Scenario Planning for Results

Scenario Planning for Results

Uncertainty, critical decisions, market pressures, new rules. BTD’s clients are using Scenario Planning to help chart their way. In some cases, they’re seeking to get back on course. In others, they’re charting new directions.

Scenario Planning (SP) is a powerful tool with a 40+ year pedigree. Used well it can help senior executives better position their firms for long-term success. To do so, however, requires striking a thoughtful balance between complexity-beyond-usefulness, on the one hand, and triviality on the other. Nine- and Sixteen-Box scenario matrices may be clever, but they are rarely useful. “Proving our own assertions,” too, consumes time and bestows unjustified credibility.

This note provides three admonitions to senior executives looking to leverage SP. It is not a primer on SP, rather “words to the wise” who undertake it:

  • Make Up Your Mind
  • Organize Carts, Horses & Models – Back-to-Front and Front-to-Back
  • Don’t Trust Your Model

Make Up Your Mind

Management is about decisions. Too often SP becomes an intellectual exercise. It should drive action and inform reaction.

Before embarking on an SP exercise, make an explicit list of the decisions you are looking to make. Keep it to between six and ten items; if it’s longer, organise your thinking. For each decision understand how it’s made today, by whom and the information and expertise needed to make it well. How sensitive is your business’s performance to this decision? Would a small error have a large effect? How often must you make this decision? Can you revisit it periodically?

Organise Cart, Horses & Models – Back to Front and Front to Back

Objectivity is touted as a benefit of SP. And it can be. Improperly managed, however, SP simply becomes a complicated way to “prove your assertions.”

How can you prevent this, “protecting you from yourself?” Set up your effort back-to-front, then run your process front-to-back.

Back-to-Front Set-Up: Given your decision list, identify the factors that if known now would enable 20-20 decisions. Then structure a model that converts inputs, say, GDP growth or investment flows, into projections of those factors. Agree with all parties that the model reasonably translates inputs into decision-supporting factors. Do this before deciding on scenarios.

Front-to-Back Running: Create your scenarios incorporating a mutually consistent set of inputs. “Run” the model to generate the resulting decision factors. As some decision factors will be subjective, the team running the model should not have “a horse in the race.” This prevents misinterpreting or discounting when modelling potential outcomes for each scenario.

Don’t Trust Your Model

Management requires judgement. Your model is a representation of reality, not reality itself. Sound SP often leads to counterintuitive or odd-seeming projections. That can be good.

But you must apply judgement. You own this process; do not let it “own” you. Test odd results. If you have a good team and used your own experience, you should be able to make sense of them. Beware the “737 Max” phenomenon where you blindly accept results and recommendations. If it doesn’t make sense to you after some deep thought, it’s likely wrong.

Do involve a range of skills and personalities, as well as “factions,” in the process. Test, challenge, decide and commit.

Done right, Scenario Planning is an excellent tool, particularly when uncertainty is high. Make sure you do it right!