Articles
March 6, 2023

The role of scenario planning in strategic decision making

Introduction

In today's rapidly changing business landscape, it's more important than ever for organisations to be able to anticipate and prepare for unexpected events. This is where scenario planning comes in - a powerful tool for strategic decision making that can help organisations develop more robust strategies, and more readily identify potential risks and opportunities.

At Mountain Moving Co, we understand the importance of scenario planning in helping organisations prepare for an uncertain future. We use scenario planning to help our clients navigate the complex and ever-changing business environment, allowing them to make better strategic decisions and build resilience in the face of challenges.

In this article, we'll explore the role of scenario planning in strategic decision making, including what it is, how it helps with decision making, and the steps involved in the scenario planning process. We'll also provide examples of organisations that have successfully used scenario planning to prepare for future challenges. So, whether you're a small business owner or a leader in a large organisation, read on to discover how scenario planning can help you make better strategic decisions.

What is scenario planning?

Scenario planning is a strategic planning tool that helps organisations anticipate and prepare for potential future events. Unlike traditional planning methods, which assume a single, predictable future, scenario planning allows for a range of possible futures to be considered. By developing multiple scenarios, organisations can better understand the potential risks and opportunities they may face in the future and develop contingency plans accordingly.

Scenario planning involves a systematic process of identifying key uncertainties and factors that may impact the future, developing multiple scenarios based on these factors, and assessing the implications of each scenario. This process allows organisations to build greater resilience and flexibility into their strategic plans reducing their overall risk.

Scenario planning can also help organisations identify new opportunities and develop strategies to capitalise on them by stretching the thinking done by key stakeholders to consider alternatives that are not apparent when following traditional strategic planning methods.

Perhaps most importantly, scenario planning can help build consensus and alignment within an organisation, as stakeholders work together to develop and evaluate potential scenarios. The journey an organisation goes on through the scenario development process, builds and fosters a greater learning capacity, connecting across silos and building bridges within the organisation.

How does scenario planning help with strategic decision making?

Scenario planning can help organisations make better strategic decisions in several ways:

  • Anticipating potential risks and opportunities: By developing multiple scenarios, organisations can identify potential risks and opportunities that they may face in the future. This allows them to develop contingency plans and strategies to mitigate risks and capitalise on opportunities.
  • Reducing uncertainty: Scenario planning can help reduce uncertainty by providing a range of possible futures to consider. This can help organisations make more informed decisions and reduce their risk.
  • Aligning stakeholders: Scenario planning can help build consensus and alignment within an organisation, as stakeholders work together to develop and evaluate potential scenarios. This can help ensure that everyone is on the same page when it comes to strategic decision making.
  • Identifying new opportunities: Scenario planning can help organisations identify new opportunities and develop strategies to capitalise on them. By considering a range of possible futures, organisations can identify emerging trends and market shifts, and develop strategies to take advantage of them.

Scenario planning is a powerful tool for strategic decision making, enabling organisations to anticipate and prepare for potential future events, reduce uncertainty, align stakeholders, and identify new opportunities.

Steps in the scenario planning process

While the specifics of the scenario planning process can vary depending on the organisation and the context, there are several key steps that are typically involved:

  • Identify key uncertainties: The first step in the scenario planning process is to identify the key uncertainties and factors that may impact the future. These might include technological developments, changes in the competitive landscape, shifts in consumer behaviour, or geopolitical risks. These key uncertainties are usually harvested from a comprehensive analysis of trends and emerging issues which have historically shaped the environment, or may be emerging now through technological or other developments.
  • Develop scenarios: Once the key uncertainties have been identified, multiple scenarios can be developed based on different combinations of these factors. Typically, scenarios will include a range of possible outcomes, from best-case to worst-case, allowing organisations to prepare for a range of potential futures.
  • Assess implications: Once the scenarios have been developed, it's important to assess the implications of each scenario. This might involve evaluating the potential impact on the organisation's operations, financial performance, or reputation, among other factors.
  • Develop contingency plans: Based on the scenario analysis, organisations can develop contingency plans and strategies to mitigate risks and capitalise on opportunities. This might involve developing new products or services, entering new markets, or adjusting business processes.
  • Monitor and update: Scenario planning is an ongoing process, and it's important to monitor the external environment and update the scenarios and contingency plans as needed. By staying attuned to changes in the business landscape, organisations can remain agile and responsive to emerging trends and risks.

By following these steps, organisations can build greater resilience and flexibility into their strategic plans and be better prepared to navigate an uncertain future.

Examples of scenario planning in action

Many organisations have successfully used scenario planning to prepare for future challenges and opportunities. Here are a few of the most famous examples:

  • Shell - Shell is the OG and has been using scenario planning for decades to anticipate changes in the energy market and inform its long-term strategic decisions. In the 1970s, Shell developed scenarios that anticipated the rise of OPEC and the resulting oil crisis, allowing the company to prepare for the shift away from cheap and abundant oil. Today, Shell continues to use scenario planning to anticipate trends and developments in the energy market, allowing it to make better strategic decisions.
  • Singapore Government - The Singapore government has used scenario planning to prepare for future challenges, such as ageing demographics and global economic shifts. In 2013, the government launched the "SG Future" initiative, which used scenario planning to develop long-term strategies for the country's future. This initiative involved extensive stakeholder engagement and scenario development, resulting in a set of strategies that have guided Singapore's development over the past decade.

Sometimes it is also easier to understand the concept of scenario planning by walking through the development process. These two videos are great examples from two of the most famous practitioners of scenario planning.

The value of scenario planning

In today's rapidly changing business environment, leaders must be able to anticipate multiple futures across a range of risks and opportunities. By developing multiple scenarios based on key uncertainties and factors that may impact the future, organisations can be better prepared to navigate uncertainty and build resilience in the face of challenges.

At Mountain Moving Co, we understand the importance of scenario planning in helping our clients prepare for an uncertain future. By leveraging our expertise in futures thinking, design thinking, and inclusive facilitation, we help organisations develop robust scenario plans that enable them to make better strategic decisions.

Whether you're a small business owner or a leader in a large organisation, scenario planning can help you build greater resilience and flexibility into your strategic plans, reducing the risk of being caught off guard by unexpected events. So, if you haven't already, consider incorporating scenario planning into your strategic decision-making process. By doing so, you'll be better prepared to navigate the complexities of the modern business landscape and position your organisation for success in the future.

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