5 Biggest Impediments to Scenario Planning
Economic contingency planning is a specific case of scenario planning. I've not pushed scenario planning because so often I saw too simplistic examples, such as a base case that looks like a straight line, an optimistic sceario that was a straight line with a steeper slope, and pessimistic that had a flatter slope. Not much value beyond the obvious, it seemed to me.
However, planning for possibilities such as a recession or a brief economic boom is vital. A recent white paper is good reading on the subject of Scenario Planning for the Agile Organization. (The company publishing it does a minimal amount of self-promotion in the paper.)
The five top impediments to scenario planning really struck true to my experience:
- Not having enough time
- Planning model not properly set up
- Don't have a good handle on drivers
- Budgeting is zero based
- Management hasn't shown an interest
The benefits of scenario planning identified in the paper are very strong. They include better understanding of the company's key drivers of profitability as well as the sensitivity of these drivers to other variables. The list goes on; read the paper for more benefits.
This white paper is a good companion piece to the excellent Harvard Business Review article, Deciding How to Decide.
Getting started can be fairly simple. I suggest looking at the biggest risk. For many companies it is recession, but it could also be a competitor's technological breakthrough, a drop in government defense spending, or a drought. Then start a planning exercise based on what the company would want to do in such a scenario. Having the contingency plan in place ahead of time will speed implementation if the risk event happens. For more, see my Forbes.com article, Goals for Economic Contingency Planning.
