the Strategy branch that analyzes possible future global scenarios, based on different variables, so the company can prepare itself in case they become reality .

We do Scenario Planning every day on our personal lives:

  • What if this person goes to the party?
  • What if not?
  • What if this Job is not the best for me?

A good Business Scenario Planning should analyze at least 2 to 4 scenarios in detail so you can have a global picture about what could be about to come.

In this page, we’ll explain:

  • How you should develop this analysis.
  • What you should take into account.
  • Useful examples.

But, first of all, we want to clarify something:

Is this analysis Global, Local or Particular?

A good scenario planning, analyzes global trends, not just what may happen to the company you are analyzing.

This tool is meant to analyze global contexts, and what implications could they have in your particular market .

For a small company, this Scenario analysis seems something useless , since it analyses big international relations, important commerce decisions, etc.

However, these international events affect them in the same way they affect to big corporations .

  • For example : If USA decides to ban Huawey’s mobile phones in its market, a small Wisconsin distributor will suffer when he wanted to sell all the mobile phones he recently purchased.

Global events must always be taken into account, no matter the size of the company you are analyzing.

Why is Scenario Planning so important?

Lots of historically successful companies were ahead of their time , and the only way of guaranteeing this over the years is analyzing future scenarios.

You have to regard this analysis as a chance to place your company ahead of its competitors .

But… How should you develop these scenarios?

  • How could you analyze the global economy?

The key to success in Scenario Planning is choosing the proper variables .

Choosing the Variables defining your Environment

Your main goal is having a “Chart” that could define the Scenario alternatives you consider at a simple glance.

Like this one:

It is not easy to categorize an entire economy by using just 2 variables.

You should consider:

  • Descriptive Variables.
  • Generic terms.
  • Broad categorizations.

So, for example, we propose you these 2 variables:

  • Business Environment .
  • Trading relationships .

Now , you should establish their boundaries (or Limits):

  • The two directions these variables could take .

We propose you to consider:

  • No limitations; easy to start a business (direction 1).
  • Very limited and strict (direction 2).
  • Worldwide open trading relationships (direction 1).
  • Isolated, traditional, nationalistic economies (direction 2).

So you would have these potential scenarios:

Defining the scenarios

Once defined the variables, you should sit down and think about what the world (or at least the economy) would look like if your predictions take place .

Which 4 scenarios could we have with these Variables and Directions we have suggested?

As you can appreciate, some recent economical events (Brexit, and USA protectionist measures) are pushing our world towards the bottom quadrants .

Moreover, many people would agree that we live in a 2nd quadrant world:

  • With plenty of super-big companies monopolizing the market.

We don’t judge it. We just describe it.

The companies that contemplated this scenario some years ago are now much better prepared.

Of course, you could choose other different variables that could describe the global economy in a different way.

For example, other variables could be :

  • Environmental concerns.
  • Political instability .
  • Freedom of movement (across countries).
  • Internet access (it may decrease).

Warning signals

Once you have all your scenarios defined, you have to define the Warning signals.

A Warning is a set of events that may predict that a certain scenario is likely to take place .

These warnings are difficult to establish or interpret since, things, never take place as you (or anybody) expected .

We suggest , for this scenarios previously explained, the next Warning signals:

Again, you can appreciate how subjective and diverse these warnings can be .

Moreover, depending on the country you are, your company could be more or less affected by these scenarios.

It is not the same, owning a fast-food business on Chengdu (China) than an Import-Export company on New York.

  • The first one would be barely affected by international events and the second one would be the first one suffering from international increased tariffs.

Hence, the best you can do is having an extent checklist that is frequently checked .

How to develop a Strategic Plan based on Scenario Planning?

The scenarios you defined can be common to practically all the economic sectors, since they define the direction the whole world, and its economy is moving towards.

Now, you should develop a strategy for each one of these scenarios or at least, define and “emergency” plan .

You’ll never get to these scenarios in one day, so you’ll have time to adapt your strategy , but be careful:

  • The more prepared you are, the best outcome you’ll have .

We don’t want to be very theoretical with this concept, since there are infinite ways of predicting the future (based on current trends, of course) and even more alternatives to fail while doing it.

Now, we’ll give you some examples:

Scenario planning practical examples

Now, we’ll give you practical examples with the most common small business so you can appreciate how useful Scenario Planning can be for you.

For these examples, we’ll maintain both the 2 Variables and the 4 scenarios we showed you before :

e-Commerce - Scenario Planning example

Imagine you have an e-commerce business that buys and sells different products.

You then decide to develop a Scenario Planning so you can be prepared for whatever happens in the future.

Finally you establish the 4 scenarios previously described .

Where are you heading?

After a careful analysis, you find out that the whole world is moving towards :

  • More protectionist national economies.
  • Different countries are protecting their “national” production .
  • More boundaries .
  • Nationalist movements take place.
  • However, it will be very easy to start a business (through internet, for example).

What should you do in this scenario?

Since there is an increase in “national” feelings, you decide to :

  • Highlight, within your country, that the products you sell are produced or distributed by a national company .
  • You start to sell certain nationalist-ed products ; like objects with flag decorations, T-Shirts with your country’s color…

On the other hand, since not everybody is happy with the national-feeling increase, you also decide to :

  • Start a different brand, highlighting, precisely how international your products are .
  • Associate multicultural values to your products.

This strategy seems a bit controversial but check the main media companies :

  • They all have different TV channels, Newspapers and radio programs covering the entire political spectrum .

Blogging - Scenario Planning example

Now, you are a Blogger .

You have a successful Blog that is properly monetized by:

  • Placing Ads.
  • Selling e-books.
  • Assessing your users at certain topics.

Since you don’t want to lose your position, you then decide to develop a Scenario Planning analysis .

You then determine, according to the Warnings you established that the world is moving towards :

  • An open society , despite certain small nationalist movements.
  • A more diverse economy .
  • A blended international society .

You, then decide to :

  • Start focusing on Topics that may affect people from other countries rather than focusing just on yours.
  • Talk about how other cultures may see the Topics you used to write about .
  • Be a guest at a Podcast from other country .
  • Help your users to develop their Blogging activity worldwide .

As soon as you users perceive that you have interpreted properly the current world situation, they will start engaging much more with your content .

But be careful : you don’t have to agree or not to agree with your forecasts; you only have to decipher them properly and act consequently, that is all.

The last thing you want is seeing what you would like to see.

  • Leave the politics at your closet. Now, we’re talking about Business.

Programming - Scenario Planning example

Now, you are a programmer .

Lets say you are a php and CSS programmer.

You create customized WordPress themes for your clients from all around the world.

Again, since you are in a good position, you decide to develop a Scenario Planning so you can predict what may come in the future.

You check your Warning signals and you predict that the world is moving towards :

  • A much more regulated economy .
  • The Internet -based economy will be under threat .
  • Protecting all the data.
  • Some countries will be even blocked from Internet.
  • Overall World economy instability and distrust .

*Nowadays, lots of countries are increasingly worried about data protection.

With this horizon, you expect to :

  • Not be able to maintain your current workload in the future.
  • Data handling.
  • Tax increase.
  • Distrust from other countries’ companies.

Then, you decide to :

  • So you diversify your income sources .
  • You define a privacy policy that protects you and your customers.
  • Moreover, you ask for half of the payment in advance .
  • Looking for allies in other programming sectors , so you’ll have more chances of finding new trustable clients.

By doing this, as soon as the “problems” come, you’ll be much better prepared than your competitors.

  • You’ll have a new income source that won’t be affected by Internet turbulences.
  • You’ll have an improved pool of clients cherry-picked by their reliability.
  • By accepting crypto-currencies you may gain flexibility .

* This situation is similar to what happened to certain websites:

  • Suddenly, Google changed everything, prioritizing good contents, and only the websites that adopted Google requirements quickly remained at the Top of the Ranking.

Be always prepared.

Summarizing

Scenario Planning is a Strategy branch that focuses on the Global economy in order to find out what is about to come and what the world will look like.

By properly choosing 2 variables and defining their boundaries, you’ll be able to categorize any potential scenario.

Among the infinite valid variables you may find, we propose you :

  • How easy is to start a new business?
  • How the global market is regarding their national commercial relations.

One important thing you must never forget is not mixing politics with your Business : if you don’t like where the world is moving towards, keep calm and try to adapt you and your business to what is to come. Nothing else .

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What is Scenario Planning? Templates and Examples

Scenario planning (also known as scenario analysis) is a process of analyzing possible future events by considering alternative possible outcomes which is kind of projection that does not try to show one exact picture of the future. Instead, it presents several alternative future developments. Consequently, a scope of possible future outcomes is observable.

Scenario analysis is designed to allow improved decision-making by allowing deep consideration of outcomes and their implications. It enables professionals, and the public, to respond dynamically to an unknown future. It assists them with thinking, in advance, about the many ways the future may unfold and how they can be responsive, resilient, and effective, as the future becomes reality.

When to Use Scenario Planning?

Every business encounters risk at some point. Sometimes we might want to model different hypothetical situations that could impact your business. A scenario planning process begins by scanning the current reality, projected forecasts, and influential internal and external factors to produce a set of plausible potential futures which help us understand how various different situations will affect our business, for example:

  • What happens if we hire a new employee?
  • What if that invoice doesn’t get paid on time?

We can then develop a series of initiatives, projects, and policies (i.e., tactics) that may help support a preferred scenario, a component of a scenario, multiple scenarios, or all scenarios.

How to Perform Scenario Planning?

There are no standardized way for performing scenario planning. Here, we provide three most widely-used templates for the performing scenario planning:

Scenario Planning Template 1

business scenario planning examples

Edit this Template

Scenario Planning Template (Tree Layout)

business scenario planning examples

Scenario Planning Template (Flow-Based)

Scenario Planning Template (Flow Based)

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What is Scenario Planning and How to Use It

By Jeremie mariton - March 09, 2016

Are you looking for a way to prepare your business for the future? Scenario planning might be the answer. By exploring multiple potential future scenarios and preparing for them in advance, businesses can mitigate risk and stay ahead of the curve. In this article, we'll explain what scenario planning is, how it works, and how to use it effectively to ensure your organization is ready for whatever the future holds. Strategizing under uncertainty

How do you build a strategic plan for your company if you don’t have certainty about the future? That’s like laying the foundations of your house on a ground that might move or shift in the future.

Introduction

What is scenario planning?

How to use scenario planning?

P itfalls to avoid when scenario planning

scenario planning graphic

The reality is that every single decision in your organization is a choice under a degree of uncertainty; In practice what we end up doing is basing our choices on possible outcomes and best case predictions about where the future is going to go.

We all agree that decision-making should be based more on data and analysis than intuition and gut feelings.

But there are two problems here: First, data may be difficult to gather. Second, data tells you about the past but gives you absolutely no indication of the future.

So how do you get data that will help you predict what is going to happen?

Your organization possesses all the necessary historical data to initiate the creation of potential scenarios. However, you may not have sufficient time to map out and oversee a meeting of this magnitude. This meeting includes stakeholder engagement to obtain complete buy-in from all involved parties, as well as implementing the systematic approaches and behavioral habits your organization needs to prioritize the projects and tasks necessary to guarantee the success of your scenario planning session. Hiring a strategy consultant can help you manage this comprehensive session and provide support for its execution, without the need to recruit a strategy officer or conduct the meeting inefficiently on your own. This will enable you to make better choices in the short and long term.  

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Scenario planning is making assumptions on what the future is going to be and how your business environment will change overtime in light of that future.

More precisely, Scenario planning is identifying a specific set of uncertainties, different “realities” of what might happen in the future of your business.

It sounds simple, and possibly not worth the trouble or specific effort, however, building this set of assumptions is probably the best thing you can ever do to help guide your organization in the long term.

For example, Farmers use scenarios to predict whether the harvest will be good or bad, depending on the weather. It helps them forecast their sales and also their future investments.  

Military institutions use scenario planning in their operations to cope with any unlikely situations, anticipating the consequences of every event. In this case, scenario planning can mean the difference between life and death.  

Scenario planning might not have such dire consequences in your organization, but if not done, you risk opening the door to increased costs, increased risks, and missed opportunities.

Watch: What is Scenario Planning Process in a Strategic Plan

So how to use scenario planning?

The idea is very simple: Scenario planning  aims to define your critical uncertainties and develop plausible scenarios in order to discuss the impacts and the responses to give for each one of them. If you are aware of what could happen, you are more likely to deal with what will happen .

As you can see from the above illustration, scenario development process holds 4 critical steps. After identifying the driving forces and critical uncertainties for the months or years to come, the goal is to develop 4 distinct scenarios that are most likely to happen. The best way to perform all of these steps is to organize workshops during which all the participants brainstorm together, it will help you find creative solutions.

4 scenarios, it’s not a lot compared to the multitude of possible scenarios but it should be enough to focus on the major issues at stake.

The process to create your own 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 up only two (those that have the most impact on your business). For example, two of the most important uncertainties for agribusiness companies are food prices and consumer demand.  

  • Develop a range of plausible scenarios:

The goal is now to form a kind of matrix with your two critical uncertainties as axis (see the above example). Depending on what direction each of the uncertainties will take, you are now able to draw four 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.

Consider the example of the three Detroit automakers in the early 80’s. At that time, each company’s management teams wondered what the future would look like for their industry.

As pictured below, they could have drafted then 4 plausible scenarios, depending on two possible uncertainties during those years: oil prices fluctuations and consumer values evolution overtime.

Using scenario planning, they all predicted the “Long live Detroit” scenario in which the whole automotive industry would thrive. Unfortunately for them, they didn’t see far enough to predict the come of new competitors from Japan, which triggered off a big crisis in the automotive industry.  

See the complete case on Forbes

As you may notice, scenario planning is more a subjective technique enabling dialogue and fostering team alignment within the company than a data-driven analysis and this is actually what gives it strength.

> Watch below: Scenario Planning for a Post-Pandemic Future w/Lance Mortlock from EY

(Download Now) Unsure about your team's alignment on the future state of your organization? Our free one destination scorecard can help. 

Some pitfalls to avoid

A common trap is to be paralyzed by the multitude of possibilities.  Don’t try indefinitely new combinations of uncertainties to build your scenarios. Keep it simple and focus on two major uncertainties.

Another common mistake is to believe that you have to choose one particular scenario and build your strategy around it. 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.

Also, when developing your different scenarios, try to not look at the short term that is to say example at your existing market, products or competitors. Do not hesitate to look far ahead, anticipating what the market and competitors are going to be over the next years. In a word, be creative!

Finally, “Scenario planning is A tool, but not the only tool to help you with your strategic planning process . Focus on the vision of your company and use scenario planning to build a more robust future and vision “within” these alternative scenarios.

As long you understand how to use scenario planning and how not to fall into these traps, there is no doubt you will feel more confident about which decision to make, which strategy to choose regarding the future. And if need be, an SME strategy strategic planning consultant can help you chart your path!

By the way, if you are interested in scenario planning or business strategy, you are welcome to go through the current  vacancies for business strategy analysts .

Learn more about our process

SME Strategy is a strategy consulting company that specializes in aligning teams around their vision, mission, values, goals and action plans. Learn more about how a  strategic planning facilitator can help you and your team plan for future scenarios with our strategic planning services.

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Ultimate Scenario Planning Examples | 5 Easy Steps to Drive Results

Ultimate Scenario Planning Examples | 5 Easy Steps to Drive Results

Leah Nguyen • 17 Sep 2023 • 8 min read

Ever feel like the future is completely unpredictable?

As anyone who’s watched Back to the Future II can tell you, anticipating what’s around the corner is no easy task. But some forward-thinking companies have a trick up their sleeve – scenario planning.

Looking for Scenario Planning Examples? Today we’ll sneak a peek behind the curtains to see how scenario planning works its magic, and explore scenario planning examples to thrive in unpredictable times.

Table of Contents

What is scenario planning, types of scenario planning.

  • #1. Brainstorm Future Scenarios
  • #2. Analyse Scenarios
  • #3. Select Leading Indicators
  • #4. Develop Response Strategies
  • #5. Implement The Plan

Key Takeaways

Frequently asked questions, tips for better engagement.

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Scenario planning examples

Imagine you’re a movie director trying to plan your next blockbuster. There are so many variables that could impact how things turn out – will your lead actor get injured? What if the special effects budget gets slashed? You want the film to succeed no matter what life throws at you.

This is where scenario planning comes in. Instead of just assuming everything will go perfectly, you imagine a few different possible versions of how things could play out.

Maybe in one your star twists their ankle in the first week of filming. In another, the effects budget is cut in half. Getting clearer pictures of these alternate realities helps you prepare.

You strategise how you’d deal with each scenario. If the leads out with injury, you have fallback filming schedules and understudy arrangements ready.

Scenario planning gives you that same foresight and flexibility in business. By playing out different plausible futures, you can make strategies that build resilience no matter what comes your way.

There are a few types of approaches organisations can use for scenario planning:

Scenario planning examples

• Quantitative scenarios: Financial models that allow for best- and worst-case versions by altering a limited number of variables/factors. They are used for annual forecasts. For example, a revenue forecast with best/worst case based on +/- 10% sales growth or expense projections using variable costs like materials at high/low prices

• Normative scenarios: Describe a preferred or achievable end state, focused more on goals than objective planning. It can be combined with other types. For example, a 5-year scenario of achieving market leadership in a new product category or a regulatory compliance scenario outlining steps to meet new standards.

• Strategic management scenarios: These ‘alternate futures’ focus on the environment in which products/services are consumed, requiring a broad view of industry, economy, and world. For example, a mature industry scenario of disruptive new technology transforming customer needs, a global recession scenario with reduced demand across major markets or an energy crisis scenario requiring alternative resource sourcing and conservation.

• Operational scenarios: Explore the immediate impact of an event and provide short-term strategic implications. For example, a plant shutdown scenario planning production transfer/delays or a natural disaster scenario planning IT/ops recovery strategies.

Scenario Planning Process and Examples

How can organisations create their own scenario plan? Figure it out in these easy steps:

#1. Brainstorm future scenarios

Scenario planning examples

On the first step of identifying the focal issue/decision, you’ll need to clearly define the central question or decision scenarios that will help inform.

The issue should be specific enough to guide scenario development yet broad enough to allow the exploration of diverse futures.

Common focal issues include competitive threats, regulatory changes, market shifts, technology disruptions, resource availability, your product lifecycle, and such – brainstorm with your team to get the ideas out as many as you can.

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Evaluate what’s most uncertain and impactful for strategic planning over the intended time horizon. Get input from various functions so the issue captures different perspectives across the organisation.

Set parameters like primary outcomes of interest, boundaries of analysis, and how scenarios may influence decisions.

Revisit and refine the question as needed based on early research to ensure scenarios will provide useful guidance.

💡 Specific focal issues examples:

  • Revenue growth strategy – Which markets/products should we focus on to achieve 15-20% annual sales growth over the next 5 years?
  • Supply chain resilience – How can we reduce disruptions and ensure consistent supplies through economic downturns or national emergencies?
  • Technology adoption – How might shifting customer preferences for digital services impact our business model over the next 10 years?
  • Workforce of the future – What skills and organizational structures do we need to attract and retain top talent over the next decade?
  • Sustainability targets – What scenarios would enable us to achieve net zero emissions by 2035 while maintaining profitability?
  • Mergers and acquisitions – Which complementary companies should we consider acquiring to diversify revenue streams through 2025?
  • Geographic expansion – Which 2-3 international markets offer the best opportunities for profitable growth by 2030?
  • Regulatory changes – How might new privacy laws or carbon pricing impact our strategic options over the next 5 years?
  • Industry disruption – What if low-cost competitors or substitute technologies significantly eroded market share in 5 years?

#2. Analyse scenarios

Scenario planning examples

You will need to overlook each scenario’s implications across all departments/functions, and how it would impact operations, finance, HR, and such.

Assess opportunities and challenges each scenario may present for the business. What strategic options could mitigate risks or leverage opportunities?

Identify decision points under each scenario when a course correction may be needed. What signs would indicate a shift to a different trajectory?

Map scenarios against key performance indicators to understand financial and operational impacts quantitatively where possible.

Brainstorm potential second-order and cascading effects within scenarios. How may these impacts reverberate through the business ecosystem over time?

Conduct stress testing and sensitivity analysis to evaluate scenarios’ vulnerabilities. What internal/external factors could significantly alter a scenario?

Discuss probability assessments of each scenario based on current knowledge. Which seems relatively more or less likely?

Document all analyses and implications to create a shared understanding for decision-makers.

Scenario planning examples

💡 Scenario analysis examples:

Scenario 1: Demand increases due to new market entrants

  • Revenue potential per region/customer segment
  • Additional production/fulfilment capacity needs
  • Working capital requirements
  • Supply chain reliability
  • Hiring needs by role
  • Risk of overproduction/oversupply

Scenario 2: Cost of key material doubles in 2 years

  • Feasible price increases per product line
  • Cost-cutting strategy effectiveness
  • Customer retention risks
  • Supply chain diversification options
  • R&D priorities to find substitutes
  • Liquidity/financing strategy

Scenario 3: Industry disruption by new technology

  • Impact on product/service portfolio
  • Required technology/talent investments
  • Competitive response strategies
  • Pricing model innovations
  • Partnership/M&A options to acquire capabilities
  • Patents/IP risks from disruption

#3. Select leading indicators

Scenario planning examples

Leading indicators are metrics that can signal if a scenario may be unfolding earlier than expected.

You should select indicators that reliably change direction before the overall scenario outcome is evident.

Consider both internal metrics like sales forecasts as well as external data like economic reports.

Set thresholds or ranges for indicators that would trigger increased monitoring.

Assign accountability to regularly check indicator values against scenario assumptions.

Determine appropriate lead time between indicator signal and expected scenario impact.

Develop processes to review indicators collectively for scenario confirmation. Single metrics may not be conclusive.

Conduct test runs of indicator tracking to refine which provides the most actionable warning signals, and balance the desire for early warning with potential “false alarm” rates from indicators.

💡Leading indicators examples:

  • Economic indicators – GDP growth rates, unemployment levels, inflation, interest rates, housing starts, manufacturing output
  • Industry trends – Market share shifts, new product adoption curves, input/material prices, customer sentiment surveys
  • Competitive moves – Entry of new competitors, mergers/acquisitions, pricing changes, marketing campaigns
  • Regulation/policy – Progress of new legislation, regulatory proposals/changes, trade policies

#4. Develop response strategies

Scenario planning examples

Figure out what you want to achieve in each future scenario based on implications analysis.

Brainstorm lots of different options for actions you could take like growing in new areas, cutting costs, partnering with others, innovating and such.

Pick the most practical options and see how well they match each future scenario.

Make detailed plans for your top 3-5 best responses for the short and long-term for each scenario. Include backup options too in case a scenario doesn’t go exactly as expected.

Decide exactly what signs will tell you it’s time to put each response into action. Estimate if the responses will be worth it financially for each future scenario and check you have what you need to carry out the responses successfully.

💡Response strategies examples:

Scenario: Economic downturn reduces demand

  • Cut variable costs through temp layoffs and discretionary spending freeze
  • Shift promotions to value-added bundles to preserve margins
  • Negotiate payment terms with suppliers for inventory flexibility
  • Cross-train workforce for flexible resourcing across business units

Scenario: Disruptive technology gains market share rapidly

  • Acquire emerging startups with complementary capabilities
  • Launch an internal incubator program to develop own disruptive solutions
  • Reallocate capex toward digital productization and platforms
  • Pursue new partnership models to expand tech-enabled services

Scenario: Competitor enters market with lower cost structure

  • Restructure the supply chain to source lowest cost regions
  • Implement a continuous process improvement program
  • Target niche market segments with compelling value proposition
  • Bundle service offerings for sticky clients less sensitive to price

#5. Implement the plan

Scenario planning examples

To effectively execute the developed response strategies, start by defining accountabilities and timelines for executing each action.

Secure budget/resources and remove any barriers to implementation.

Develop playbooks for contingency options that require more expedited action.

Establish performance tracking to monitor response progress and KPIs.

Build capability through recruiting, training and organizational design changes.

Communicate scenario outcomes and associated strategic responses across functions.

Ensure sufficient ongoing scenario monitoring and reevaluation of response strategies while documenting learnings and knowledge gained through response implementation experiences.

💡Scenario planning examples:

  • A technology company launched an internal incubator (budget allocated, leaders assigned) to develop solutions aligned with a potential disruption scenario. Three startups were piloted in 6 months.
  • A retailer trained store managers on a contingency workforce planning process to quickly cut/add staff if demand shifted as in one recession scenario. This was tested by modelling several demand drop simulations.
  • An industrial manufacturer integrated capital expenditure reviews into their monthly reporting cycle. Budgets for projects in the pipeline were earmarked according to scenario timelines and trigger points.

While the future is inherently uncertain, scenario planning helps organisations to navigate various possible outcomes strategically.

By developing diverse yet internally consistent stories of how external drivers could unfold, and identifying responses to thrive in each, companies can proactively shape their destiny rather than fall victim to unknown twists.

What are the 5 steps of scenario planning process?

The 5 steps of the scenario planning process are 1. Brainstorm future scenarios – 2. Analyse scenarios – 3. Select leading indicators – 4. Develop response strategies – 5. Implement the plan.

What is the example of scenario planning?

An example of scenario planning: In the public sector, agencies like CDC, FEMA, and WHO use scenarios to plan responses to pandemics, natural disasters, security threats and other crises.

What are the 3 types of scenarios?

The three main types of scenarios are exploratory, normative and predictive scenarios.

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Leah Nguyen

Words that convert, stories that stick. I turn complex ideas into engaging narratives - helping audiences learn, remember, and take action.

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When it comes to owning a business, it can be challenging to feel certain about the future. If COVID-19 has taught us anything, it’s that the unexpected is always possible. The real challenge is, how exactly does an entrepreneur prepare for these unexpected events? By planning for multiple financial forecasts, instead of one.

Every decision is made with some level of uncertainty – an outcome will occur, but there’s no telling what that outcome will be. Rather than move forward blindly, with one potential outcome in mind, why not prepare for multiple scenarios? At Rare Strategies , we do not believe in waiting for the future to unfold. Instead, we want our clients to be prepared for multiple scenarios so they have the best response plan for whatever outcome unfolds. This strategy we’re discussing is known as scenario planning . As business consultants, part of our services includes helping clients forecast their financial future to better prepare for what comes next.

Today, we’re going to unpack what scenario planning is, examples of scenario planning and how it can benefit your business, and why it’s so important. Instead of waiting idly by, together, we can take matters into our own hands and develop a strategic plan that secures your company’s future.

What is Scenario Planning? 

Scenario planning is preparing for a range of different futures that all have different economic outcomes. You make an assumption about the future and plan for that potential outcome and how it will impact your business. Essentially, you’re planning for several uncertainties in case one or multiple of these uncertainties becomes a reality. While the risk might not always be great within each scenario, having a response plan in place in case that scenario unfolds is essential.

To start scenario planning, you first need to:

  • First, identify possible events or shifts that could impact your organization – for example, an election. A change in office could affect the economy, and in turn, have an impact on your business. Or dramatic social or environmental changes, like COVID-19 this last year and a half.
  • Events like this are all likely; however, consider which circumstances would most negatively (or positively) impact your business. 
  • After you identify which events could impact your business, consider which ones would have the greatest effect. Again, it’s better to have a handful of scenarios rather than one, so consider one’s with extreme impact as well as more realistic ones.
  • After identifying the uncertainties, you can truly begin scenario planning. Start by developing multiple scenarios, ranging from most likely to least likely.
  • After thinking of several scenarios, it’s time to plan for their possible outcomes. The more you account for, the greater the likelihood that one of them will occur. Once you have identified those outcomes, start thinking about appropriate response plans. Having the appropriate response plan means you’ll know how to act with confidence and avoid potential financial loss in case of these events.
  • By the end of this exercise, you should identify any potential risks or even revenue opportunities. Scenario planning is an incredibly detailed process; however, the long-term rewards help mitigate any possible damage during these events.

While no one enjoys thinking of negative possibilities, the reality is that the unexpected happens every day. Our scenario planning examines extreme situations and provides realistic outcomes in case these events occur in the future. Instead of acting with uncertainty, your business will have a detailed response plan and can avoid financial loss. Our examples of scenario planning are here to help secure your financial future, no matter your industry .

3 Examples of Scenario Planning Benefiting Your Business

In light of recent events, examples of scenario planning are essential to consider. While no one saw a pandemic coming, it’s made the world more aware that anything’s possible – which means discussing examples of scenario planning. While there are many examples to choose from, we’re going to highlight three that most business owners consider or likely experience in their careers.

1. Expanding Your Business

Most entrepreneurs have one goal when it comes to running their business – keep growing. Expanding your business could mean several possibilities, like acquiring a new location, moving to a larger warehouse or retail space, onboarding more team members – whatever is most relevant to your industry.

While growth is essential to success, the harsh reality is that not all business ventures go according to plan. For example, if you’d like to acquire a new location or expand your business within the next year or two, scenario planning can help you account for every outcome and decide if this is the right time for growth.

2. New Product Release

New product launches and services are a necessary part of increasing your profit and keeping customers satisfied. However, there’s no guarantee that your product will be a success. Scenario planning is ideal for strategizing possible outcomes for a successful or unsuccessful product launch. You can forecast potential financial losses and strategize how to avoid them.

At Rare Strategies, our scenario planning services help you prepare for multiple outcomes so you feel confident in your decisions before launching that new product . Here, we want your business to reach its maximum potential; however, we know how important it is to prepare for the worst-case scenario. By actively scenario planning, you’ll also have responses ready if the product succeeds or fails to make an impression on your customers.

3. Preparing for An Economic or Natural Disaster

After the events of 2020, it’s best to prepare for the unexpected. There’s no telling when another disaster could strike. Instead of sitting and hoping to avoid this eventuality , scenario planning gives your business the chance to get ahead of financial risks. Plus, you can potentially discover risks or rewards you’ve been overlooking.

No one enjoys thinking about the worst, but the reality is that we’re living in a time where change is inevitable. There’s no telling what tomorrow will bring. If you don’t have a plan of action in case of disaster, you are doing your business a disservice. At Rare Strategies, we’re here to tell you the truth, no matter how difficult it is to hear. Our approach is simple – find practical solutions that keep your business secure and successful.

Why Scenario Planning Works

Are you still wondering if scenario planning is necessary for your business? While it might seem like a lengthy process, the alternative is being unprepared for the future. The truth is, when planned properly, you can feel confident in times of crisis that your business won’t just survive – it will succeed. Our examples of scenario planning are simply a few possibilities. Preparing yourself for multiple outcomes simply helps yourself, your employees, and your investors make decisions during impossible situations. Better yet, damage can be avoided altogether.

At Rare Strategies, we believe that scenario planning is an exercise no one should overlook. Examples of scenario planning can help prepare your business for any outcome so that you can stay on the path to success. Our unique business consulting services are here to help you face these challenges and be better prepared for disaster and success.

Is your business ready for unfiltered honesty? At Rare Strategies, our business consulting services go beyond scenario planning. As business consultants in Winston-Salem, Greensboro, Charlotte, and Raleigh, we’re here to help take your business to the next level. If you have questions about our services, explore our Frequently Asked Questions , or contact us to book your free consultation.

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Scenario Planning: A Tool for Strategic Thinking

How can companies combat the overconfidence and tunnel vision common to so much decision making? By first identifying basic trends and uncertainties and then using them to construct a variety of future scenarios.

  • Developing Strategy

Early in this century, it was unclear how airplanes would affect naval warfare. When Brigadier General Billy Mitchell proposed that airplanes might sink battleships by dropping bombs on them, U.S. Secretary of War Newton Baker remarked, “That idea is so damned nonsensical and impossible that I’m willing to stand on the bridge of a battleship while that nitwit tries to hit it from the air.” Josephus Daniels, Secretary of the Navy, was also incredulous: “Good God! This man should be writing dime novels.” Even the prestigious Scientific American proclaimed in 1910 that “to affirm that the aeroplane is going to ‘revolutionize’ naval warfare of the future is to be guilty of the wildest exaggeration.” 1

In hindsight, it is difficult to appreciate why air power’s potential was unclear to so many. But can we predict the future any better than these defense leaders did? We are affected by the same biases they were. It was probably as hard for them to evaluate the effect of airplanes in the 1920s as it is for us to assess the impact over the next decades of multimedia, the human genome project, biotechnology, artificial intelligence, organ transplants, superconductivity, space colonization, and myriad other developments. The myopic statements in the sidebar remind us how frequently smart people have made the wrong assumptions about the future with great certainty.

Managers who can expand their imaginations to see a wider range of possible futures will be much better positioned to take advantage of the unexpected opportunities that will come along. And managers today have something those defense leaders did not have — scenario planning. Unfortunately, too few companies use it. If only General Motors in the seventies had explored more fully the consequences of OPEC, the yuppie generation, globalization, environmentalism, and the importance of quality and speed in manufacturing; or IBM and Digital Equipment Corporation in the eighties, the full impact of the personal computer, which prompted the breakdown of the vertically integrated mainframe business and a shift toward distributed computing. Other examples abound: Federal Express’s fiascos in Europe, Philips’s setback in electronic markets (despite its leading-edge technologies), Disney’s union and image problems with its theme park in France, Sony in movies, etc.

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Scenario planning is a disciplined method for imagining possible futures that companies have applied to a great range of issues.

About the Author

Paul J.H. Schoemaker is the chairman of Decision Strategies International, Inc., and a professor in the department of operations and information management, The Wharton School, University of Pennsylvania.

1. C. Cerf and V. Navasky, The Experts Speak (New York: Pantheon Books, 1984).

2. P.J.H. Schoemaker and C.A.J.M. van de Heijden, “Integrating Scenarios into Strategic Planning at Royal Dutch/Shell,” Planning Review 20 (1992): 41–46.

3. C. Sunter, The World and South Africa in the 1990’s (Cape Town, South Africa: Human and Rousseau Tafelberg, 1987).

4. A. de Jong and G. Zalm, Scanning the Future (The Hague, The Netherlands: Central Planning Bureau, Sdu Publishers, 1992).

5. For an incisive analysis of how the human mind generates explanations and predictions, see: D. Kahneman and A. Tversky, “The Simulation Heuristic,” in D. Kahneman, P. Slovic, and A. Tversky, eds., Judgment under Uncertainty: Heuristics and Biases (New York: Cambridge University Press, 1982), pp. 201–210. For additional psychological analyses, see: H. Jungerman, “Inferential Processes in the Construction of Scenarios,” Journal of Forecasting 4 (1985): 321–327; and R.M. Dawes, Rational Choice in an Uncertain World (New York: Harcourt Brace Jovanovich, 1988). For a forecasting perspective, see: W.R. Huss, “A Move toward Scenarios,” International Journal of Forecasting 4 (1988): 377–388. For a conceptual and behavioral perspective, see: P.J.H. Schoemaker, “Multiple Scenario Development: Its Conceptual and Behavioral Basis,” Strategic Management Journal 14 (1993): 193–213. For a consultant’s approach to scenario planning, see: T.F. Mandel, “Scenarios and Corporate Strategy: Planning in Uncertain Times” (Menlo Park, California: SRI International, Research Report 669, 1982). For the Royal Dutch/Shell approach, see: P. Wack, “Scenarios: Uncharted Waters Ahead,” Harvard Business Review, September–October 1985, pp. 72–89; and P. Schwartz, The Art of the Long View (New York: Doubleday, 1991). For scenario planning from an applied perspective, see: Planning Review, 20 (1992): 2 and 3. For the Dutch Central Planning Bureau’s wide-ranging global scenarios, see: De Jong and Zalm (1992).

6. For connecting scenario planning to project evaluation, using Monte Carlo simulation, see: P.J.H. Schoemaker, “When and How to Use Scenario Planning: A Heuristic Approach with Illustration,” Journal of Forecasting 10 (1991): 549–564. For a methodology to link scenarios to competitor analysis, core capabilities, and strategic vision building, see: P.J.H. Schoemaker, “How to Link Strategic Vision to Core Capabilities,” Sloan Management Review, Fall 1992, pp. 67–81.

7. See Kahneman and Tversky (1982); and A. Toffler, The Adaptive Corporation (New York: McGraw-Hill, 1985). There are several theoretical arguments supporting the hypothesis of underprediction of change from the status quo. First, anchoring on the past or present will likely result in underadjustment away from the present. Second, the availability bias will make it hard to properly weigh new scenarios. Third, overconfidence (with its multiple causes) results in unduly narrow confidence ranges regarding future change. See: J.E. Russo and P.J.H. Schoemaker, “Managing Overconfidence,” Sloan Management Review, Winter 1992, pp. 7–18.

8. S.P. Schnaars, Megamistakes: Forecasting and the Myth of Rapid Technological Change (New York: Free Press, 1989).

9. De Jong and Zalm (1992).

10. Looking at the past is a two-edged sword. It may unduly anchor us to old trends and realities, or things may seem more predictable in hindsight than they were at the time. However, examining the variability and unpredictability of the past may also help us construct broader scenarios. For example, most companies do not plan for the kind of turmoil that they have witnessed over the past decade. The forces that caused past turmoil (from political to technological) should be studied in order to appreciate better the system’s complexity and unpredictability. See: J. Gilovich, “Seeing the Past in the Present: The Effect of Associations to Familiar Events on Judgments and Decisions,” Journal of Personality and Social Psychology 40 (1981): 797–808; and B. Fischhoff, “Hindsight ≠ Foresight: The Effect of Outcome Knowledge on Judgment under Uncertainty,” Journal of Experimental Psychology: Human Perception and Performance 1 (1975): 288–299.

11. M. Godet, Scenarios and Strategic Management (London: Butterworths Scientific, Ltd., 1987).

12. Schoemaker and van der Heijden (1992).

13. For examples of decision scenarios, see: P. Hawken, J. Ogilvy, and P. Schwartz, Seven Tomorrows (New York: Bantam Book, 1982).

14. R.C. Blattberg and J. Deighton, “Interactive Marketing: Exploiting the Age of Addressability,” Sloan Management Review, Fall 1991, pp. 5–14.

15. C.W. Kirkwood and S.M. Pollack, “Multiple Attribute Scenarios, Bounded Probabilities, and Threats of Nuclear Theft,” Futures, February 1982, pp. 545–553.

16. Schoemaker (1991).

17. Sunter (1987).

18. For examples of this approach, see: Schwartz (1991).

19. For statistical elaboration and some consistency tests, see: Schoemaker (1991).

20. Schoemaker (1993).

21. Russo and Schoemaker (1992).

22. Schoemaker (1993).

23. Research has shown that generating reasons often improves probability calibration, even if the subjects generate their own reasons. See: A. Koriat, S. Lichtenstein, and B. Fischhoff, “Reasons for Confidence,” Journal of Experimental Psychology: Human Learning and Memory 6 (1980): 107–118. However, Schoemaker shows that if subjects are asked to generate reasons for extreme outcomes, their confidence ranges may actually shrink (instead of stretch) because of incredulity about the reasons generated. See: Schoemaker (1993).

24. A. Tversky and D. Kahneman, “Extensional vs. Intuitive Reasoning: The Conjunction Fallacy in Probability Judgments,” Psychological Review 90 (1983): 293–315.

25. Schoemaker (1993).

26. Kahneman and Tversky (1982), p. 207.

27. Russo and Schoemaker (1992).

28. A. de Geus, “Planning As Learning,” Harvard Business Review, March–April 1988, pp. 70–74; and P. Senge, The Fifth Discipline (New York: Doubleday, 1990).

29. J.E. Russo and P.J.H. Schoemaker, Decision Traps (New York: Doubleday, 1989).

30. Wack (1985).

Acknowledgments

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Scenario Planning Template

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Scenario planning templates and examples.

Scenario Planning Template (Flow Based)

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Scenario Planning Matrix Template

Scenario Planning Matrix Template

Analyze Your Current Position

Analyze Your Current Position

Multiple app integrations with two-way sync to help you import and export data from different platforms, add relevant data and make informed decisions.

Infinite canvas to link to multiple strategic thinking frameworks to accurately assess the best course of action.

Full version history to visualize multiple outcomes and possibilities, roll back changes when required and plan for multiple scenarios.

Add detailed docs, attachments, links and more to develop a better estimation of possible outcomes and the impact they will have.

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Simple to use drag and drop tools to get a headstart and draw complex scenario planning diagrams fast and easily.

Import images, vectors, and more on to the canvas to create more informative and visually attractive scenario planning diagrams.

Shape links to easily navigate through scenarios to better understand how decisions should be made.

Multiple framework templates, connect to action plans, mind maps workflows, contingency plans and more to have a more comprehension scenario plan.

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Real-time cursors for any number of participants baked into the platform to conduct scenario planning sessions together.

Comment with context, have discussions and follow ups on the same canvas. Async!

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INTRODUCING

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Visualize process and user insights with AI templates

Accessing creately viz, what is a scenario plan.

A scenario plan is a strategic planning tool used by organizations to visualize possible future events and conditions that could affect them, and to take precautionary measures to mitigate these risks.

How to Conduct Scenario Planning?

  • Collaborate with the team and brainstorm. Clarify the purpose of the session and define the focal issue. Use Creately’s brainstorming templates to capture the ideas and visualize easily.
  • Identify obvious factors like resources and customer demand and less obvious factors such as competitors and products.
  • Analyze external issues that may affect the business decision you want to make. These may include political, economical, social and technological factors. Our PEST analysis templates are an ideal tool for this step.
  • Based on their importance and uncertainty, rank the key factors and external forces that may affect the decision. Creately’s Scenario Matrix templates can be used to identify the factor/s that is most important to the focal issue.
  • Analyze each scenario and determine its impact. Based on the scenarios you have identified, reconsider your strategy and set goals and clarify your mission.
  • If needed, invite your colleagues to the same workspace and work in real-time - as if you’re working from the same room. Use Creately’s inbuilt video conferencing to speak to your colleagues while working on the analysis.
  • Export your diagram in JPEG, SVG, PNG or PDF formats or share with colleagues for real-time feedback collection.
  • Present your analysis to key stakeholders with Creately’s advanced presentation capabilities. Share an edit/review diagram link with others so anyone can easily access it to monitor the progress.

Scenario planning examples

To most small business owners, scenario planning can seem complicated—until you have the right tools and strategies. The following practical examples will help illustrate how strategic plans can improve your company’s health.

Scenario planning examples

Quick links

Good scenario planning software allows you to create contingency plans for the worst while being prepared to capitalize on best-case outcomes. You can thrive while other businesses are caught unprepared in times of crisis. You’ll be able to confidently make decisions in any business environment and take your company’s profitability into your own hands.

Profit Frog is the leading FP&A software specifically designed for small businesses. Our scenario analysis is designed to be dynamically updated as conditions change. This sort of dynamic planning is much more effective and actionable than many static planning models.

What is business scenario planning?

Business scenario planning involves asking the following two questions.

  • What could potentially occur? This is the scenario itself.
  • What would be the impact on my business if it did occur? This often involves looking at “best case,” “most likely,” and “worst case” outcomes.

With the right tools, you’ll create business plans around plausible scenarios to guide your business toward the “best case” outcome of each scenario and away from “worst case” potential outcomes.

While you may have limited control over many external factors affecting your business, you don’t need to be helpless.

Scenario planning practical examples

Here are some examples of scenario planning in use:

Subscription service scenario modeling example

Say you are asked to build a scenario model for the launch of a new video game subscription product. Based on your research, you can get an idea of how many customers will sign up by using available data: video game market size, subscribers to similar services, number of video games you will feature on the platform, etc.

You can then adjust the data to develop a range of estimates for new subscribers under different variables. For example, your modeling could predict a range of 1 to 3 million new customers per month over the first six months of launch, given a specific conversion rate, then a different metric for new subscribers given a different conversion rate. 

Or you could model subscribership under other variables such as: 

  • Organic traffic ramp-up
  • Effectiveness of influencer campaigns
  • Word-of-mouth
  • Percentage penetration of specific target demographics or subcultures

You will be able to model profitability metrics under each scenario, and arrive at a clearer picture about the likelihood of your product’s success. This may result in you deciding not to launch it, tweaking it somewhat, or going full steam ahead. In any case, you’ll be much further ahead—and will potentially save yourself millions of dollars and lots of time and stress.

Royal Dutch Shell example

Shell has been using continuous scenario planning since the 1970s. The company’s scenario and finance teams have been able to successfully model global trends and plan against them. 

Shell’s set of scenarios have helped the company anticipate and adapt global business operations to the oil shocks of the 1970s, the collapse of European communism, the Great Recession of 2008, and other volatility. Here are a few Shell scenarios:

  • The Sky scenario: imagining meeting the climate goals of the 2015 Paris Agreement and the changes that would need to occur to mitigate climate change
  • Rethinking the 2020s: 3 scenarios that explore the long-term ramifications of the COVID-19 pandemic
  • Digitalization: exploring how digital technologies might continue to change the world as we know it

Shell’s executive leadership has benefited tremendously from their investment into scenario planning. Shell has used scenario modeling as a driving force to help them adopt contingency plans for an uncertain future. This has positioned the company to capitalize on global business trends rather than getting sideswiped by them.

Cold-pressed juicery example

Let’s say you sell cold-pressed juices and other wellness products through various ecommerce channels. You are deciding the next step for your business, and you want to model three different scenarios before deciding how to proceed. The scenarios are:

  • Expanding from ecommerce to selling in retail stores such as Walmart, Kroger, Whole Foods, Costco, Aldis, and Trader Joe’s
  • Adding a new product line of nutritional juices to be sold within existing ecommerce channels
  • Opening your own retail store to sell your current products

A good scenario planning tool (hint: Profit Frog) will allow you to model all three of these decisions. You’ll be able to create budgets and forecasts for a variety of potential scenarios—and have insight into whether your current strategies are leading you in the right direction or whether you should modify them.

  • Which has the better outcome if labor costs increase significantly? Or if there is a labor shortage?
  • Which has the better outcome if prices of raw materials increase significantly?
  • Which has the better outcome if commercial real estate prices drop?

Bakery scenario planning case study

Josh has been growing his bakery shop steadily for the past year and has plateaued in his local market. He models three scenarios in Profit Frog to come up with a new business plan for his bakery. He considers making one or more of the following three changes, and models each with Profit Frog.

  • Switching coffee suppliers. Josh finds a new coffee bean supplier offering volume pricing that is 30% cheaper than what he has been paying.
  • Increasing prices on specialty drinks. Josh knows he could charge more for specialty drinks based on his local research, so he increases prices to match the market. 
  • Advertising. Josh isn’t doing any advertising, and contemplates retaining a Google Ads firm to drive local business to his bakery.

Modeling his bakery’s profits under each scenario, Josh realizes that all three are profitable moves, and that implementing all of them should increase profitability by 50%. He creates a business plan to make the three changes, and updates it dynamically in Profit Frog as conditions change.  

Landscaping scenario planning case study

Kenton Landscaping has been growing steadily for the past year and has plateaued in their small city. They want to expand and are considering these three options:

  • Commute to other cities and offer services there
  • Sign a lease in a new city for a permanent base there
  • Focus on more high-margin services

Using Profit Frog, Kenton builds a scenario planning project for the three variables:

Commuting will increase gross revenues by 20% while increasing gas expenditures by $8,000 per month and payroll expenses by $5,000. Net profits decline even though revenues increase. Commuting is out.

New building lease

Leasing a building in a new city will also increase revenues by 20%. Payroll will increase by $5,000—again, the same number as for the commuting scenario. Lease and utilities for the new building will cost $4,500. Profit margins increase from 6.5% to 8% and net profit increases by nearly $3,000. This option looks good.

High-margin services

Profit Frog shows Kenton scenario team that their highest-margin service is cleanups in the spring and fall. The team decides to invest in getting more cleanup work as a percentage of total revenue.

New building and cleanups

Profit Frog’s steps of scenario planning clearly reveal that the best course for Kenton Landscaping is to lease the building in the new city while investing $1,000 per month in marketing cleanups. Total profits go up by more than $6,000 per month and profit margins increase from 6.5% to 10%.

Scenario planning FAQ

How do you create a scenario plan.

Here’s the fastest, most efficient way for small businesses to create one or more scenario plans:

  • Identify scenarios you want to model
  • Input actuals (data about your business) into Profit Frog
  • Adjust variables (costs, pricing, or other drivers of profit) dynamically to see how they influence scenarios
  • Create a business plan and update drivers of future as conditions change

What is a scenario planning tool?

Scenario planning tools are software programs—either spreadsheets such as Excel, or online applications—that allow one to model hypothetical scenarios and forecast best-case and worst-case outcomes.

Here are some of the best scenario planning tools on the market:

  • Microsoft Excel
  • Profit Frog
  • BSC Designer

If you are interested in learning more about scenario planning tools, take a look at our detailed guide to scenario planning tools .

What are the 5 steps of the scenario planning process?

Traditionally, the 5 steps of the scenario planning process looked like the following (Profit Frog simplifies these):

  • Identify trends or decisions needing to be made
  • Come up with a future scenario involving those trends or decisions
  • Develop a scenario planning template
  • Create one or more scenarios
  • Evaluate your scenarios

With Profit Frog, the process is simpler:

  • Create a business plan and update it dynamically as conditions change

What are the most common types of scenario planning?

Traditionally, there are four types of scenario planning . For the average small business, an understanding and mastery of all four is unnecessary when moving towards bigger goals. 

Profit Frog blends the most valuable aspects of each scenario planning type to allow business owners to easily and decisively navigate uncertainty with trust and security by their side.

  • Normative scenarios
  • Operational scenarios 
  • Strategic management scenarios
  • Quantitative scenarios 

What is the difference between scenario planning vs strategic planning?

Scenario planning and strategic planning share a lot in common, but differ in the following respects:

  • Strategic planning processes assume known future outcomes and strategize how to get there
  • Scenario planning assumes a dynamic, chaotic future and helps you plot the course to maximum profitability through all the unknowns

In other words, strategic planning is a more static process and is disrupted by variability, where scenario based planning is designed to navigate variability.

What is a scenario planning template?

A scenario planning template is a form that allows you to input your assumptions, run your calculations, and generate a model. There are many different approaches to creating scenario templates.

With an abundance of scenario planning template options available online, many business owners try to conduct scenario planning on their own with Excel. They then get discouraged by the complexity.

Scenario planning software brings the power of scenario planning within reach of the average business owner. You don’t need a degree in finance or wizard-level Excel proficiency. 

Profit Frog, for example, is built for owners of small businesses. Our software is designed to let you model different scenarios, easily and intuitively. You don’t even need a template; just plug in the numbers for your business and the software does the rest.

For a more in-depth look into scenario planning, you can read our step-by-step guide to scenario process .

What is the importance of scenario planning?

Scenario planning is a way to model future outcomes and plan accordingly. It allows you to see how different variables would affect your business. 

For example, you could model the impact to your profitability if you raise prices by 10%, or if your COGS increases by 30%. You could model the impact on your business of an economic downturn, a pandemic, or rising interest rates. 

The following two questions are associated with scenario planning:

  • What would be the impact on my business if it did occur? This often involves looking at all possible positive and negative scenarios.

Based on the forecasts of modeling multiple scenarios, you can create a plan to navigate them.

What are the 4 major components of financial modeling?

These are the four major components of financial modeling:

  • Balance sheet
  • Income statement
  • Cash flow statement
  • Debt schedule

What are the most common types of strategic planning?

Strategic planning has many different types, from informal to formal. Let’s take a look at the 8 most common types:

  • SWOT Analysis
  • OKRs (Objectives and Key Results)
  • Porter’s Five Forces
  • VRIO Framework 
  • Gap Analysis
  • Balanced Scorecard (BSC)
  • Blue Ocean Strategy

If you are a small business owner, you don’t need to worry about any of these. You want Profit Frog. We have everything you need for your small business, and nothing you don’t.

Get started with your free trial of Profit Frog today !

What is business continuity planning?

Business continuity planning (BCP) focuses on preventing and recovering from major disruptions such as the death (or unexpected departure) of a key executive, a terrorist attack, or some other dramatic event. BCP ensures that the company can resume normal functionality in a reasonable time frame when facing a disastrous scenario. It is, in essence, a set of actions planned in response to specific threats to the company’s existence and functionality.

What is pestel analysis?

Pestel analysis studies external factors that influence businesses. It is used to model scenarios that will help your businesses avoid critical uncertainty and identify the focal issue. 

What are the five business forecasting methods?

  • Delphi Method
  • Market Survey
  • Executive Opinion
  • Sales Force Composite
  • Time Series Models

With Profit Frog, you don’t need extensive knowledge on the different forecasting methods to get the benefits. Simply follow the prompts in our software and maximize your company’s long-term  profitability. 

What is headcount planning?

Headcount planning involves the creation of upskilling and reskilling plans to decrease employee turnover, align your team, meet hiring targets, and analyze business-specific objectives and strategies.

What is the most popular accounting program?

Here is a list of the most popular accounting programs in the US:

What are the objectives of workforce planning?

  • Ensure that your business has the right talent
  • Ensure the workforce is strong enough to overcome challenges
  • Ensure the workforce has opportunities 
  • Keep good employees hired

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  • Growth and Jobs at Davos 2024: What to know
  • How using genAI to fuse creativity and technology could reshape the way we work

1. Generative AI boosts productivity, unevenly

In 2024, most chief economists surveyed by the Forum believe generative AI will increase productivity and innovation in high-income countries. But for low-income countries, just over a third think this will be the case.

Productivity boosts are expected in knowledge-heavy industries, including IT and digital communications, financial and professional services, medical and healthcare services, retail, manufacturing, engineering and construction, energy and logistics.

These potential benefits are in "sharp contrast with concerns about the risks of automation, job displacement and degradation", says the report.

Almost three-quarters (73%) of chief economists surveyed "do not foresee a net positive impact on employment in low-income economies".

business scenario planning examples

2. Digital jobs keep growing

By 2030, the number of global digital jobs is expected to rise to around 92 million. These are generally higher-paid roles, according to the Forum's white paper, The Rise of Digital Jobs .

Digital jobs could help to balance skill shortages in higher-income countries, while boosting opportunities for younger workers in lower-income countries: "If managed well, global digital jobs present an opportunity to utilize talent around the world, widening the talent pool available to employers and providing economic growth pathways to countries across the income spectrum."

3. Unemployment levels could rise

The labour market showed resilience in 2023, with employment remaining high, said Gilbert Fossoun Houngbo, Director-General of the International Labour Organization (ILO), in the Davos session ' What to Expect From Labour Markets '.

But he said ILO projections in early January suggested the global unemployment rate could rise from 5.1% to 5.2% in 2024, with an extra two million workers expected to be looking for jobs.

In the US, the jobs market remained stronger than expected for the first month of the year, with more than 350,000 new jobs added. The unemployment rate for January was 3.7%, close to a 50-year low, according to The Guardian .

Houngbo said ILO data shows inequalities persist between low- and high-income countries, while young people are 3.5 times more at risk of being unemployed than the rest of the adult population and "many workers are struggling to pay bills, which is very worrisome".

The impact of AI on jobs was not going to be "an employment apocalypse", but that reskilling, upskilling and lifelong learning would be key to managing the transition to augmentation, he stressed.

4. More pop-up offices

LinkedIn has seen a drop in the number of fully remote job postings, from a peak of 20% in April 2022, to just 8% in December 2023, said co-founder Allen Blue, speaking in a Davos session ' The Role of the Office is Still TBC ' .

But employee interest in taking remote or hybrid jobs remains high, at around 46% of applications.

"The office is going to be in competition with working from home ... that’s a good thing for the office," he said, as management would need to innovate and create a workplace environment that "emphasizes dynamic human interaction".

Young people taking their first job want human connection, so they're more interested in hybrid than remote roles.

Martin Kocher, Austria's Federal Minister of Labour and Economy, said that some Austrian villages are actually paying for pop-up community office spaces, because people don’t want to work from home, and they can make use of other amenities close by.

He predicted the development of more pop-up office spaces away from company headquarters.

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5. Skills will become even more important

With 23% of jobs expected to change in the next five years, according to the Future of Jobs Report, millions of people will need to move between declining and growing jobs.

Coursera CEO, Jeff Maggioncalda and Denis Machuel, CEO of Adecco Group AG, joined the Davos session ' The Race to Reskill ' to discuss the transferability of skills, and the potential of AI to help with personalized learning and productivity, which also levels the playing field for job opportunities globally.

But the key is in learning how to use AI and digital technologies, as Code.org Founder and CEO, Hadi Partovi, pointed out in the session ' Education Meets AI '.

When people think about job losses due to AI, he said, the risk isn't people losing their jobs to AI: "It's losing their job to somebody else who knows how to use AI. That is going to be a much greater displacement.

"It's not that the worker gets replaced by just a robot or a machine in most cases, especially for desk jobs, it's that some better or more educated worker can do that job because they can be twice as productive or three times as productive.

“The imperative is to teach how AI tools work to every citizen, and especially to our young people."

6. More women enter the workforce

In 2020, the World Bank found that potential gains from closing economic gender gaps could unlock a “gender dividend” of $172 trillion for the global economy.

But the Forum’s Global Gender Gap Report 2023 found that the Economic Participation and Opportunity gap has only closed by just over 60%.

Several sessions at Davos looked at how inclusion could benefit the economy , particularly by helping mothers return to the workforce, which could close skills gaps.

“There are 606 million women of working age in the world who are not working because of their unpaid care responsibilities, compared to 40 million men," Reshma Saujani, Founder and CEO of Moms First, explained in a session on the ‘ Workforce Behind the Workforce ’.

“At Moms First, we're working with over 130 companies in every sector, who are saying, ‘I don't have enough workers’. We are working with them to redesign their childcare packages and increase their subsidies.

“Childcare pays for itself. When you offer childcare to employees, you get higher worker productivity and lower rates of attrition, and greater rates of retention. We have to look at care as an economic issue that world leaders must actually do something about.”

IMAGES

  1. What Is Scenario Planning And Why It Matters In Business

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  2. Scenario Planning explained Step by Step with lots of Examples

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  3. What is Scenario Planning? Templates and Examples

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  5. What is the scenario planning process in business?| HRForecast

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  6. Scenario Planning: What HR Needs to Know

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VIDEO

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COMMENTS

  1. Scenario Planning: Strategy, Steps and Practical Examples

    Scenario Planning: Strategy, Steps and Practical Examples David Luther, Digital Content Strategist | Rami Ali, Senior Product Marketing Manager August 24, 2022 Scenario planning helps decision-makers identify ranges of potential outcomes and impacts, evaluate responses and manage for both positive and negative possibilities

  2. The 4-Step Scenario Planning Process (with Examples)

    What is Scenario Planning & How to Use It How to Create Team Alignment and Why it's Critical in 2023 Here, we'll explain each of the 4 steps in the scenario planning process, along with some relevant examples: Step 1: Identify Driving Forces

  3. Scenarios in Strategic Planning: Full Guide with Examples

    Examples of the Scenarios: Formulating Business Continuity Scenarios Formulating High-Priority Scenarios Formulating Scenarios for Monitoring What is Scenario Planning? Scenario planning is a disciplined way to formulate strategic hypotheses in the context of existing driving forces and their uncertainties. It helps to:

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    For example, if one scenario involves a technological shift in your industry, how might your organization adapt? What new products or services could you develop? Looking at successful companies that have navigated similar changes can offer valuable insights.

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    July 8, 2022 Contributor: Jackie Wiles Scenario planning is a must-use tool for functional leaders to drive immediate actions, decisions and longer-term plans. Know what it is, what it does and how to use it. In short: Planning for possible future scenarios has become more complex and more critical.

  6. Scenario Planning in 8 Simple Steps

    Should you bring a jacket? Will a global pandemic completely change the way we live? We can't offer you a crystal ball that will give you all of the answers. But we can tell you about a handy little process that gets you closer to predicting and planning for the future. Scenario planning.

  7. Overcoming obstacles to effective scenario planning

    For example, when a North American equipment manufacturer conducted a scenario-planning exercise about the growing importance of China, it began by focusing on the opportunity to sell equipment there.

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    1. Exploratory scenarios Focuses on a wide range of potential future situations. Explores different possibilities without specific predictions. Helps in identifying unexpected challenges and opportunities. 2. Normative scenarios Involves creating scenarios based on preferred future outcomes.

  9. Future-Proofing Your Strategy with Scenario Planning

    Using examples from the U.S. Coast Guard, he explains how thoughtful and ongoing scenario planning exercises can help organizations decide which investments will allow them to thrive in...

  10. What is the scenario planning process in business?| HRForecast

    Scenario planning is a way of formulating strategic hypotheses about existing drivers and their uncertainties. The US military came up with the concept of scenario planning, and it's been used in training to guide research efforts for more than 20 years. Gradually, businesses started adopting scenario planning.

  11. Scenario Planning explained Step by Step with lots of Examples.

    For example: If USA decides to ban Huawey's mobile phones in its market, a small Wisconsin distributor will suffer when he wanted to sell all the mobile phones he recently purchased. Global events must always be taken into account, no matter the size of the company you are analyzing. Why is Scenario Planning so important?

  12. What is Scenario Planning? Templates and Examples

    A scenario planning process begins by scanning the current reality, projected forecasts, and influential internal and external factors to produce a set of plausible potential futures which help us understand how various different situations will affect our business, for example: What happens if we hire a new employee?

  13. Scenario Planning: Types, Steps and Example

    Interviewing News Career development Scenario Planning: Types, Steps and Example Scenario Planning: Types, Steps and Example Indeed Editorial Team Updated February 3, 2023 Companies often conduct analyses to help develop effective strategies for the future.

  14. Scenario Planning

    Dheeraj Vaidya, CFA, FRM Scenario Planning is the prediction of future scenarios and gauging the effect of the scenario on the business. Therefore, it helps the management of a business to be prepared for business adversities that may arise due to changes in the current scenario.

  15. New to Scenario Planning? Here's a Starter's Guide

    An example of normative scenario planning in a project-based business could be: Working out the most profitable combination of future projects to onboard - by assessing the impact of each combination on factors like profitability, deliverability, resourcing etc; Teeing up alternative optimal scenarios if your Plan A doesn't pan out

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    For example, Farmers use scenarios to predict whether the harvest will be good or bad, depending on the weather. It helps them forecast their sales and also their future investments. Military institutions use scenario planning in their operations to cope with any unlikely situations, anticipating the consequences of every event.

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    #1. Brainstorm Future Scenarios #2. Analyse Scenarios #3. Select Leading Indicators #4. Develop Response Strategies #5. Implement The Plan Key Takeaways Frequently Asked Questions Tips for Better Engagement Looking for More Fun During Gatherings? Gather your team members by a fun quiz on AhaSlides.

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    For example, if you'd like to acquire a new location or expand your business within the next year or two, scenario planning can help you account for every outcome and decide if this is the right time for growth. 2. New Product Release.

  19. Scenario Planning: A Tool for Strategic Thinking

    For the Royal Dutch/Shell approach, see: P. Wack, "Scenarios: Uncharted Waters Ahead," Harvard Business Review, September-October 1985, pp. 72-89; and P. Schwartz, The Art of the Long View (New York: Doubleday, 1991). For scenario planning from an applied perspective, see: Planning Review, 20 (1992): 2 and 3. For the Dutch Central ...

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    New building and cleanups. Profit Frog's steps of scenario planning clearly reveal that the best course for Kenton Landscaping is to lease the building in the new city while investing $1,000 per month in marketing cleanups. Total profits go up by more than $6,000 per month and profit margins increase from 6.5% to 10%.

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    Scenario planning is a process that many companies perform to determine how different events or scenarios could impact their business. It is important because it allows a company to react quicker ...

  23. 6 work and workplace trends to watch in 2024

    Here are some of the key work and workplace trends to look out for in 2024, according to experts at Davos. The world of work is changing fast. By 2027, businesses predict that almost half (44%) of workers' core skills will be disrupted. Technology is moving faster than companies can design and scale up their training programmes, found the ...