With economic uncertainty, a pandemic, and concerns around race and equity topping daily headlines, existing initiatives to transform and innovate across people, processes and technology have become more amplified.
COVID-19 didn’t create the concepts of economic volatility or racial inequality — but it did reveal them. As a nation, we are working together to minimize the related health and business impacts of these challenges by leveraging a diverse set of ideas, strategies and skill sets.
In June, I published
It is anyone’s guess what will happen in the upcoming weeks, months or years. But one thing is certain: The current environment is giving us the opportunity to re-imagine our business models, customer engagement and corporate growth strategies. At any moment, businesses can be disrupted by things we didn’t expect. And if anything, the first half of 2020 has certainly reinforced that organizations must be prepared for multiple scenarios.
Scenario planning isn’t a new notion, but we often think about it when it’s too late — after the events have occurred with negative results. Too often, many chalk it up to something that only large organizations do. However, detailed planning and analysis are indispensable in any size organization. Fundamentally, scenario planning covers key questions that include: What is happening from a macro or micro-economic perspective? What are the most likely scenarios we should plan for? Based on the above likely scenario, how is that going to affect my business in particular? Ultimately, how can we position our business to survive or thrive under these potential scenarios? What are the KPIs we should be monitoring?
Some say that we can’t fully predict the future, but we can prepare for it. I couldn’t agree more. Scenario planning creates a “story” around each possible situation and allows leaders to fill in the gaps and unknowns. It doesn’t just make you think about the obvious drivers; it also forces consideration of what’s not top-of-mind. And let’s not forget about our people. In turbulent times, team members are needed to maintain and grow operations more than ever. When there are multiple backup plans, it’s easier to earn the confidence of team members and inspire trust in the future direction of the business. It also enables finance professionals to play a critical role for C-suite leaders and internal stakeholders who expect relevant information to drive strategic decision-making.
However, you can’t anticipate changes, trends and business outcomes without the right technology and processes in place to do so. So, how do you get started? Here are a few considerations on your journey to greater influence and insight:
Determine a focal point
There are several areas your business could focus on during times of uncertainty, so it’s important to prioritize and not “boil the ocean.” Choosing a focal point will provide direction and make the process more realistic and actionable. However, it’s important that your focal point not include assumptions. For instance, asking “What services will our customers request in 2025?” is better than “How can we further enhance the revenue of a specific area?” because the latter presumes that specific area will still be relevant and/or required — which isn’t a given.
Keep it high level
Identify the internal and external drivers that could likely affect your business. That could be anything from technology adoption and changes in consumer spending patterns to a global pandemic and civil disorder. But try not to get too granular because, as situations evolve, your team must be able to pivot scenarios at a moment’s notice — which is increasingly difficult as scenarios become more complex. In order to remain nimble, it’s also important to create a tight-knit team, while still ensuring a broad range of backgrounds and opinions are represented. The urgency of each scenario will help determine the number of team members and at what levels.
Assess the uncertainties
You don’t know what you don’t know. But outlining the things you’re uncertain about, as well as thinking through the likelihood and possible impact of each (both in the long- and short-term) will allow you to begin your scenario-planning journey with full awareness of where additional effort is needed. Involve key stakeholders to think through the true plausibility of each unknown and focus your team’s efforts appropriately. This is where technology proves extremely valuable. Cloud-based scenario planning and automation can reveal the blind spots that humans sometimes miss, and can help assess the implications with models that would be difficult otherwise.
Limit the number of scenarios
While it’s easy to get excited about the insights that could be revealed, I’d recommend sticking to no more than four scenarios. Examples might be “fast recovery,” “moderate recovery,” “moderate recovery but disrupted supply chain” or “slow recovery.” Spend equal time examining each scenario — even if one or two scenarios are far more likely. The value of scenario planning is to be as ready as possible when the unlikely happens. Thoroughly evaluating all options ensures the business is prepared even for unlikely scenarios.
Leverage technology to compare scenarios
Scenario planning in today’s environment requires a disciplined, automated approach that includes complex modeling capabilities. The ability to model scenarios side by side is a key capability that should be considered when determining what technology works best for your organization. It’s also important to consider any industry-specific capabilities you may require, such as the ability to run models based on geography, sales channels or product lines. You can also evaluate risk and perform stress testing across each scenario using a type of data modeling known as a Monte Carlo simulation. This capability enables you to explore a range of outcomes across multiple variables and is especially helpful when a high degree of uncertainty and assumptions exist.
Create backup plans
As I noted, there will be unknowns in scenario planning. Therefore, it’s key to develop a contingency plan for various possible outcomes. When determining the tactics for each scenario, be sure to consider the backup plan for the backup plan, as this will ultimately reduce costs, risks and disruptions if something completely unexpected occurs.
As we think about the remainder of 2020, from the impact of the pandemic to the difficult but necessary racial equality conversations that must occur, we must consider various possible events and prepare for their impact on our organizations. We hope that worst-case scenarios will never happen, but hope is not a strategy and there are some probabilities that only technology can fully assess. Scenario planning is not optional — certainly not if we want our businesses to remain viable in an unpredictable environment. We don’t know what the next normal will bring, but we can ensure that our businesses — equipped with scenario planning technology and the most productive and inclusive teams possible — are around to consider what’s next.
