I wanna introduce the idea of scenario planning.

Now this is a tool in your toolkit that helps you structure your thinking

in a certain way that might help you as you plan for the future of your business.

But like every other tool and framework in your toolkit,

it should be part of a larger strategic analysis.

So you might be using this in conjunction with using some other tools and

frameworks as well.

And utilizing the insights that rise out of all these different tools.

Now as with all the other tools,

we wanna understand what is it that scenario planning does for us.

Why would we use it and what is it all about?

So scenario planning is essentially a framework that helps you formulate

a strategy that is robust to different potential future scenarios.

So in that sense, it's kind of an alternative to making

a single point forecast of the future, right?

And in that sense, it pushes the strategist

to step outside of one's particular assumptions about the future, and

actually question them and think them through.

And this is a framework that helps you recognize that some predictions

are uncertain.

And it might help us avoid group think around

all rallying around a single point prediction of the future and

betting our entire strategy on that particular outcome.

So let's go through and discuss what the steps are in scenario planning.

The first step is to identify the key strategic issue.

And also to identify the appropriate timeframe

over which you're thinking about the future.

So, the key strategic issue should be something that is a really important

decision that's going to have a large impact on your future as a business,

right?

And it's useful to seek outside input, to talk to others within your organization,

you really want to gather as much data as you can as you sort of think through,

what is the key problem we're sort of faced with?

Or what's the key challenge that we want to try to overcome?

Or what's the key decision we're trying to make right now that might position us

either well or poorly for the future.

And as you think about the timeframe, it's important to kinda get that right.

You don't want the timeframe to be so

distant that it's sort of hard to even imagine it.

But you also don't want it to be so immediate that you're basically just doing

budgeting and strategic planning for next year.

So, as you think about those things, that's essentially the first step.

To identify the key strategic issue and

timeframe on which you're gonna build your analysis.

The next step is to identify the potential key trends and uncertainties

that are gonna impact your potential future success as a business organization.

Now trends are things that we can be relatively certain about.

They're usually built around things like population demographics,

or things that are relatively uncontroversial as we sort of know

that they're gonna move in a certain direction going into the future.

So, if there's expert consensus, if you can see some data that's moving in

a particular direction and it's not really questionable,

then that might indicate that that factor is a trend.

And the trends are things that, for the purpose of scenario planning,

we can sort of set aside for the moment.

What we're really focused on are the uncertainties.

These are things that the experts might not agree about.

We're not sure exactly what the future revenue model of our business industry

market segment is gonna be or whatever the case may be.

You're looking for

the key uncertainties that you don't really know how they're gonna work out.

And it's important to prioritize those things.

You're really looking for

the most important, the most fundamental uncertainties that could

have the most dramatic impact on the future success of your business.

So that's the next step is to identify those trends and sort of set them aside.

And identify through that process the key uncertainties

that you want to use to move on to the next step.

And that is, to use those uncertainties to construct different scenarios.

It's often times helpful to do this visually, so

it might look something like this.

You might pick the two key uncertainties that you've identified and

you might put them on the different axis of your little grid here.

So, on the vertical axes we've got Uncertainty WX and

on the horizontal axes we've got Uncertainty YZ.

And the point is,

we don't know if the future is going to move more toward W or X.

And we also don't know if it's gonna move more toward Y or Z.

And ideally these uncertainties represent on each axis, they represent a spectrum.

And so you're sort of almost looking for the extremes.

What you're ideally trying to construct are, in this case,

four scenarios that are as nearly mutually exclusive as they can be.

So you're looking for

very different assumptions on how these uncertainties will play out.

And when you lay all that out on your grid, like this,

you can see that you essentially construct four different scenarios, A, B, C and D.

And again, ideally these scenarios should be sort of dramatically different from one

another, and represent four different possible futures for

your industry or market segment.

So that's step three.

Step four is to then really spend some time brainstorming and

exercising your creativity to visualize those scenarios.

You want to get into the details.

Here again, it might be useful to get outsiders' perspective of,

iff the future works out in a certain quadrant that realizes

certain uncertainties, what would that future look like?

What would business look like in that particular scenario?

It might be helpful to write stories or

construct hypothetical newspaper headlines for each of these four possible futures.

Give them a title.

Think about what scenario A is and what scenario D is and

give them descriptive titles and think about them in vivid detail.

This is creative part of scenario planning that's helping you to kind of think

outside the box, to think differently than you may have thought before

about the potential futures that your business faces.

So once you've done all that then you want to move to step five.

And step five is to then examine the robustness of your strategy across

all of these different scenarios.

Is your particular strategic direction you're moving in,

is it robust across all of those scenarios?

Would you be a viable, successful organization in each of those futures.

Or does you current strategic direction sort of rely on the future working out

a certain way to be beneficial for you.

And if that's the case, this is what you're looking for, you're looking for

opportunities to sort of adjust and potentially make some changes to your

strategy that might make it more robust across all these different scenarios.

Now, the different scenarios you've created with your grid,

of course are based on two different uncertainties, and

there may be others that are important as well.

So you might wanna repeat this scenario planning process for several different

combinations of scenarios that might yield different insights.

And it's important to understand that even after you've done all this,

you might decide that you want to make the riskier strategic move

of moving in a direction that isn't robust across all those scenarios.

And it does really depend on realizing one particular future scenario.

And look, that's fine.

But if you do that, you wanna recognize that that is the risk that you're taking.

And this framework will help you see that as a risk and

you'll see what the vulnerabilities are.

So, this is scenario planning.

It's an opportunity for you to use a tool, in conjunction with the other tools that

you're using, that might help you better visualize the range of possible futures

that you might be operating in, in your industry or market segment.

Strategist's Toolkit: Scenario Planning

Business Growth Strategy

Meet the Instructors