Scenario Planning: Choosing Scenarios

This is part 3 of our series on Scenario Planning, previous segments are available in our archives.

After you’ve identified the driving trends for your business (those Critical Uncertainties from yesterday), it’s time to choose the scenarios that are worth investigating. If you were to simply choose the scenarios you find most interesting or the ones you already know about, the entire process of Scenario Planning would be a waste! For Scenario Planning to be effective you need to confront possible futures that are either unpleasant or previously unknown.

Luckily, the Critical Uncertainties you have identified will shape your scenarios for you. For example, given any two of your uncertainties, you can construct scenarios using their possible outcomes (positive or negative):

Scenario Matrix (Generic) (1)

This might be hard to visualize without an example, so let’s use an example! Let’s assume we are an electronics company that manufactures our product in China and sells it primarily in the US. Through our process, we’ve identified the biggest Critical Uncertainties to be Competitive Price Changes and changes to Import Tariffs. Each of these can have two possible outcomes:

Positive Outcome Negative Outcome
Competitive Price Changes Competition raises their prices, making our product cheaper and more attractive. Competition reduces prices, forcing us to reduce our prices to compete.
Import Tariffs Import tariffs are reduced, which in turn reduce our costs. Import tariffs increase, forcing us to raise the price of our product.

 

We can then construct four scenarios from these two Critical Uncertainties:

Scenario Matrix (Example) (1)

Each of these scenarios is significantly different, and analyzing each of them will provide great insight into these areas of the business which were previously so uncertain. This was a simple example using only two of your Critical Uncertainties to create scenarios, but you will likely have many more than two. You can build more scenarios by combining pairs of Uncertainties (repeating this simple process) or combine more than two Uncertainties together into a more complex matrix. Either way, you should have a collection of interesting scenarios to analyze.

If you have too many scenarios to consider in the time you have available, it can be helpful to rank them by likelihood so that you spend less time on the highly unlikely scenarios. For example, if one of your scenarios relies on the invention of teleportation you can probably skip that one since you probably won’t see teleportation invented anytime soon.

Tomorrow we’ll cover different approaches to analyzing these scenarios now that you have them in hand!

 

Quote of the Day: “He chose…poorly.” Grail Knight, Indiana Jones and the Last Crusade