By Guy Rigby, Director & Head of Entrepreneurs at Smith & Williamson
For many growth businesses, the frequency and impact of unexpected events can be alarming and difficult to handle. But with the use of creative foresight and a technique known as ‘scenario planning’, businesses can spot opportunities and make good decisions to help manage future uncertainties.
Scenario planning has become more widely adopted by businesses of all sizes in response to rapid change, increasing complexity and rising levels of uncertainty. Some businesses develop and maintain a number of plausible future scenarios to guide their decision making as and when they arise. Others use the technique to support a single and important decision based on their assumptions about the future.
How scenario planning can help growing businesses
Growing businesses can enjoy a number of additional benefits by using scenario planning to underpin their future plans:
- Strategies and decisions are likely to be more resilient when they are tested against a range of possible scenarios. Cause and effect will be better understood and the business will have a sharper view on new opportunities.
- Scenario thinking helps to build effective teams. The process of scenario planning is itself creative and enjoyable. It uncovers and uses differences of opinions and challenges assumptions. It also builds new perspectives of what might be possible and where new opportunities lie.
- Scenario planning will strengthen the business as it becomes more alert to external trends and developments, improving its ability to respond. Scenarios are easy to communicate and staff will readily recognise the drivers of success as well as the potential dangers.
How to use scenario planning
Scenario planning is usually more focused and useful if it is structured around an important and far-reaching decision, or possibly a 'what if' event. For example, you may be considering a major new programme or just wish to test your existing three-year strategy against the possibility of higher energy costs, a recession in the eurozone and a continued difficulty in accessing funding.
With a specific decision or question in mind, you can identify the driving forces — those that will dictate the success or failure of your strategy. Some of these you will be able to influence and others you will not. The most important and uncertain forces that will influence the success of your strategy become the foundations of perhaps three or four different scenarios. Building detail into these different scenarios allows you to consider how the future might unfold and how your strategy would stand up.
Through thinking creatively, the idea is not to make forecasts of what is most probable but to identify what is plausible. This may mean suspending disbelief as you create a story that actually might happen.
Scenarios are not an end in themselves but are a tool to improve decision making. They provide a way for decision-makers to test out their strategies and to make them more resilient to future events. It is clearly best if the decision makers are also the architects of the scenarios. They can then recognise opportunities and threats common to each scenario and identify the strategies that are most likely to succeed in each case.
This simple-sounding, linear process can, of course, become more complicated. Time is required, hard data may need to be gathered and the views of people outside the core group can add greatly to the insights and the value of the exercise.
To discuss the drivers and scenarios in your business, contact Guy Rigby on 020 7131 8213 or email firstname.lastname@example.org.
By necessity this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Article correct at time of writing.
Smith & Williamson Limited
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International.
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