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Scenario Planning - Managing Your Business Future

A sign that says Scenario Planning and pointing right. Managing your business future.

3/29/2016

Imagine having the power to foresee the future of your business. Would you know how to innovate and gain advantage over your competitors? Would you anticipate the price fluctuations associated with your key products? Would you take risks with confidence and leadership?

Luckily, you don’t have to wish for superhuman abilities. For decades, companies large and small, from every imaginable industry, have employed a forward-thinking, strategic planning process known as scenario planning to achieve the same results. Initially developed as a tool in military planning, and later applied to business, most notably by Royal Dutch/Shell, scenario planning has proven to be a powerful forecasting tool.

Put simply, scenario planning is the process of imagining different variations of the future based on information that is readily available or can be easily obtained. This tool is uniquely compelling because it allows businesses to expand their thinking, imagine possibilities and develop creative solutions in a timely cost-effective manner. Looking back at Shell, which has employed scenario planning since the early 1970’s, we see the power in the process. Through its use of scenario planning, Shell was able to forecast the 1975 oil embargo, something none of its competitors had seen coming. This foresight advanced Shell in its industry as it had already developed solutions to tackle such an event.

The process of scenario planning involves a few steps, which require some time and thought at each point.

  1. Determine the focal issue: What do you hope to achieve? How far into the future do you plan to look? Who will play a key role in this future? Will it be customers, changing technology, regulations?
  2. Determine external factors and uncertainties: Perhaps a small competitor might be gaining market share, minimum wage laws might affect your bottom line, or key products might become obsolete. These are situations which are out of your control, however can greatly affect the success of your business.
  3. Develop scenarios: Now it’s time to imagine the future. Most experts recommend constructing 3 to 4 scenarios. One simple method is to develop one scenario with every negative possibility, another with all the positive, and a third somewhere in between. Ultimately, the goal is to think outside of the box and imagine possibilities.
  4. Research: After developing the scenarios, additional research may be required. Gather all the information needed to help determine a likely outcome and which course of action is best to pursue for each individual case.
  5. Design solutions: Once you have all the information, you can design plans of action for each scenario. Again, remember to be creative as you’re still working within an imagined reality.

Through the use of scenario planning, you can now determine what the probable future might be. You can be proactive in order to edge out your competitors and be prepared for any major external forces that can have an impact on your business. With a bit of time, research, creativity, and collaboration, scenario planning can be the next best tool in your business planning repertoire. To learn more about scenario planning, or for assistance in getting started, please contact your RINA Representative.

Co-Author
Cristina Monteiro
Tax Senior

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