A scenario plan is a forward-looking document that’ll typically look at a couple of good – and not so good – scenarios for your business. At its most basic function, it’s a tool for adapting and surviving, planning for stuff outside a business’s control and giving yourself the best opportunity to be proactive and agile if things change. Showing what could happen will also help you spot the warning signs before things get too serious.
A comprehensive one will take time and money – and, yes, ‘futurists’ are available for hire – but small businesses can still put together a simple one with utility.
Why it matters
Lyneir Richardson is an instructor at Rutgers Business School and director of the institution’s Center for Urban Entrepreneurship & Economic Development. Here he provides insight into the importance of planning ahead.
Why is scenario planning vital for 2021?
‘The economic climate is changing so rapidly – it’s important that small business owners do scenario planning to make reality-based assessments and predictions. Being responsive is essential to profitable decision making, with timing one of the top indicators of business success; this could mean cutting operating expenses by delaying a new hire or perhaps accelerating the launch of a new product to meet market demand.’
Are there any plus points to being a small business for the scenario planning process?
‘Small business owners recognise the advantage of being able to pivot faster and be more agile than a big corporation. They can quickly create new strategies, experiment and implement.’
How can founders get into the right mindset for envisioning different scenarios?
‘I tell entrepreneurs, “Think about the worst day on the first day.” What I mean is to envision and brainstorm the five to 10 things that can go wrong. Then ask yourself questions such as: what are three things that I can do now to prevent that worst-case outcome? Or: what are three ways that would enable me to respond positively to the worst-case outcome?’
How can staff be engaged to help?
‘Team diversity, especially diversity of thought, is a huge advantage in scenario planning. People with different life experiences, socioeconomic backgrounds and viewpoints will bring a full menu of creative options to the table. Each can help with the identification and assessment of risks and rewards. The contributions of both the optimist and the pessimist – the risk taker and the risk avoider – should be valued and listened to.’
Where to start
Most plans involve identifying a key uncertainty facing your business (eg, the state of the economy), and estimating how that changing would impact the key things affecting your business’ profitability, such as sales revenues or overheads. The idea is to flesh out, using financial data, a minimum of three scenarios – worse, the same and better – and prepare a plan to accommodate for each scenario so you stay profitable.
Read through Rami Ali and David Luther’s step- by-step scenario planning at netsuite.com.
Listen to the HBR IdeaCast podcast episode ‘Future-Proofing Your Strategy with Scenario Planning’.
Use simple, intuitive scenario planning templates at Creately.com.