Scenario Planning is a planning method that makes an assumption that the future cannot be predicted with any degree of accuracy because of things that are unknown. What it does is to allow management to envisage a range of market developments and business relationships, from which predictions can be assessed before a decision is made. It can also be used to produce a range forecasts for different, but likely, business environments, again for management review so that an informed decision can be made.
Scenario planning starts by dividing business knowledge into two broad domains:
1. Things that the organisation believes they know to be true (e.g. the amount of raw materials and energy required to make a product).
2. Things that they consider to be uncertain or unknowable. (e.g. sales conversion rate in relation to advertising spend, or future interest rates).
As mentioned earlier, the business world is hard to predict. To cope, managers must constantly assess the future with a range of scenarios that reflect an ever-changing business environment. Without scenarios, the business is presented with a ‘Go’ or ‘No go’ choice, where managers either believe of disbelieve the plan presented to them. But when done correctly, scenarios presents an organisation with multiple choices based on a range of assumptions about the future, and where the impact of multiple changes to its business model can be explored.
Organisations should not measure the value of planning or forecasting on how accurate it predicts results. The value is in providing managers with a way to communicate what drives success; to evaluate the risks an organisation faces, and to guide the best way to allocate resources to achieve desired outcomes given an anticipated business environment and the limitations in which the organisation operates.
Aexis Can deliver People, Process, Content & Technology to support Scenario Planning. Main Benefits are:
• Creating an agreed understanding of how the organisation operates today and how value is generated.
• Imagining how the organisation could perform in the future and the operational changes that would be required.
• Quantifying the impact of uncontrollable events so that suitable prevention measures can be considered and maybe put in place.
• Assessing ‘best’ and ‘worst case’ scenarios so that forecasts can be evaluated and changes suggested to improve performance.
• Evaluating the organisation’s current business model against those of a competitor to determine where additional value can be added.