How do you create data that can help you understand the market and make better long-term business decisions? And how do you form a strategic plan for your business if you don’t have certainty about the future? If you’re a small business owner, you need to predict uncertainties in your industry to make both short-term and long-term plans accordingly. Business scenario planning, or scenario analysis, is a strategist’s toolkit that focuses on the outlook of the future of your business.
What Is Scenario Planning?
Scenario planning is making assumptions about the future and the implications of different external factors on your business. Put simply, scenario planning involves identifying a set of uncertainties that can influence the operation and survival of your business. Think about politics, technology, and other factors that can impact your organization.
But why’s scenario planning important to your business? Whether you’re a small business owner or manager, scenario planning helps you understand industry trends so that you can make better long-term plans. If you sell cell phones and you anticipate cheap yet quality phones from China flooding the market, you can put aside some money to take advantage of this opportunity. Regular scenario planning helps you know how competition may affect your business in the future so you can employ the right strategies to improve your processes and make your products unique. You can also tell when to buy another business or cease operations. For example, you may want to close your movie rental store due to the massive popularity of Video-on-demand and Netflix.
The Process of Scenario Planning
Now that you know the importance of scenario planning, you need to know how to use the tool to predict your business uncertainties.
Identify the Driving Factors
The first step toward creating your scenarios involves evaluating the big shifts and potential changes in technology, politics, economics, society, and other factors that affect your business. Now that you have a list of the driving forces that impact your business, identify two to three factors that have the most impact on your business.
Link These Drivers in a Meaningful Way in a Model
Create a matrix that shows how the driving factors relate to and influence your business. Include the uncertainties that may come with the driving factors.
List Possible Scenarios
Once you create a scenario matrix for your organization, produce a list of plausible scenarios.
Analyze the Results and Plan Accordingly Based on the Expectations of Each Scenario Occurring
In this step, discuss the implications of each scenario. Focus on your mission when discussing the possible implications and impacts on your business. You may want to reconsider your strategy before you plan for the future.
Characteristics of Good Scenarios
If you want a good strategy for your business, choose four or five scenarios. With less than four scenarios, you may end up picking the most plausible and forgetting the others. And more than five scenarios may confuse you.
What do you specialize in and what external factors can impact your business? Each business has its own challenges, so ensure that you customize the scenarios in reference to your business. For example, if you’re into interior design, you may want to consider how inflation affects the prices of paint and other materials you use. Imagine you specialize in printing. You need to consider how innovation and technology make it possible for you and other businesses in your industry to copy, print, and scan with one machine.
A scenario is like a story with a beginning, middle, and end. Ensure that all the scenarios you choose contain enough information to assess the probability of success and failure of your strategic options. Can new technologies render your products useless? And how much competition do you anticipate? If you get raw materials outside Canada, you may want to consider the foreign nation’s diplomatic relations with your country. A good scenario has twists and turns and shows how your business environment may change from time to time.
Key Takeaways in Scenario Planning
Scenario planning helps you build a robust vision and future for your business. Understanding the alternative scenarios and possible implications helps you feel confident in your business decisions. It becomes easy for you to choose a strategy for your organization. Be sure to learn how to lead and involve your team in scenario analysis. Allow them to contribute actively in this process if you want to bring success to your business.
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