Is your company prepared for the next crisis?
While researching different ideas on workflow efficiencies and process development, I ran across something called scenario planning. At first glance, I was a little interested. This could be useful, it looks like a way to get ideas for potential future scenarios. That can’t be much different from designing out services using customer and company data, right? Well, not exactly.
“Scenario planning is a process pioneered by the U.S. military, which today runs exercises looking up to 20 years out to guide R&D efforts.”1
This quote made me realize scenario planning is much more than extending and improving your business services or workflows. It is the survival plan for your company when you know what hits the… well you know.
Scenario planning essentially takes a look at several potential outcomes, both good and bad, and suggest next steps based on everything from economics, political, market forces, and compares them to your company’s historical data. It allows you to be a proactive business by “simplifying an avalanche of data into a limited number of possible states.”2
Should you do it?
I wanted to know if this was something worth doing as well as how it works and if not, are their parts that I can use and apply to my belt of efficiency tools.
What I found out is that scenario planning is a resource-intensive process. Since it takes into account revenue over time, which requires data from all aspects of your company, a startup to medium business may not have the bandwidth to complete all of the comparative analysis. Keep in mind this process was developed by the U.S. Military and they are by no means small. I also found that large companies like Shell and Wall Street utilize the full potential of scenario planning and they have an army of accountants and staff to work through the analysis. Furthermore, the data must be continually updated to all changes to be relevant. The payoffs for being so consistent has allowed Shell to be consistently better in its oil forecasts than other major oil companies.2
So while this process may be too intensive for a startup to medium size company. I think you should still make an attempt, but selectively modify the process because there is a lot of good takeaways and ideas to steal. Being nimble is a small to mediums companies’ superpower after all.
Scenario planning is essentially a study of our collective ignorance.”2
Organizational Awareness
One of the tasks of scenario planning is to simplify by focusing on two or three major uncertainties and build from there. For myself, I know I have a system for identifying breakdowns in your business that uses key team members to capture insight and recommendations. Using your own team in analysis plays a major role in scenario planning as it does with critical breakdown identification. By breaking down major aspects of my company into phases made up of several step definitions that are just short descriptions of what is happening then by applying specific variables to go deep into each step. I can use this system to identify possible uncertainties by either viewing the heat map created from the step definitions or by looking for connections between the themes of categorized breakdowns. I talk more about this process in a previous post.
For example, if a café’s major problems were concentrated on issues of communication and keeping all items adequately stocked between all of their café’s locations. This would be a point of major breakdown during an economic downturn that affects the supply chain and could negatively affect the company’s finances. Fixing these issues would better prepare the café for such a situation making them more agile to react because problems would be communicated much more efficiently to the managers giving them the time to react. This is not a comprehensive analysis like true scenario planning is, however, creating a few scenarios to an efficient workflow will be much easier.
What we know and don’t know
When planning ahead consider three things:
1. Things we know we know.
2. Things we know we don’t know.
3. Things we don’t know we don’t know.2
Mapping the detailed step definitions provides us with the things we know. Applying your team’s and customers’ insights provides us with the things we know we don’t know. The things we don’t know we don’t know, can never completely be answered, but by discussing possible problems, not ‘what if’ statements, but analyze problems or questions. For instance, “When a vendor dramatically raises their prices because of forecasted inflation what steps should we take?” We will better be prepared.
To improve your chances of being ready for the unknown narrow your statements to two or three questions. Each question should reflect low, medium, and high crisis. According to David Luther a senior content writer at Oracle NetSuite, if you can “compare historical sales data with expected growth, comparative analysis can help you plan for the best and worst scenarios.”1
Keeping track of all this data, even in the limited capacity I spoke about is daunting. Luckily there are, you guessed it, apps for this. Float provides such finical tracking software that will help you build in advanced warnings for your scenarios and show you how making changes can help you recover cash loss.
Being prepared
Scenario planning will help you avoid cash crises as well as identify potential opportunity areas. Managers who can expand their imaginations to see a wider range of possible futures will be much better positioned to take advantage of the unexpected opportunities that will come along.2
Even if you don’t have an army of analysts, with some investigation into your business and identifying problems in your workflow you will gain the knowledge to ask better questions to be prepared to respond to unknown crises.
Resources
1 Rami Ali and David Luther: Scenario Planning: Strategy, Steps and Practical Examples; 2020
2 P.J.H. Schoemaker: Scenario Planning: A Tool for Strategic Thinking; 1995
3 Catriona Bane: How Scenario Planning Can Help Your Business; 2020
