Scenario planning is a critical tool for business and strategic planning, especially in an uncertain and/or weakening economic environment such as that of today. While statistics regarding the usage of scenario planning have not been shown in recent prominent executive surveys, it would appear as if businesses in general are underutilizing scenario planning. This is very unfortunate, as it exposes businesses to risks and uncertainty that may be avoidable.
While scenario planning (also called scenario analysis, scenario thinking, or “what-if” analysis) can be defined and practiced in a variety of manners, in a general sense it can be seen as identifying, quantifying, and evaluating a range of alternative future outcomes. Once these outcomes, and their impacts, are identified and assessed, plans to deal with such contingencies can be formulated.
While a detailed explanation of the benefits of scenario planning would be lengthy – and depends largely on the methods utilized to conduct such planning – it is an analytical tool that should be regularly used, especially in instances where future outcomes are uncertain.
Scenario planning (and the associated modeling) can be a very valuable tool in helping businesses understand their specific situation (options, vulnerabilities, opportunities, etc) and the associated dynamics over a range of economic scenarios. It is paramount in effective business planning, especially for those businesses that are looking to mitigate and/or avoid the potential damage economic weakness can cause.
Assessing the impact of today’s economic weakness – and the probability of ongoing weakness, if not outright economic decline – should be both contemplated and planned for by businesses. Many aspects of economic declines, such as those seen in 2008-2009, are both difficult to predict, as well as manage. In the case of the 2008-2009 economic malaise, even the ensuing rebound from such levels has presented a variety of challenges and unique problems.
In conclusion, scenario planning is a valuable tool for business and strategic planning, especially during periods of uncertain future outcomes such as those presented by a weak or weakening economy. It is especially valuable for corporate risk mitigation, as it forces management to contemplate various situations and their associated dynamics presented by changes in various assumptions.