Scenario Planning: Advanced Scenarios
Some scenarios are too complex to simply think through on a white board, as there are too many factors to consider. For example, if your scenario deals with a competitive price war with three or four competitors it can be hard to understand how each player will react to each change. These can be the most important scenarios to understand; how can you manage the complexity?
As I mentioned previously, Scenario Planning originally arose out of military planning techniques. One very effective way the military predicts the future is to run war games (simulations) where they have teams compete against each other in a simulated battle to see how things will develop between different forces. War games work well because each team only needs to worry about their interests and resources, giving them clarity of decision making and a more productive overall simulation. This is an effective tool you can deploy to understand these highly complicated and multi-party scenarios. And it’s fun!
The easy part is dividing your people into teams, one for each party in your scenario. The hard part is establishing the rules for the simulation (as we covered yesterday) so that it plays out in a way that is useful for making decisions. This is not largely different than how we simulated scenarios previously, with the difference that each team in your war game may have different rules. For example, a large competitor may have more flexibility in adjusting their prices and margins (due to large cash flow) than a smaller competitor. The better you design rules for each team the better the results of your simulation.
It is always a good idea to rotate your teams so that everyone gets a chance to look at the problem from different points of view. This is easy if you repeat this process on a regular basis, which will also help your team improve their simulation skills.
Further Reading: I’ve only scratched the surface of Scenario Planning this week! If you’d like to learn more about scenario planning and see more detailed examples, there is a great paper on Scenario Planning published by the Leipzig Graduate School of Management that I recommend.
Quote of the Day: “My friends call me Miss Worst Case Scenario.” Patricia Cornwell