SCENARIO Planning

Scenario Planning is all about describing what is possible rather than just predicting future. Most of the forecasting techniques fail to predict significant changes in the firm’s external environment when information is limited or not available or the change is unexpected and disturbing. In such a situation, scenario planning is used as a tool to deal major, uncertain events in the firm’s environment. The result of Scenario Analysis is a group of distinct futures, which are plausible. The challenge is how to deal with each of the scenario.

Scenario Planning Process:

1.Specify the scope of the planning and time frame.
2.For the present situation, develop a clear understanding that will serve as the common exit point for each of the scenarios.
3.Identify the elements, which can act as driving forces.
4.Identify the most important driver by rating them on their range of variation and impact on the firm. Multiplying the factors will give the significance of each factor. It could be done in a scale of 1 to 10.
5.To analyze the interaction between the variables, scenario matrix can be made using the most important variables and their possible values. Each cell in the matrix represents a single scenario. Alternatively, factors can be taken in pairs to generate several two-dimensional matrices.
6.Quantify the impact of each scenario on the firm and formulate strategies.

The benefits of Scenario Planning is the managers are forced to break out their standard world view and decision makers are better able to recognize a scenario in its early stages and there is a better understanding of the source of disagreements if any.