It doesn’t matter how advanced science gets—it’s impossible to predict the future accurately.
Similarly, in business, you can’t predict exactly what will happen with your company, its products, or the industry you work in. However, you can use past experiences and data analytics to predict what might happen in the future and make a plan for it. And that is essentially what scenario planning is.
What is scenario planning?
Scenario planning is an effective management tool that can help you anticipate and prepare for any possible future situations. It is used to tell a story that includes:
- What might happen based on various factors and events
- The potential challenges and complications that might arise from those events
- The exploration of possible opportunities associated with various scenarios
- Plans and strategies to address each
Why is scenario planning important?
Scenario planning encourages team leaders to be more proactive and creative when approaching their plans. It helps you to:
- Manage an uncertain future
- Identify risks, challenges, and possible opportunities so you can make strategic decisions that align with your company’s long-term goals
- Identify gaps, which can give you new insight into potential risks and disruptions
- Be more adaptable and resilient with flexible strategies and contingency plans that address a variety of scenarios
- Encourage a collaborative environment by working more closely with and seeking input from cross-functional teams and stakeholders
- Have a competitive advantage because you can make decisions and react quickly to changing situations
Scenario planning vs. forecasting
Scenario planning and forecasting are both approaches to preparing for and understanding the future. Sometimes these terms are used interchangeably, but there are key differences.
Forecasting relies heavily on present and historical data, trends, and statistics. It assumes that the future is relatively stable and predictable. If the future looks the same as today, you should be able to make fairly accurate predictions based on your past analysis.
This approach is less creative than scenario planning. It is a short-term method for predicting the future based on known variables and doesn’t consider risks, uncertainty, or potential market shifts. For example, a sales team can predict monthly sales figures based on current and past trends.
Scenario planning is more flexible and creative. It acknowledges risks and uncertainty and lets you consider many possibilities. This encourages creative thinking, which helps you to describe possible scenarios and their outcomes in a compelling narrative.
Types of scenario planning
Depending on your specific needs and objectives, you can use several different scenario planning approaches. These include:
- Normative scenarios: Normative scenario planning focuses on developing a preferred future or the direction the company wants. It involves creating scenarios that tell the story of your company’s goals and vision.
- Operational scenarios: This type of scenario planning focuses on events and the possible impact these events will have on your business. It involves developing scenarios that address your organization's specific operational processes to deliver products and services. Analyzing the effects of these processes and events can help you to improve operational processes by considering possible future situations.
- Quantitative scenarios: This approach uses quantitative analysis and modeling to help you predict and understand possible scenarios. You use data, numbers, and mathematical models to describe plausible scenarios, the probability that these scenarios will happen, and the potential impact these scenarios will have.
- Strategic management scenarios: These scenarios use planning techniques to create scenarios that help guide an organization's strategic decision-making process. These scenarios primarily focus on the environment where your products are consumed. For example, strategic management scenarios for a car manufacturer might focus on what personal transportation means to customers as opposed to focusing on cars or trucks. This can help you to develop scenarios that address long-term strategies centered around your organization’s goals, capabilities, and competitive positioning.
The scenario planning process
The scenario planning process typically includes the following steps:
Step 1: Identify key issues, trends, and driving forces
Determine what you want to focus on as you develop your scenarios. What are the driving forces that might have an impact on the way you do business?
Step 2: Create a scenario planning template
Create a template that includes the uncertainties and driving forces you identified. Currently, there is no standardized template for scenario planning. A collaborative online application like Lucidspark makes creating your template easy. Or, get started with our free scenario map template.
Step 3: Develop plausible scenarios
Develop multiple distinct and plausible scenarios that describe the possible futures related to your selected driving forces. But don’t go overboard—try to focus on two or three significant uncertainties for developing your scenarios.
For example, a car manufacturer must create scenarios for transitioning to electric vehicles. Scenarios might need to address supply chains, a future without gas engines, buying and operating a battery manufacturing plant, research, and development to build long-lasting batteries, etc.
Your scenarios tell a plausible story and include the strengths and weaknesses of your plan.
Step 4: Evaluate the scenarios
Analyze each scenario and assess potential risks, opportunities, challenges, and the requirements of each possible future. For example, if you are planning to manufacture batteries for electric vehicles, ask questions like:
- How much do the materials required for building batteries cost?
- Where do these materials come from?
- Are prices likely to go up?
- How long will the batteries last?
- How far can you travel on a single charge?
- What government regulations need to be followed?
After evaluating and refining your scenarios, it’s time to implement them.
Step 5: Monitor and update scenarios
After implementing your scenarios, you are not finished with your work. You must monitor the environment and update the scenarios as you get new information. Like most tools that help you to work more efficiently, scenario planning is an ongoing process that includes frequent refinement and adaptation.
How Lucidspark can help with scenario planning
Lucidspark brings together teams no matter where they are located to collaborate in real time within the same space. With an extensive library of templates and features, it’s easy to brainstorm and ideate, draw and modify flowcharts and diagrams, and do your best work to accomplish your goals.
Get started with a free scenario planning template.Learn more
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