Scenario Planning

For management learners globally

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Earlier we talked about crisis management which was all about managing a situation after the event has occurred. Almost like a damage limitation exercise.

Scenario planning is all about trying to predict future events and coming up with strategies to deal with these likely scenarios. One way of trying to predict future scenarios is to look at the your environmental or PESTLE analysis, for example, if a firm is reliant on four suppliers to build their product, what would happen if 1 or 2 of these suppliers went out of operation? What is the likelihood of this happening? Is there anything happening in the suppliers environment that could have impact on their operation, for example a shortage of a certain raw material. If this did happen what would be the firm's contingency plan?

We all know that oil is a natural fuel and it will eventually run dry within 60-70 years. An oil firm will have to start looking into alternatives sources of energy to provide to users in order to stay in business. Oil firms will use scenario planning to try to predict future events and plan for these accordingly.

When a firm looks at all predicted scenarios a common practice is to rank the likelihood of these scenarios happening. A simple rating scale from 1-5 maybe used where 1 is a strong likelihood of the scenario taking place and 5 unlikely for the scenario to take place.

Scenario planning is an important element to the strategic management process, it helps firm in preparing for events that may impact the organisation and coming up with strategies to deal with these possible events.