Why Scenario Planning is arguably the most important step in your strategy planning process. With a good strategy plan, you don’t want to be thinking about what you are going to do–you already know what you are going to do, when faced with a challenge. Arcus research indicates that there is widespread dissatisfaction with existing ways of strategic scenario planning. One reason is that many CEOs have not realized the value of scenario planning in the strategic planning process.
And yet many organizations realize how far off their strategy outcome predictions have been based on straight-line extrapolations. There are many reasons scenario planning hasn’t become a standard practice in the planning process. A significant reason for this situation is the lack of understanding of how the process would work and inadequate access to data to make the process productive.
Scenario planning, often called contingency planning, is a structured approach to planning for a diverse range of possible business outcomes in the future. It is often in the form of a narrative of a situation about how an outcome of a set of strategies may unfold. According to Arcus’s annual survey of management tools, less than 40% of companies used scenario planning today. But the numbers are steadily increasing, from just 14% in 2005.
In Peter Schwartz’s book “The Art of the Long View”, scenarios are described as: “Stories that can help us recognize and adapt to changing aspects of our present environment. They form a method for articulating the different pathways that might exist for you tomorrow, and finding your appropriate movements down each of those possible paths.” Examples of the risks of not working with scenario plans are numerous The oil price hikes of 1973 and 1978 painfully showed bow vulnerable western countries were to sudden and unexpected changes in energy markets. Often scenario planning becomes a secondary requirement when a false sense of continuity sets in. However, some organizations are motivated by catastrophic events. For example, the New York Board of Trade’s decision to build a second trading floor away from the World Trade Centre was reinforced after September 11th, 2001.
The concept of scenarios deal with facts and perceptions. The approach explores facts that could support specific possible outcomes that may confront decision-makers. The most productive scenario planning exercises focus on leveraging information of strategic significance into a range of possible outcomes. The process of scenario planning usually begins with a robust discussion about how unexpected changes in a situation may lead to a different set of possible and often unexpected outcomes. From this analysis, organizations can develop a list of strategic priorities, including variables that may have a significant impact on strategic issues and related uncertain outcomes. The analysis forms the basis of developing possible scenarios in the future.
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