Why scenario planning is a key factor for the future success of your organization

What does the scenario planning process look like?

Scenario planning involves identifying two to four potential futures. This process enables you to focus your resource planning on plausible, impactful scenarios that require executive-level, enterprise-wide consideration.

This can be a challenging experience because it forces teams to move beyond the safety of familiarity — however, this is also one of the reasons why it is so powerful. A comprehensive approach toward the scenario planning process involves:

1. Identifying critical trends

The first step is to identify the most important factors and trends that may affect your organization in the future. These trends should include factors that will impact the external marketplace as well as the internal context of your organization, including:

• Shifts in the attitudes of employees towards their work
• Advances in technology
• Risks related to climate change
• Entry of non-traditional competitors in the marketplace
• Changing demographics in key markets
• Shifts in the purchasing habits of clients

It is critical to identify the factors and trends that are likely to have the most significant impact on your organization both in the near-term and long-term future. Below is an example of trends that may impact the insurance sector:

2. Developing metrics and a dashboard

A metrics dashboard provides a strong foundation to guide the next steps in the scenario planning process. It also serves as a mechanism to help your organization respond rapidly to external shifts and adjust its strategic thinking if trends are reversed or new factors emerge in the business landscape. Metrics can be qualitative or quantitative and should be tracked by your leadership team on a regular basis.

3. Defining impact by trend

It is important to remember that some trends may be favourable while others may have a negative impact on your business. It is crucial to bring your entire management team into the process to fully think through the range of risks and opportunities. It may also be beneficial to bring in a third-party advisor to provide an outside perspective.

To expand on the example above, this is an example of how climate change may impact the risk profile of insurers:

4. Developing a set of scenarios

You are now in a position to write the stories that reflect the potential internal and external contexts of your organization. These stories should capture the next six to nine months — as well as the coming two to three years. It is vital to capture both sets of timelines to mitigate near-term and longer-term risks and seize potential opportunities. These stories should be crisp and realistic, and should also reflect highly positive, highly negative, as well as more neutral outcomes to capture the full range of possibilities.

5. Considering implications

You can use these stories to consider the potential impacts on all aspects of your value chain. This will enable your organization to identify critical changes that may need to be made to ensure it remains successful in each of these scenarios. This is an example of the aspects of an insurance company’s value chain that may be impacted by climate change:

6. Creating mid- and long-term strategies

It is now possible to distill these initiatives into your organization’s strategic plan based on the rigorous thinking conducted over the previous five steps of the scenario planning process. The strategic plan should define clear timelines, responsibilities, and resource requirements for your organization.

Take the next steps

Scenario planning is a vital tool to help your organization navigate an uncertain business landscape. Future articles in this series will share some real-world examples of how scenario planning processes led to insights that helped transform business strategies to drive success. We will also describe some leading practices to help your business receive the full benefits of scenario planning — and discuss how this process can help embed the capability to exercise foresight within your organization.