5 Reasons Why Every Business Owner Should Do Scenario Planning
By Madeleine Niebauer, founder and CEO of vChief, a virtual executive staffing service, helping leaders fill gaps and drive growth with fractional support.
Most business leaders are familiar with scenario planning, the process of imagining two to five detailed, hypothetical situations that could play out in the near future in order to prepare for the challenges and opportunities those situations would present. It’s especially helpful in times of economic and political uncertainty, and it can also help leaders prepare for upcoming regulatory changes, the emergence of disruptive technology or major investments.
Despite its potential to improve strategic performance, many business leaders overlook scenario planning. Some view it as an unnecessary exercise in over-planning, questioning the value of preparing for hypothetical futures. However, as an avid practitioner of scenario planning, I can’t imagine running a business without it.
Here are five compelling reasons why every business owner should incorporate scenario planning into their business strategy.
1. Reduce Anxiety Now, Improve Decisions Later
Scenario planning can significantly enhance decision-making capabilities. It allows business leaders to be more adaptable and forward-thinking because they've preemptively considered various dynamics and outcomes.
And personally, it also helps me manage my anxiety when the future looks iffy. Knowing that I’ve thought through potential scenarios and prepared accordingly gives me a sense of control over what's within my grasp.
2. Get More Buy-In From Your Team
To ensure the scenarios you plan for are realistic and richly detailed, participant diversity is crucial, as Gartner highlights. Involving cross-functional teams and department leaders in your scenario planning process brings a wealth of diverse perspectives and expertise, leading to a more comprehensive understanding of the impact of different scenarios and a wider range of solutions to potential challenges.
And there’s a benefit on the back end. When a business is forced to make a major pivot in response to economic headwinds—be it setting up new services, products or market channels or making strategic cuts—team members often have to put in extra effort. Major changes like this can face resistance from team members. However, if they were involved in the planning process, they’ll be more likely to support and quickly adapt to decisions made in response to the changing environment.
3. Protect Your Brand
There’s a misconception that scenario planning is only about making financial projections and adjusting your budget accordingly. But it covers so much more than just your budget process. Scenario planning helps you understand the broader impact of disruptive forces on all aspects of the business.
A thorough scenario planning process should consider the effects of a potential situation—let’s say a recession since that possibility is on everyone’s mind right now—on factors such as your company's talent and culture, the market demand, the competitive landscape, your brand perception among stakeholders and your sales compensation structure.
And it’s not just useful for times when you expect a negative impact on your sales. For instance, home health product manufacturers—like those that offer at-home facials and DIY hair dye kits—may experience a surge in demand during economic downturns. Being unprepared for explosive demand can be just as damaging to your team culture, your reputation and your long-term business health as a lack of sales.
4. Become More Efficient With Practice
Scenario planning may sound complex and time-consuming when you read through a how-to guide. But it doesn’t have to be a major endeavor that consumes all of your time for months.
For organizations that make between $10 million and $50 million in revenue, scenario planning can usually be completed within four to eight weeks and requires only a few hours each week. It should take much less time than your annual planning process, and it can translate into time savings in the future when you have to pivot in response to changing market conditions. And having a scenario planning system in place will help you do it faster in the future.
5. Improve Your Strategic Performance
A crucial part of the scenario planning process is conducting a post-mortem analysis of your scenario plans. As soon as it’s possible to assess the accuracy of your predictions, you should review your scenario plans and identify what factors were overlooked and which strategies were the most successful despite unanticipated changes. With repeated practice, your predictions will likely become more accurate and complete and your strategic performance could improve.
Scenario planning isn’t just a theoretical exercise; it's a practical approach to navigating uncertainty and preparing for the future. Ignoring this tool in today's fast-paced and unpredictable business environment is not just an oversight—it's a missed opportunity for growth and resilience.
