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
- Scenario Planning Examples and Process
- Key Takeaways
- Frequently Asked Questions
Tips for Better Engagement
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What is Scenario Planning?
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.
Types of Scenario Planning
There are a few types of approaches organisations can use for scenario planning:
• 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
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
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 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
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
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
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.
Key Takeaways
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.
Frequently Asked Questions
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.
