Scenario Planning: Scenario Simulations
Once you have identified your Scenarios, and the Critical Uncertainties that will create them, it is time to simulate those scenarios to see how they might develop. The goal here is not to predict the future of the Scenario perfectly, but to explore it well enough that you can use the knowledge you gain to make better decisions. You do that by thinking through the chain of events in the scenario and how they will likely play out into the future.
Your simulation will rely on your experience in your business, any data you can collect on the General Trends and Critical Uncertainties and outside advice. Many companies will hire consultants to aid them in Scenario Planning to ensure they avoid introducing bias into this phase. If you really want your margins to increase, you may inadvertently add bias into your simulation that shows margins increasing.
As with any simulation, the most important part are the rules that you establish. A well-run simulation has rules that:
- … reflect the potential strategic options of the company. If your company is located in California and relocation is impossible, you should avoid considering options of relocating to other countries.
- … are not beholden to your current strategy. Scenario Planning was developed to attack the idea of the “official future”, the simple extension of today into tomorrow. You need to be willing to shake things up and consider radical changes.
- … are restrictive enough to provide a result. Life is very complex with many factors, which is why it’s so hard to predict what will happen next week. You need to limit the factors in your simulation or else you won’t really be able to make much progress.
You will know your simulation is working when you find yourself considering options and factors that you had not considered previously. Remember, the goal of the Scenario Simulation is not the end result, but the process and the different ways it forces you to think about your business.
Tomorrow we’ll cover how to simulate really complex scenarios, those that include many different competitors or organizations interacting with each other: War Games!