Scenario planning
“Most battles are won before the contest begins – by those who are most prepared” – military axiom.
In this blog, I want to go a little deeper into the subject of scenario planning. What is scenario planning? It is a strategic planning method that some organisation use to make flexible long-term plans. It is in large part an adoption and generalization of classic methods used by military intelligence.
A couple of interesting topics stand out from this explanation:
– strategic, long-term
– flexible
– classic methods used by military intelligence
A plan, as explained in a previous blog, is per definition wrong. We predict the future based on the information we know now and during the year, we see how far our plan deviates from the actual situation. The longer the horizon of our plan (strategic planning is 3 to 5 years ahead), the more uncertain our plan will be. Our predictions for 3 years out, will probably be less accurate compared to our prediction for the next 3 months. Scenarios can help in a situation like this. You can create a Base scenario that holds your predictions based on your current knowledge. A second scenario (best case) might have more positive numbers, so a higher growth ambition, or lower costs due to process optimization. A third scenario (worst case) turns that around and has less than expected growth and higher costs, for example due to increased energy prices, more competition, etc.
The goal of a scenario is having gone through the exercise of looking at the future with different glasses. As mentioned in the previous paragraph, for example a positive look (best case), a normal (base case) and a negative one (worst case). This helps you better prepare your organisation for the uncertain future. As soon as one of the scenarios becomes reality (energy prices skyrocket), you are prepared due to the fact you have created a scenario where energy prices played an important role. The organisation becomes much more flexible to the events that will happen. Instead of trying to stick to the one plan you have created, you now can quickly switch to the created scenario and use that as the new plan.
In the military, the use of scenarios is common. Before moving into battle, different scenarios have been thought through and analyzed and discussed. A base scenario is selected to define the battle plan, but as soon as circumstances change, one of the other prepared scenarios can be selected as the new plan of attack to adjust to reality. In this military example, being a matter of life and death, in our business world, a matter of bottom-line result.
Being prepared is the main goal of creating different scenarios. But why do most business not use this powerful feature? Two main reasons:
– the planning process is way too complicated
– the planning tool does not support the creation of scenarios
This first reason, the complicated planning process, makes sure that the creation of a (base) plan takes months. Starting just after summer holidays to be just in time by the beginning of the new year to have one plan available and approved. No time left to create a second plan as a new scenario. The organisation barely can finish one plan in the amount of time given.
The second reason, the planning tool does not support the creation of scenarios, stems from legacy planning tools. The creation of a scenario should be effortless as the duplicating of a base plan, adjust the parameters specific for that scenario and see the bottom-line result. Most legacy planning tools do not support this duplication, so the creation of a scenario is the creation of a new plan…from scratch. New planning platforms understood that scenario creation and comparison is one of the core functionalities needed to support a planning process. New planning platforms support the creation of a scenario, it is as simple as a few clicks to get started.
The use of scenarios is not widely spread within organizations. Too painful and cumbersome planning process and legacy planning systems that do not support the easy creation of scenarios. And that is a shame, your organisation can be so much better prepared for the uncertain future by implementing scenarios. Let us help you in your journey to become resilient, be agile. By reducing the complexity in your planning process and implement a state-of-the-art planning platform.
