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Scenario Planning Primer

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DOCUMENT DESCRIPTION
Scenarios are a powerful tool in the strategist's armory. They are particularly useful in developing strategies to navigate the kinds of extreme events we have recently seen in the world economy. Scenarios enable the strategist to steer a course between the false certainty of a single forecast and the confused paralysis that often strike in troubled times. When well executed, scenarios boast a range of advantages--but they can also set traps for the unwary.

Scenario Planning is not rocket science. People do not routinely create robust sets of scenarios, create contingency plans for each of them, watch to see which scenario is emerging, and live by it. Scenarios are in fact harder than they look – harder to conceptualize, harder to build, and uncomfortably rick in shortcomings. A good one takes time to build, and so a whole set take a correspondingly large investment of time and energy.

But having the guide in undertaking Scenario Planning can enable companies to better come up with more dynamic scenarios. This framework serves as a primer to Scenario Planning, detailing the core benefits of Scenario Planning, as well as pitfalls and leading practices.

There are 3 core benefits of Scenario Planning are:

1. Expansion of Thinking
2. Unveiling of Inevitabilities
3. Protection against Groupthink

Scenarios do not provide all the answers. With that said, scenarios can help executives ask better questions and prepare for the unexpected.

This deck also includes slide templates for you to use in your own business presentations.

Published in: Business
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Scenario Planning Primer

  1. 1. This is an exclusive document to the FlevyPro community - http://flevy.com/pro Framework Primer Scenario Planning Primer Presentation created by Protection against Groupthink Expansion of Thinking Unveiling of Inevitabilities 1 2 3
  2. 2. 2This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Contents Overview Core Benefits of Scenarios Pitfalls of Scenarios Leading Practices of Scenario Planning Templates The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  3. 3. 3This document is an exclusive document available to FlevyPro members - http://flevy.com/pro A Scenario Planning Primer provides a comprehensive framework in developing scenarios with greater possibilities Presentation Overview Scenario Planning is indeed a very valuable tool in today’s volatile times. Scenarios are a powerful tool in the strategist’s armory. They are particularly useful in developing strategies to navigate the kinds of extreme events we have recently seen in the world economy. Scenarios enable the strategist to steer a course between the false certainty of a single forecast and the confused paralysis that often strike in troubled times. When well executed, scenarios boast a range of advantages – but they can also set traps for the unwary. Scenario Planning is not rocket science. People do not routinely create robust sets of scenarios, create contingency plans for each of them, watch to see which scenario is emerging, and live by it. Scenarios are in fact harder than they look – harder to conceptualize, harder to build, and uncomfortably rick in shortcomings. A good one takes time to build, and so a whole set take a correspondingly large investment of time and energy. But having the guide in undertaking Scenario Planning can enable companies to better come up with more dynamic scenarios. This framework serves as a primer to Scenario Planning, detailing the core benefits of Scenario Planning, as well as pitfalls and leading practices. There are 3 core benefits of Scenario Planning are: Scenarios do not provide all the answers. With that said, scenarios can help executives ask better questions and prepare for the unexpected. This deck also includes slide templates for you to use in your own business presentations. 1 Expansion of Thinking 2 Unveiling of Inevitabilities 3 Protection against Groupthink The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  4. 4. 4This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Scenario Planning is a strategic planning method that organizations use to make flexible long-term plans Scenario Planning is one component of the more complete management system – integration with existing planning and budgeting system is essential. Scenario Planning – Overview Scenario Planning is also called Scenario Thinking or Scenario Analysis. It is changing mindsets about the exogenous part of the world, prior to formulating specific strategies. Scenario Planning allows inclusion of factors that are difficult to formalize – novel insights about the future, deep shifts in values, unprecedented regulations or inventions. Scenario Planning integrates with Systems Thinking that leads to plausible scenario storylines where causal relationships between factors are demonstrated. Scenario Planning in organizational settings has its limitations. It includes plausible, but unexpected important situations and problems that exist in some small form in the present day. It helps anticipate change, prepare response, and create more robust strategies. It anticipates the impact of different scenarios in identifying weaknesses that can be avoided or reduced. Scenarios are combinations and permutations of facts and related social changes. Subjectivity in scenario design. May suffer from various processes and content traps. Weak integration into other planning and forecasting techniques. The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  5. 5. 5This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Contents Overview Core Benefits of Scenarios Pitfalls of Scenarios Leading Practices of Scenario Planning Templates The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  6. 6. 6This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Scenarios are powerful tools for understanding uncertainty and developing strategy When well executed, scenarios boost a range of advantages but they can also set traps for the unwary. Core Benefits of Scenarios – Overview Scenarios are useful in developing strategies to navigate the kinds of extreme events seen in the world economy. Scenarios enable strategists to steer a course between the false certainty of a single forecast and the confused paralysis that often strike in troubled times. Source: The Use and Abuse of Scenarios, McKinsey, 2009 Scenarios have 3 core benefits that make them a particularly powerful tool. Protection against Groupthink Expansion of Thinking Unveiling of Inevitabilities 1 2 3 Ability to think more broadly when a range of possible outcomes are developed. Sufficiently broad scenario-building can yield another valuable result. The power structure within the companies inhibits the free flow of debate. The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  7. 7. 7This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Scenarios expand thinking capabilities We must obligate ourselves to ask why the past might not be a helpful guide to find surprisingly compelling answers. Expansion of Thinking – Overview CORE BENEFIT Expansion of Thinking VALUE Human quirky would lead us to expect that the future will resemble the past and that change will occur gradually. Demonstrating how and why things become better or worse will increase our readiness for the range of possibilities the future may hold. PROCESS Develop a range of possible outcomes. Back each outcome by sequence of events that will lead to them. The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  8. 8. 8This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Scenarios uncover inevitable or near-inevitable futures The realization that something must happen, even if it is not clear when, leads to the inclusion of at least one scenario to stop growing sooner rather than later. Unveiling of Inevitabilities – Overview VALUE The drivers result in outcomes that are the inevitable consequence of events that have already happened or trends that are already well developed. Unexpected outcomes are the most powerful source of new insight uncovered in the scenario development process. PROCESS Identify some particular powerful drivers of change as the analysis underlying each scenario proceeds. Search for predetermined outcomes – particularly unexpected ones. CORE BENEFIT Unveiling of Inevitabilities The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  9. 9. 9This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Unveiling of Inevitabilities have 4 kinds of predetermined outcomes While some errors can be avoided by recalling fundamental economic and demographic factors or scheduled events, problems of time will continue to exist. Unveiling of Inevitabilities – Predetermined Outcomes There are 4 kinds of predetermined outcomes. Demographic Trends 1 Demography is destiny. Changes in population size and structure are among the few highly predictable aspects of the future. When trends grow near, its effects can be powerful. Economic Action and Reaction 2 The Law of Economics cannot be changed. Every economic action has a predetermined reaction. Reactions are often ignored in business strategy. If uncovered through scenario planning, they can generate powerful insights. Reversal of Unsustainable Trends 3 Optimistic projections are often accompanied by bold claims of a new paradigm. Strategies must be very cautious about alleged new paradigms. Scheduled Events4 Scenarios must take into account scheduled events just beyond corporate planning horizons. The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  10. 10. 10This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Scenarios protect against groupthink Often, the power structure within companies inhibits the free flow of debate. Protection against Groupthink – Overview CORE BENEFIT Protection against Groupthink VALUE Scenarios allow companies to break out of the trap. Provides a political safe haven for contrarian thinking. PROCESS Typically agree with whatever the most senior person in the room says. Employees wait for most senior executives to state an opinion before venturing their own – which magically mirrors that of the senior person. The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  11. 11. 11This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Contents Overview Core Benefits of Scenarios Pitfalls of Scenarios Leading Practices of Scenario Planning Templates The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  12. 12. 12This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Scenarios also have their downside At least 2 variables should be used to construct scenarios – and the variables must not be dependent or be in just one spectrum. Pitfalls of Scenarios – Overview Inexperienced people and companies are prone to fall into a number of traps. Source: The Use and Abuse of Scenarios, McKinsey, 2009 Lack of Clear Leadership Vision2 Narrow Set of Outcomes3 Discarding of Extreme Scenarios4 Discarding of Scenarios Too Quickly5 Analysis Paralysis Situations of High Uncertainty6 The future is multivariate. There are elements strategists will miss. Scenarios that fall on a single spectrum should therefore be avoided. 1 The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  13. 13. 13This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Many CEOs have given hostages to fortune – scenarios would have helped them avoid doing so A wide range of scenarios can help prevent leaders from making statements that can be proven wrong if one of the more extreme scenarios unfolds. Pitfalls of Scenarios – Details (1 of 2) Analysis Paralysis1 Lack of Clear Leadership Vision 2 Narrow Set of Outcomes 3 Creating a range of scenarios that is appropriately broad can paralyze a company’s leadership. Organization become confused and lacking in direction. Scenarios are an abdication of leadership. A sense of complacency of having all bets covered is induced. Creating scenarios that do not cover a full range of possibilities can leave organizations exposed when scenarios provide most comfort. PITFALL Pick the scenario whose outcome seems most likely and base a plan upon that scenario. Use scenarios without abdicating their leadership responsibilities. Do not communicate with the organization via scenarios. Test the breadth of a scenario by identifying extreme events – low probability, high impact outcomes – from the past 30 or 40 years. See whether the scenario set contains anything comparable. APPROACH The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  14. 14. 14This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Scenarios ought to be treated dynamically to prevent pitfalls The most interesting and insightful scenarios are the ones that seem the most unlikely. Pitfalls of Scenarios – Details (2 of 2) Discarding of Extreme Scenarios 4 Discarding of Scenarios Too Quickly 5 Situations of High Uncertainty 6 Extreme scenarios are regarded as waste – they won’t happen or if they do, all bets are off. Leaders leave themselves exposed to dramatic changes on the downside. Companies not holding on to scenarios based on required shelf life. Strategists will not want to use scenarios when uncertainty is so great. PITFALL Include stretch scenarios while acknowledging their low probability. Treat scenarios as a living thing. Companies don’t get scenarios right – they keep it useful. Never think that you have all reasonable scenarios when there are different possibilities present. APPROACH The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  15. 15. 15This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Contents Overview Core Benefits of Scenarios Pitfalls of Scenarios Leading Practices of Scenario Planning Templates The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  16. 16. 16This document is an exclusive document available to FlevyPro members - http://flevy.com/pro The 7 Leading Practices are rules of thumb in Scenario Planning Scenario Planning can be a very valuable tool when done in the best way possible. Leading Practices of Scenario Planning – Overview Source: The Use and Abuse of Scenarios, McKinsey, 2009 Scenarios do not provide all the answers. But there are rules of thumb companies can follow in Scenario Planning. These can help executives ask better questions and prepare for the unexpected. Analyze with a 2x2 matrix Set a base case scenario Give scenarios catchy, short names Learn by doing Develop at minimum 4 scenarios Pay attention to environmental changes Embrace contrarian opinions 2 3 4 5 7 1 6 The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  17. 17. 17This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Scenario Planning becomes effective when narrowed down to fewer possibilities Those who must weigh scenarios and reach decisions based on them expect and deserve to get a specific point of view about the future. Leading Practices of Scenario Planning – Details (1 of 2) Specialist business models fails when the business environment changes. This is the saber-toothed tiger problem. Scenario Planning must remain dynamic and robust. Develop at minimum 4 scenarios 1 Develop a scenario set should always contain at least 4 alternatives. Four scenarios forces people which way they truly lean. Analyze with a 2x2 matrix 2 Create multiple 2x2 using all possible combinations of 4 or 5 critical uncertainties. Combine and identify uncertainties that are highly correlated. Set a base case scenario 3 Identify a scenario that is highest in probability. This is the base case. The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  18. 18. 18This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Scenario Planning must be dynamic and robust If the environment changes in a scenario but the competitors remain the same, the scenario is not imaginative enough. Leading Practices of Scenario Planning – Details (2 of 2) Give scenarios catchy, short names 4 Attach clever names to scenarios to keep it a living part of the organization. Use only 2 to 4 snappy words. Learn by doing5 Learn by experience. Look at old scenarios and ask what has been missed. Embrace contrarian opinions 6 Build scenarios on a new insight – wither predetermined that others have missed or an unobvious but critical uncertainty. Pay attention to environmental changes 7 Base scenarios on creative thinking about how predicted changes in the business environment will alter the competitive landscape. The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  19. 19. 19This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Contents Overview Core Benefits of Scenarios Pitfalls of Scenarios Leading Practices of Scenario Planning Templates The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  20. 20. 20This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Insert headline Insert bumper. Core Benefits of Scenarios – TEMPLATE Source: The Use and Abuse of Scenarios, McKinsey, 2009 Protection against Groupthink Expansion of Thinking Unveiling of Inevitabilities 1 2 3 • Insert filler text, filler text, filler text, filler text, filler text, filler text. • Insert filler text, filler text, filler text, filler text, filler text, filler text. • Insert filler text, filler text, filler text, filler text, filler text, filler text.The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  21. 21. 21This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Insert headline Insert bumper. Core Benefits of Scenarios – TEMPLATE ALTERNATE Source: The Use and Abuse of Scenarios, McKinsey, 2009 Expansion of Thinking Unveiling of Inevitabilities Protection against Groupthink Ability to think more broadly when a range of possible outcomes are developed. Sufficiently broad scenario-building can yield another valuable result. The power structure within the companies inhibits the free flow of debate. The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  22. 22. 22This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Insert headline Insert bumper. Core Benefits of Scenarios – TEMPLATE ALTERNATE Source: The Use and Abuse of Scenarios, McKinsey, 2009 Expansion of Thinking 1 Ability to think more broadly when a range of possible outcomes are developed. Unveiling of Inevitabilities 2 Sufficiently broad scenario-building can yield another valuable result. Protection against Groupthink 3 The power structure within the companies inhibits the free flow of debate. The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  23. 23. 23This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Lack of Clear Leadership Vision Narrow Set of Outcomes Discarding of Extreme Scenarios Discarding of Scenarios Too Quickly Analysis Paralysis Situations of High Uncertainty Insert headline Insert bumper. Pitfalls of Scenarios – TEMPLATE Source: The Use and Abuse of Scenarios, McKinsey, 2009 2 3 4 5 6 1 • Insert filler text, filler text, filler text, filler text, filler text, filler text. • Insert filler text, filler text, filler text, filler text, filler text, filler text. • Insert filler text, filler text, filler text, filler text, filler text, filler text. The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  24. 24. 24This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Insert headline Insert bumper. Scenario Planning Best Practices – TEMPLATE Source: The Use and Abuse of Scenarios, McKinsey, 2009 Analyze with a 2x2 matrix Set a base case scenario Give scenarios catchy, short names Learn by doing Develop at minimum 4 scenarios Pay attention to environmental changes Embrace contrarian opinions 2 3 4 5 7 1 6 • Insert filler text, filler text, filler text, filler text, filler text, filler text. • Insert filler text, filler text, filler text, filler text, filler text, filler text. • Insert filler text, filler text, filler text, filler text, filler text, filler text.The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  25. 25. 25This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Download 100s of similar frameworks from the FlevyPro Library: https://flevy.com/pro/library/frameworks The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  26. 26. 26This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Need more frameworks? Download our Complete Business Frameworks Reference Guide, a 350+ slide compilation of 50+ frameworks, on Flevy The Complete Business Frameworks Reference Guide is a best selling document on Flevy. It is 350+ slides--covering 50+ common management consulting frameworks and methodologies. A summary is provided for each business framework. The frameworks in this deck span across Corporate Strategy, Sales, Marketing, Operations, Organization, Change Management, and Finance. This reference guide is great for those who need a refresher on common frameworks, as well as be introduced and learn new useful frameworks. You can find this document here: http://flevy.com/browse/business-document/complete- consulting-frameworks-toolkit-644 The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  27. 27. 27This document is an exclusive document available to FlevyPro members - http://flevy.com/pro Flevy (www.flevy.com) is the marketplace for premium documents. These documents can range from Business Frameworks to Financial Models to PowerPoint Templates. Flevy was founded under the principle that companies waste a lot of time and money recreating the same foundational business documents. Our vision is for Flevy to become a comprehensive knowledge base of business documents. All organizations, from startups to large enterprises, can use Flevy— whether it's to jumpstart projects, to find reference or comparison materials, or just to learn. Contact Us Please contact us with any questions you may have about our company. • General Inquiries support@flevy.com • Media/PR press@flevy.com • Billing billing@flevy.com The content on this page has been partially hidden. FlevyPro members can download the full document here: http://flevy.com/browse/flevypro/scenario-planning-primer-3784
  28. 28. 1 Flevy (www.flevy.com) is the marketplace for premium documents. These documents can range from Business Frameworks to Financial Models to PowerPoint Templates. Flevy was founded under the principle that companies waste a lot of time and money recreating the same foundational business documents. Our vision is for Flevy to become a comprehensive knowledge base of business documents. All organizations, from startups to large enterprises, can use Flevy— whether it's to jumpstart projects, to find reference or comparison materials, or just to learn. Contact Us Please contact us with any questions you may have about our company. • General Inquiries support@flevy.com • Media/PR press@flevy.com • Billing billing@flevy.com

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