New to Scenario Planning? Here's a Starter's Guide

By taking the time to do scenario planning, businesses can get prepared and make informed decisions in stressful times, where there are the biggest opportunities.
Steven Male
April 20, 2022

Wouldn't it be nice to be able to see into the future? Things would be much easier if you could predict what people would do, what the weather was going to be like, or how long it was going to take for things to happen.

In business and project management, there are so many unknowns that you could use your crystal ball for. Think of all the unexpected occurrences that you could prevent, mitigate or capitalize on if you'd seen them coming.

Like when a new project comes in, and you don't know whether you have the capacity to finish it. Or key staff member resigns and you don't have anyone else who has their level of expertise. Or when tasks become more complicated and expensive than you thought they'd be, and that throws your project scheduling and budgeting into a spin. Or when demand for a certain type of product or services skyrockets, and you could have developed something similar if only you'd known.

You may not be able to see these things coming, but with a little bit of planning and the right tools, you can be much more prepared for the unexpected simply by reacting quickly.

It's called scenario planning, and it's how teams prepare themselves for those "what if" scenarios. By assessing the likely ways that things won't go as expected, you can come up with contingencies, identify warning signs, and adjust your approach to eliminate risks.

What is scenario planning?

Also known as what-if scenario planning, scenario planning is the process of assessing uncertainties in a project, initiative or business, understanding their impact and identifying optimal actions should they eventuate.

The thing is, things don't often go to plan. There are many paths to the objective or end result, and while there is an ideal way to get there, there are always unexpected challenges.

Whether you need to deviate from the initial plan or include additional steps to overcome an issue, scenario planning allows you to carefully consider the best ways to address alternate scenarios. Then, when the unexpected happens, you already have a plan to deal with it.

Who can benefit from scenario planning?

Scenario planning can be used at all levels of a business or organization. It can be for anything from a company's overall strategic planning and direction, to projects or initiatives of any size.

In particular, scenario planning is used in project-driven businesses to understand how many projects is too many, align sales and delivery, keep costs down, and maximize the chances of completing work on time. Achieving budget and timeline goals are key objectives for any project manager, and the ability to quickly deal with unexpected issues gives you a much greater chance to do that.

It's not just about preparing for things to go wrong either - scenario planning can be for acquisition opportunities or other developments that can help businesses to grow. In this way, it can help organizations to differentiate themselves and give themselves a competitive advantage.

For example, according to PMI, 49% of executives say they're planning on investing in new technology in the next five years. A scenario planning example includes analyzing what kind of tech would make the biggest impact to the business and estimating the cost with an eye to being better prepared to make the investment.

Organizations in all industries can benefit from scenario planning, including digital agencies, consultants and IT services.

Why your business needs scenario planning

According to PMI, project managers lose 37% of their budget due to failures. This is exactly where scenario planning can make the biggest difference.

By recognizing risks, critical uncertainties and alternative scenarios, project managers can:

  • Take steps to eliminate risks
  • Navigate change
  • Speed up the decision-making process when dealing with unforeseen problems

Other advantages of scenario planning include:

  • Helping executives and stakeholders to understand the impact of multiple scenarios
  • Preparing initial responses among finance, operations, and other teams
  • Capturing insights and recommendations from key personnel for future use

Scenario planning isn't a one-off exercise either. It's best done throughout a project, especially at key milestones or at the end of certain phases. The way things have progressed up until that point may impact your strategic planning, and it means your planning is based on the most up to date information.

There are also some disadvantages of scenario planning:

  • It can be a large exercise, both in terms of time and money
  • It's difficult to outline its scope
  • Plans can change quickly
  • Future scenarios may not play out as expected, which can impact the relevance or usefulness of plans

Runn, however, makes it a lot easier for project-oriented businesses. Harnessing the power of Runn’s tentative projects and real-time charts, you can visualize the impact of endless combinations of projects and variations so you can plan for all the possibilities - without modifying your existing plans. 

Our project toggles let you get a forward-looking view of what will happen to your team’s capacity, utilization, and availability instantly. You can also see how each scenario impacts your people on an individual and group level.

Read more about how scenario planning works in Runn here.

Scenario planning examples

By its nature, scenario planning could be an endless exercise. In an uncertain world with plenty of possibilities, the only limit is your imagination. In saying that, for scenario planning to be beneficial and cost-effective, it pays to keep scenario analysis as realistic as possible.

Common scenario planning examples include:

  • How a project will continue if key resources are unavailable
  • What happens with resources and deadlines if new projects are added to the pipeline
  • Courses of action if tasks take longer than planned
  • Assessing the effect of work progressing at its current rate
  • Asking what you might do if the cost of doing a task ends up being more than what you'd budgeted

For example, a consulting business working with a client can look at what it would do if the client's project ends up taking longer than it's allocated. This could impact the business in a range of ways:

  • If there's another project that's due to start by a certain date and it's no longer possible
  • If the additional work leaves staff over-worked and in need of a break at the end
  • How it will invoice the client for the additional work - is there a surcharge? Will it be billed per extra day? How much will you charge?
  • If it needs to book additional resources for the extra time it's going to take

Understanding how you'd react in these types of situations helps to speed up the response and make better decisions if they eventuate.

Types of scenario planning

There are four different types of scenario planning:

  1. Quantitative surveys are financial models that display both the best-case and worst case scenarios of certain situations. Models can be updated and adjusted based on different factors, and are most commonly used to develop annual business forecasts.
  2. Operational scenarios deal with the immediate aftermath of scenario eventuating, outline the strategic implications in the short term and identify the best actions to minimize the impact. This is the most common type of scenario planning that organizations carry out.
  3. Normative scenarios are less about overcoming issues and more about outlining how an organization will achieve its big overall goals. Normative scenarios define and describe an ideal end state; for example, how a company wants to operate in the future. This involves more in-depth strategic thinking, and it's commonly used to assist other methods of scenario planning by outlining priorities and goals to consider.
  4. Strategic management scenarios deal with planning for the environment or landscape that an organization is operating in. They can be more challenging to compile because they deal less with the actual organization and more with societal, political, economic and other global factors that influence the business environment. Strategic management scenarios require a considered world view as well as deep industry experience and insight, and companies often outsource this type of work to specialist futurists.

The scenario planning process

The best scenario planning process goes through eight steps:

  1. Identify your key issue or question. What is at the core of your uncertainty? For example, a tech services company might ask itself, "What services are going to be most in demand in 5-10 years?". In project management, the issue is often "Why might it not finish on time?", or "Why might we go over budget?"
  2. Recognize factors that could impact the issue. Brainstorm a list of everything that could have an impact on your key issue. No idea is too wild. Many businesses wouldn't have considered a global pandemic in their scenario planning before Covid-19.
  3. List external forces. Non-business factors will also play a role. These may be generic to each scenario, but plainly can impact scenarios differently. Use the PEST approach to come up with political, economic, social and technological forces and think about how they might impact the way your organization runs.
  4. Find the most critical uncertainties. Which factors and forces will have the biggest impact on your business? Which ones have the greatest amount of uncertainty to them? These are the scenarios to focus on and plan for.
  5. Narrow down the possible futures. With so many alternative futures, you need to focus on the ones that will give you the most valuable insight. Pick between 2-5 possible futures for the scenarios you have.
  6. Follow the scenario through to the end. Outline the specific steps you would take to get you to a satisfactory end. There are two questions you can ask repeatedly to get you there:
  7. What should we do next?
  8. How will that impact other areas of the business/project?
  9. Following this process, you'll end up with a path that takes you from where you are now, navigating obstacles and issues to get you to your objective.
  10. Find common options. As you work your way through all your different scenarios and future events, there will be common aspects across them all. The strategies you use most often in your scenario analysis may be able to play a bigger role in your strategic planning going forward.
  11. Identify early indicators. Early indicators are the signs that you're reacting to a specific scenario rather than following a common strategy. By defining these signs, you're able to react quickly to minimize the impact on your business.

Managing the scope of a scenario planning exercise

Only two things contain the scope of scenario planning projects - time and the imagination of the person doing it. It pays to keep a few key points front of mind in order to keep the time investment in line with expectations:

  • Appreciate the importance of the team's time.
  • Spend more time developing and testing problems, and asking questions, than imagining "what if" tangents.
  • Define the outcomes that matter most to you. This will help to achieve them.
  • Understand how you're going to use the scenario plans you come up with.
  • Define what success looks like when you've finished.

The specifics of a scenario plan don't have to match a real life eventuality in order to be useful. If you've modelled to take certain actions if your costs double due to supply shortages, at least some of those actions will likely be applicable if costs rise due to suppliers raising prices, and so on.

The key thing is to recognize significant factors that impact the business and build scenarios that help you to understand the best courses of action when those factors change in various ways.

How to improve your scenario planning process

If you haven't done scenario planning before, it takes time and experience to be able to do it well. McKinsey outlines a few common traps in scenario planning that are best avoided.

Keep moving

When you carry out a robust scenario planning exercise, you'll identify a large number of risks and hypothetical situations that could impact your business. The risk with that is, it can paralyze decision-making as companies look to avoid risks wherever possible.

Rather than becoming a proverbial deer in the headlights, it helps to focus on the most likely scenarios and have a clear plan for dealing with them. Just because you're prepared for multiple scenarios, it doesn't mean you can't also have a primary plan for moving forward.

Keep clear communications

A scenario planning exercise is about dealing with uncertainty, but managers need to be careful about not relaying uncertainty to staff and stakeholders. You can't exactly go and say "there are four alternatives but we don't know what's going to happen."

Rather, your communication can acknowledge there are other possible futures while also outlining your ideal plan. You might say, "This is our plan, but we know how we'll react if X happens."

In fact, this can be a part of clear, open and transparent leadership. Your understanding of different scenarios qualifies your plan even more, and it pays to remember that.

Don't discard scenarios without proper consideration

Again, not many people would have had a plan for a global pandemic a few years ago, but it might have come in handy. When developing scenarios, it can be tempting to not pursue ones that seem far-fetched. If you're presented with a range of options, don't just ignore the most extreme ones.

How realistic a scenario is should only account for one aspect of the usefulness of a plan for it. A scenario with a major impact on the business could still be worth exploring even if you think it's not going to play out.

Also, if you've done scenario planning for a situation in the past, don't throw it out. It may have usefulness in the future if there are common traits that can be applied to other situations.

Optimism vs pessimism

McKinsey outlines that many businesses (and perhaps people in general) are typically too optimistic when facing a downturn and too pessimistic on the way out.

When planning a worst case scenario, it's worth pushing the limits of what you consider to be worst case. It's better to have a pleasant surprise than a bad one, so when forecasting the impact on profit of a major event, err on the low side.

Complacency

Scenario planning can create the illusion that you're fully prepared to handle whatever the world throws at you. While it certainly helps you to deal with the unexpected, it doesn't mean all your bases are covered.

It's important to review your scenario analysis and update it if needed. This also includes considering other possible futures that may be worth adding to your current scenario planning.

The devil is in the detail

Scenario analysis is about dealing with (and preparing for) the unknown. While this is exactly what makes it useful, there are some situations where there is so much uncertainty that you can't build out a useful scenario plan.

The more assumptions and estimates you have to make in your scenario planning, the more the plan will rely on a very specific set of circumstances, and the less useful it will be.

Identify triggers

Triggers are the signs that a scenario is unfolding, and can help to initiate the plan you've developed for them.

For example, for the scenario that you've built around investing in technology in your business, one trigger can be siloed communication within regular processes.

Identifying triggers means listing them as part of your scenario development plan and also being able to see them happening in real time, so you know it's time to initiate the plan.

Scenario planning best practices

There are a few rules of thumb that it helps to keep in mind with scenario planning.

Develop at least four scenarios

Developing two alternatives in a scenario isn't enough, but it may be worse to develop three. As outlined in McKinsey, if you develop three then most stakeholders will tend to choose the middle one.

Developing four scenarios forces decision makers to properly analyze the information and select one they truly believe in.

Present quadrants

It's common to present scenarios in quadrants, with variables on each axis. However, many scenarios have more than two uncertainties, so this approach is too simplistic.

The best way to resolve this is to create multiple two-by-two analyses using all combinations of uncertainties. This helps to bring to life the common aspects in some of the uncertainties, and they may be able to be combined to make it more simplistic.

Develop a base case

A base case is the one that has the highest probability of actually playing out. Identifying the base case as part of your scenario development means you can give it the appropriate weight and justify spending more time building it out.

It also helps when communicating scenarios to be able to outline which is the most likely, and why.

Name scenarios well

Giving scenario plans catchy, memorable names is the first step in getting them adopted. People will forget long, boring and descriptive titles, but they'll embrace fun ones. Stick to short names (between 2-4 words is best), and play them off movies, songs or historical events.

Learn from experience

It takes time to learn how to develop scenarios. There's no wrong way to do it, but plainly the best scenario plans are the ones that play out in reality. It might be helpful to look through old scenarios to see what they got right and what they missed. Why did they miss things? Are there other questions that could have been asked to improve their relevance?

Differing opinions are helpful

The best scenarios are those that aren't predictable. Ones that are conventional and middle of the road aren't overly valuable because they generally fail to account for unforeseen circumstances. If things always went to plan, there wouldn't be any need for scenario planning in the first place.

While it's often tempting to dismiss radical, maverick opinions, it's worth considering the merits of something unexpected. What's worse than the worst case scenario you're planning for? Be open to extreme possibilities.

Use specialized scenario planning software

In a typical scenario planning exercise, you'll end up with all sorts of events, actions, forks in the road, notes...it can get really messy doing it all free hand. If anyone else picks up your scenario plan, often they won't know where to start. Even worse, you can pick up your own plan two years later and struggle to make sense of it.

However, scenario planning software follows clear frameworks and standardizes inputs to bring to life exactly what steps are being taken and when. You can use scenario planning templates, test tentative plans to see the impact of decisions on other areas of the business, and use this insight to improve responses with greater insight.

Scenario planning models are pre-programmed, which means even first time scenario planners can use them to build out informed, in-depth plans.

Check out how scenario planning works in Runn here.

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