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Strategic planning method
- Scenario planning, scenario thinking, scenario analysis, scenario prediction and the scenario method all describe a strategic planning method that some organizations use to make flexible long-term plans. It is in large part an adaptation and generalization of classic methods used by military intelligence.
en.wikipedia.org/wiki/Scenario_planning
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Scenario planning is a strategic method that helps organizations prepare for uncertain futures. It does not attempt to predict what will happen but instead explores different possible futures by asking “what if” questions.
- What Is Scenario Planning?
- Why Is Scenario Planning Important?
- Types of Scenario Planning
- How to Use Scenario Planning
- Scenario Planning Work Approach
- 3 Steps to Better Scenario Planning
- Strategies to Manage Scenario Planning Projects
- Scenario Planning and Modeling: Best Practices
For businesses, scenario planning enables decision-makers to identify ranges of potential outcomes and estimated impacts, evaluate responses and manage for both positive and negative possibilities. From projecting financial earningsand estimating cash flow to developing mitigating actions, scenario planning is more than just a financial planning to...
Scenario planning can provide a competitive advantage by enabling leaders to react quickly and decisively — because a situation has been thought through and actions documented, no one has to scramble when in the midst of a crisis. Scenario planning also gives executives and boards of directors a framework to make nonemergency decisions more effecti...
Financial models that allow for the presentation of best- and worst-case versions of the model outputs. These models can be quickly changed by altering a limited number of variables/factors. Quanti...One of the most common types of scenario planning an organization will undertake internally. Operational scenarios specifically explore the immediate impact of an event. The scenario then provides...These describe a preferred or achievable end state. These scenarios are less objective planning and more geared toward statements of goals. These goals are not necessarily about an organizational v...Essentially stories that say little about the company or industry, but more about the environment in which products and services are consumed. These are often the most challenging scenarios for com...Typically, macroeconomic expectations are used in conjunction with scenario planning to help the CFO frame near-term expectations for the company and to level-set expectations in departments. The fundamentals of scenario planning are the same, even if the particulars across industries and within businesses vary. To illustrate this, consider how two...
Actions to take
1. Secure commitments from senior management, select team members and organize scenarios around key issues to be addressed and evaluated. 2. Define assumptions clearly, establish relationships between drivers and limit the number of scenarios created. 3. Make sure each scenario presents a logical view of the future. 4. Focus on material differences between scenarios. 5. Indicate KPIs, and refresh scenarios and update assumptions on a regular basis.
Actions to avoid
1. Avoid developing scenarios without defining the issues first. 2. Don't develop too many scenarios – three is a good starting point. Beginning with your best guess at how business will go, add one scenario for things going better and another for things going worse. A good starting point is 50% for best guess, then 25% for things going better and 25% for things going worse. 3. Do not attempt to develop the perfect scenario – more detail does not mean more accuracy. 4. Avoid becoming fixated...
1. Identify critical triggers even in the midst of uncertainty:
When faced with a crisis, finance leaders quickly establish guidelines for how the organization should respond by developing multiple scenarios. These scenarios are built on a set of assumptions around events that affect the survival of the organization and should trigger a series of actions. In times of crisis, companies need to combine historical data with plausible outcomes to determine ramifications for each part of the organization. Scenario plans can give leaders breathing room to slow...
2. Develop multiple scenarios, but keep it simple:
When building multiple scenarios, it's easy for finance teams to feel overwhelmed by the range of potential outcomes. How can anyone properly plan for so many possibilities? Simply put, you can't. That's why it's best to keep it simple. Focus on two to three major uncertainties and build scenarios from there. Finance leaders need to prioritize and develop perspectives about each of the scenarios to help the company navigate.
3. Build a nimble response strategy:
Each scenario should contain enough detail to assess the likelihood of the success or failure of different strategic options. Once this is all in place, finance leaders can create a framework that helps the executive team make decisions. Any decisions made need to be monitored in real-time so the team can be nimble in its ongoing response.
As has probably become clear, the scope of scenario planning is limited only by leaders' time and imaginations. There must be guardrails on the project to keep the time investment in line with expectations. Here are some key issues in managing scenario planning scope creep: 1. Recognize the importance of the team's time. 2. Spend more time on creat...
1. Assemble the right team:
In large companies, financial planning and analysis groups should be included. But while finance professionals can certainly lead the scenario planning process, they won't be successful alone. This effort needs to connect leaders from across the organization, including business units and HR.
2. Get the right data:
For finance teams to execute with confidence, they need the right data, going well beyond the general ledger. To create better, more accurate models, finance needs historical and comparative sales data, headcount and expected growth, and of course actuals from the general ledger. They'll also need to understand the costs of producing products and services, which products are foundational and which are additive.
3. Model with basic scenarios:
Finance teams should consider developing basic low, medium and high models. A low scenario is where costs and revenues are challenging. The goal here will be finding cost savings while still delivering quality products in a timely manner. A medium scenarioassumes that sales will continue to grow based on last period actuals. This scenario will show how the last period's sales figures compare with forecasts, and what adjustments you need to make on headcount and other departmental spending to...
Scenario planning, scenario thinking, scenario analysis, [1] scenario prediction [2] and the scenario method [3] all describe a strategic planning method that some organizations use to make flexible long-term plans.
May 22, 2024 · A scenario planning framework is a structured process that helps businesses create relevant scenarios, prioritize them, and design strategies for effectively navigating them. It enables businesses to visualize key scenarios and gain a clearer understanding of how scenarios might play out.
Jan 15, 1995 · Scenario planning is a disciplined method for imagining possible futures that companies have applied to a great range of issues.
Mar 9, 2016 · The idea is very simple: Scenario planning aims to define your critical uncertainties and develop plausible scenarios in order to discuss the impacts and the responses to give for each one of them. If you are aware of what could happen, you are more likely to deal with what will happen .
Scenario planning is a means for managers to visualize the future and assess how they will respond in diferent situations. It is best suited to helping organizations understand how fast-moving and/or complex environments may evolve.
