4 Ways Scenario Planning Supports Decision-Making

Have you ever been in the room when someone suggested doing scenario analysis? Did you see everyone in the room cringe at the thought?

I have, and I felt pity for the person who made the suggestion.

Most likely, everyone in that room has gone through the endless “what if” scenario analysis that takes 4 or 5 hours and ends without any solid conclusions.

But if done correctly, scenario analysis can be extremely effective in its support of decision-making.

Personally, I prefer to use the term “scenario planning” instead of “scenario analysis” for the simple reason that “scenario analysis” sounds painful and very computer-driven. On the other hand, scenario planning is human-based and sounds like the effort and results will be useful for the participants and the final audience.

At its core, scenario planning is a “creative and structured process to guide deliberate thinking about risk,” as defined by Aries de Geus in his book The Living Company.  De Geus, as the corporate planning coordinator at the Royal Dutch/Shell companies, used scenario planning and described its effectiveness in this Harvard Business Review article…from 1988!

So, with all that being said, how can scenario planning support decision-making?

1.   Tests and validates assumptions being made as part of the planning process

When corporate planning occurs, whether called strategic planning, annual planning or something else, management believes that a certain set of assumptions will become true. How many times has management stated an assumption as fact? But what if they are wrong?

2.   Provides management with the tools to proactively prepare

Risk management activities are supported with scenario planning, which looks at possible events. While most people inherently want to say the most positive event will occur, proactively preparing for events is always better than being reactive. Being proactive rather than reactive is a key difference between traditional risk management and ERM.

3.   Encourages innovation

Scenario planning helps people to think outside of their comfort zone, taking next steps to a big innovative moment. Sometimes that innovation is triggered by the proactive preparation. An organization that is constantly innovating is a step ahead  of its competitors.

4.   Gives the organization a competitive advantage

Being prepared and innovative are two enormous parts of a competitive advantage. What company would not want that?

Management improves its way of making decisions simply by using scenario planning. It will take time for this way of thinking to take hold, but it stands to reap immeasurable benefits in both the short- and long-term.

After all, de Geus believes that scenario planning is the reason there are companies that last for 200 and 300 years. From the same Harvard Business Review article,

Sociologists and psychologists tell us it is pain that makes people and living systems change. And certainly corporations have their share of painful crises, the recent spate of takeovers and takeover threats conspicuously among them. But crisis management—pain management—is a dangerous way to manage for change.

 

Once in a crisis, everyone in the organization feels the pain. The need for change is clear. The problem is that you usually have little time and few options. The deeper into the crisis you are, the fewer options remain. Crisis management, by necessity, becomes autocratic management. The positive characteristic of a crisis is that the decisions are quick. The other side of that coin is that the implementation is rarely good; many companies fail to survive.

 

The challenge, therefore, is to recognize and react to environmental change before the pain of a crisis. Not surprisingly, this is what the long-lived companies in our study were so well able to do.

 

All these companies had a striking capacity to institutionalize change. They never stood still. Moreover, they seemed to recognize that they had internal strengths that could be developed as environmental conditions changed.

Don’t you want your organization to be around for 300+ years? Embedding scenario planning into management’s decision-making processes will help make that happen.

Are you already using scenario planning? What kind of results have you seen?

Please comment below or join the conversation on LinkedIn.

And if your enterprise risk management program is not delivering the value you need to maintain a competitive advantage, contact me to discuss how you can get a tailored action plan to help integrate scenario planning into your decision-making process and achieve your ERM and organizational goals.

Sign Up For Our Newsletter

Sign Up For Our Newsletter

SDS-Logo
about-sidebar-v2

Meet Carol

Helping companies achieve their vision and strategy, and succeeding in today's turbulent world, is something I'm honored to be a part of. Whether you're an occasional blog visitor or a long-term client, thank you for letting us be a part of your journey.

Most Recent Posts

The 12 Days of ERM Christmas

Without a doubt, one of my family’s favorite holidays is Christmas. Part of the fun, especially for our son, is seeing what “Santa” brought, but most importantly, we treasure the spirit of peace and goodwill the season brings. And after what seemed to be a never-ending warm spell, the weather is expected to be good…

Read More

Don’t Let Goals and Initiatives Be Blindsided by External Events

As the end of the year draws near, I think we’d all agree that while it wasn’t without its challenges, this year also wasn’t quite as turbulent as the previous two. While a lot of people are juggling company parties, shopping for friends and family, and special activities for the kids, most companies are putting…

Read More

Going the Distance: Ensuring Successful Execution of Strategic and Annual Initiatives

Strategic planning is a challenge – of all people, I understand… After all the meetings, risk and data analysis, and brainstorming of the preceding months, it’s tempting to think this is the end of the road and you can relax. Contrary to this common perception though, this is exactly not the time to relax, but…

Read More

Avoid Rookie Mistakes and Protect your Internal Reputation

Be honest – have you ever done something that you soon realized was a real rookie mistake? Me raising my hand… Considering the nature of ERM’s role to ask questions and challenge assumptions (often during conversations with executives), it can be argued that, in at least some cases, the expectations bar for risk professionals is…

Read More

ERM at Thanksgiving – An Illustration of Risk Management in Action

On occasion, I like to take some of the concepts we risk professionals think about in our jobs and apply them to different personal situations…take some of the same concepts we use when working with executives to develop corporate strategy and manage risks or uncertainty around that strategy. It’s Thanksgiving week in the U.S. –…

Read More

Why Quantitative Risk Assessment is Not Just the Best But the Only Option – A Conversation

Periodically, I have the pleasure of speaking one-on-one with Hans Læssøe on a variety of topics around ERM, strategic risk, and other issues and trends. As you know from my previous conversations (here, here) and posts featuring his work, Hans was formerly a practitioner at the iconic LEGO Company, but even more notably, is a…

Read More

The Three Lines Model – 3 Reasons Why I Don’t Like It

Everyone likes a clear-cut template that offers an easy way to create or manage something…I mean what’s not to like about a step-by-step process for accomplishing what you want? Sometimes this can work without any issues, such as the case with the Project Management Book of Knowledge (PMBOK), ISO 9001 standard, or a new cooking…

Read More

5 Avenues for Expanding your ERM Knowledge

One thing I was taught to appreciate from a young age was the value of education and knowledge. It didn’t necessarily matter what the subject was, just that I always maintain a learning or growth mindset regardless of my current status in life. This mindset has served me well over the years, and it’s a…

Read More

Storytelling and Risk Management – Developing Skills that Technology Cannot Replace

It’s amazing how technology has developed and changed our working world over time. Imagine trying to run my risk and strategy consulting firm without tools like Zoom, Box, Slack, and other ERM-specific technology tools. There is no way we would be able to serve our clients the way that we do. Just consider how the…

Read More

3 Phases to Creating and Launching an ERM Program Focused on Organizational Success

If you’ve been handed the task of creating an ERM program for your organization, let me first offer my congratulations quickly followed by my empathy for the task ahead of you. I don’t say that to scare you but to provide a small dose of reality. Building, launching, and refining an ERM program that is…

Read More