Prepare for the Unknown with Scenario Planning
One of the most difficult things to do in business, and life, is to predict the future. Fortunately, scenario planning, a specialized type of strategic planning, can help us to do just that. Often attributed to Royal Dutch/Shell’s corporate planners, the modern scenario planning process is something that you can use for own organization. In this article I’ll show you how.
What is Scenario Planning and How is it Used?
Scenario planning is a rigorous way of looking at the future. It emerged through US military use in the 1950s and was adopted by private companies like Shell led by Pierre Wack, a noted futurist. The basic idea behind scenario planning is to consider important variables that might impact the realizaiton of your vision, construct scenarios based on key variables, develop said scenarios, and then “wind-tunnel” your strategies against these scenarios to prepare for the unexpected.
Scenario planning generally follows a seven step process:
Identify the drivers that can impact your organization’s mission.
Rank-order the drivers in terms of their impact.
Rank-order the drivers in terms of their uncertainty.
Assess the drivers against an impact/uncertainty matrix
Construct scenarios based on the high impact, high uncertainty drivers
Wind-tunnel your strategy against the scenarios
How do these steps work?
The first step is to identify the drivers (factors) that can impact your organization’s mission. You can simply brainstorm these factors, or distill them from your organization’s PESTEL or SWOT analyses. I suggest you work with a small task force to brainstorm these drivers, and then get a larger group (senior staff or board) to react to and revise the drivers. Below is an example from a November 2020 scenario planning workshop in which envisioned the drivers. You can see that COVID-19 plays a large role in the factors influencing this organization.
Brainstormed Factors Influencing an Organization’s Mission:
The next step is to rank-order these drivers in terms of their overall impact. Which drivers will have the most impact? Which will have the least? You can see in the following graphic that this (same) client organizes the drivers from above into three distinct categories.
Factors rank-ordered by impact
Factors rank-ordered by uncertainty:
Now you’ve got the factors rank-ordered by impact and uncertainty, it should be easy to plot them on a 2x2 matrix with uncertainty and impact being the two vectors. Check out this next graph.
Factors graphed according to uncertainty and impact:
The fifth step, constructing scenarios, should proceed directly from the last step. What you want to do is pick the factors that are in the “high impact” and “high uncertainty” quadrant in the graphic above. These factors will serve as the basis for your scenarios. You may need to test out a few combinations before you settle on scenarios that you would like to develop. In this situation, my client settled on “Staff and Staff Turnover” and “Covid-19” as the two factors. Here’s a graphic of the scenarios we constructed:
Scenarios constructed from the prior graphing exercise:
The “x” marks the spot where the ED felt the organization was right at the moment of the workshop.
How is Scenario Planning Different From Strategic Planning?
Scenario planning is an advanced technique that can be used alongside traditional strategic planning. It is helpful to conduct scenario planning exercises early in the strategic planning process so that your executive team’s mental models will be prepared for different futures, but in reality, it can be conducted at any time in the strategic planning cycle.
I hope you found this article informative. If you’d like to plan scenarios for your organization, please call or book a free consultation so that we discuss.