You don't have a crystal ball to predict the future for your growing mid-sized business, but one clever concept can give you the ability to plan for multiple possible futures and ensure your company can successfully adapt to any changes.

Scenario planning gives your business the edge, allowing it to expand and deliver in the face of an uncertain world. Whether it's evolving market trends, the flux of world politics, or advancements in technology, scenario planning allows your teams to see ahead and predict all potential futures.

Robust scenario planning won’t just give you a heads up for what’s around the corner. It will also give you detailed next steps, ensuring you can sidestep challenges, fortify systems, train your team, and plan for whatever may come your way.

Table of Contents

1. What is scenario planning?
2. Why is scenario planning important for a medium-sized business?
3. The key benefits of scenario planning
4. How to start scenario planning
5. Case studies
6. Advantages and disadvantages of scenario planning
7. Tips for successful scenario planning
8. How QuickBooks can help
9. FAQ

What is scenario planning?

Scenario planning is a future forecasting technique that businesses can use to map out possible challenges in a range of areas, including:

• World events outside your control
• Logistics and supply chain issues
• Human resources and training priorities
• Unexpected additional product demand
• Public relations events, both positive and negative

Scenario planning goes beyond simply listing possible future calamities. It helps you, as a leader, prepare for the unknown — both good and bad.

For example, a viral trend or unexpected celebrity endorsement may lead to increased interest in one of your products or services. How will you strategically maximize this opportunity? Perhaps new legislation will affect your operating costs. Do you have a well-developed strategy to manage uncertainty?

Scenario planning can encompass everything from simple projection forecasts estimating cash flow to contingency plans that help mitigate the effects of global geopolitical or environmental impacts.

Why is scenario planning important for a medium-sized business?

According to the Government of Canada, there are 23,395 medium-sized businesses operating across the nation, and every one of them has many moving parts to contend with. Multiple employees, teams, leaders, clients, partners, and stakeholders can complicate decisions — especially if a crisis hits.

Scenario planning means you've already done the hard work of researching and creating flexible frameworks for dealing with a variety of problems. It also means you and your board of directors and other executives will be empowered to act quickly to find solutions. You'll have a playbook to follow in the event of a crisis, helping you stay a step ahead of the competition.

The key benefits of scenario planning

Scenario planning has many benefits, including:

It allows for pre-emptive discussions and decision-making

Scenario planning enables multiple members of your organization to confer, discuss, debate, and strategize together, creating a thorough, cohesive, and comprehensive plan for the future.

It gives you a model to follow

In an emergency, finding a clear path ahead can be difficult, especially with competing opinions or philosophies. Instead of reacting to challenges in the moment, you'll have a clearly documented approach to managing scenarios and uncertainties.

It identifies potential risks

As part of your risk management strategy, scenario planning allows you to map out potential threats and creatively problem-solve to mitigate risks to your company's growth and profits.

It helps avoid the echo chamber

Each busy day at the office includes certainties, orders in place, policies adopted, and events already in motion. It can sometimes be difficult to see beyond what is known, what has always been, and what is expected in a closed system.

Scenario planning gives you the opportunity and space to predict what might happen and how your business would respond to a variety of situations. It invites a diverse and creative approach to problem-solving by identifying and attempting to fix issues that haven’t yet arisen.

It helps identify new opportunities

Scenario planning is an excellent risk management tool, but it can do more than just help you avoid problems. When you envision different futures, you may also find that interesting insights are discovered and shared about market trends, along with areas where you can decrease costs, grow your business, or diversify your products or services.

It helps build company confidence for the future

Just like having an emergency preparedness plan is important for natural disasters, having a scenario plan in place can help your entire company feel assured and confident that you're prepared for the unknown.

Instead of operating from a place of fear and uncertainty, growing businesses using scenario planning have a course of action to help them allocate resources, take decisive action, pivot or recast, and adapt to changing circumstances.

How to start scenario planning

If you want to start scenario planning in your business, follow this simple, step-by-step blueprint:

1. Gather your teams

Input may be needed from multiple levels within your organization, including finance, operations, sales, customer service, human resources, management, and upper leadership. The more voices you include, the more nuanced your response and plan will be.

However, scenario planning can be a lengthy process, and involving more people will extend your timeline, so be prepared to set limits.

2. Present the model

Discuss potential scenarios with your teams, identifying potential outcomes and the parameters that are both known and unknown. Be sure to have all the data and necessary information on hand for staff and decision makers to create authentic and plausible scenarios.

There's no point in developing a plan to mitigate changes your business is unlikely to ever encounter. Although creative thinking is important in the brainstorming and discussion stages, only select scenarios that have at least a reasonably realistic chance of happening.

3. Develop your plan

Together you’ll develop plans that offer strategic ways forward for a number of possible impacts or issues.

Follow these steps in your planning:

• Clearly identify the problem(s).
• Assess the constraints or challenges confronted.
• Identify the parameters you can and cannot control.
• Address both external factors and internal drivers that may impact your scenarios.
• Examine whether you have the necessary intel, personnel, technology, skills, and data to create a thorough plan of action. If you don't, plan to reassemble when you're better prepared.
• Create a manageable number of scenarios and keep them simple — they don't need to be perfect to be useful.

4. Refine and review

Scenario planning is not a stagnant process. Your plan is a living document that must be reviewed and refined, especially when new information, directives, or legislation is developed.

Schedule time to regularly review your scenario planning, and involve new team members or leaders as appropriate.

Case studies

Let's look at a few case studies to understand how a medium-sized business like yours could implement scenario planning.

Company 1: Funtime Toys (small chain of toy stores)

Size: 55 employees

Revenue: $3 million

Industry: Retail (toys and games)

Challenge: The company predicts a continued shift away from physical retail locations toward online shopping. They foresee that this may be partnered with decreased sales across stores.

A. Scenario planning process

The team will:

• Assess the popularity of online shopping against their customer demographic.
• Conduct a detailed analysis of current and projected figures.
• Identify any supply chain issues and delivery obstacles that could make a move to online shopping challenging.
• Look at existing consumer confidence and brand awareness in brick-and-mortar stores.

B. Strategic decisions

The team plans to:

• Invest heavily in their virtual store and online presence.
• Launch a points reward system to encourage customer loyalty.
• Create partnerships with fulfilment and delivery companies to offer faster service.
• Maintain clear and cohesive branding across virtual and physical stores.

C. Result

These steps aim to increase customer, staff, and leadership confidence that the company can pivot to offer more online products if it experiences further decline in retail stores.

Company 2: GreenTech Solutions

Size: 100 employees

Revenue: $25 million

Industry: Renewable energy technology

Challenge: Possible technological advancements, new government policies, and shifting consumer demands may affect future business.

A. Scenario planning process

The team will:

• Discuss possible government incentives for clean energy.
• Identify technological breakthroughs to reduce the cost of energy storage.
• Assess the growing demand for renewable energy across sectors.

B. Strategic decisions

The team plans to:

• Expand current product lines.
• Increase investment in marketing to capitalize on growing eco-consciousness among customers.
• Develop relationships with regulatory agencies to advocate for continued renewable energy subsidies.

C. Result

These steps may help strengthen the company's offerings and promote its products more widely. Additionally, by researching government incentives and creating strategic partnerships, the company hopes to weather any regulatory or governmental policies and benefit from new incentives.

Company 3: Techo Industries

Size: 70 employees

Revenue: $18 million

Industry: Manufacturing

Challenge: Geopolitical tensions could impact availability of materials, while automation and robotics could render current technology outdated or obsolete.

A. Scenario planning process

The team will:

• Conduct a competitive analysis to understand how other manufacturing companies are adapting to changing technology.
• Review current costs and availability of materials to research alternative suppliers.
• Invest in future skills training to keep employees up to date on advancements in technology in this sector.

B. Strategic decisions

The team plans to:

• Diversify supply chains.
• Research in-house robotic solutions.
• Reduce operational costs.

C. Result

These steps could make the company more resilient to changes in technology and diversify their supply chain, reducing the cost of materials and ensuring fewer disruptions in the face of political or global events.

Advantages and disadvantages of scenario planning

Scenario planning helps leaders and decision makers envision challenges ahead and plan for success. But how do you know if the investment in time and resources is worth it? Weigh the advantages and disadvantages of scenario planning to decide for yourself.

Advantages

Let's recap the many advantages of scenario planning:

• It helps create clear plans

The adage "If you fail to plan, you plan to fail" is true in business as much as in life. Scenario planning allows executives and the board of directors to strategize and create a framework for various outcomes while aligning with stakeholders on priorities.

• It provides insight

Scenario planning encourages leaders to look forward and assess multiple factors and potential impacts.

• It increases confidence

Scenario planning inspires confidence in staff and stakeholders that the company is prepared for the future.

• It works across the organization

Various departments can prepare policies and documents before an event even occurs. 

• It reveals opportunities

The scenario planning process encourages creative thinking and may reveal new revenue streams or unexplored marketing efforts.

Disadvantages

However, there are some downsides to this process, including:

• It is time and cost-intensive

Scenario planning can be an expensive undertaking, involving input from multiple personnel or departments and requiring time and logistics to implement.

• It can get out of control

Without restraint from management, scenario planning can turn into an unending cycle of attempting to plan for every eventuality, and may thereby become an unwieldy business tool.

• It is imprecise

Scenarios are based on assumptions of what may happen, and therefore can never be 100% accurate. After all, we still don’t have that crystal ball to see the future clearly.

It’s important to keep your scenario planning simple. You cannot plan for every possible impact or outcome. By focusing on several potential (and most likely) scenarios that may affect your industry, you can build a framework for responding decisively when needed.

Tips for successful scenario planning

Consider these tips to maximize the benefits of scenario planning:

• Involve personnel from multiple levels of the company in the discussion stage to allow for a balanced and comprehensive review of where you currently stand and what the future may hold.
• Limit the number of scenarios designed, but make the parameters fluid to account for various potential issues.
• Align the scenarios with your industry's current vulnerabilities to best reflect how potential challenges may affect your company in particular.
• Regularly review and edit your plans to reflect current market trends, geopolitical events, supply and demand issues, and other impacts.
• Take advice from department heads, executives, and stakeholders to ensure any plans align with your company's overall mission statement, values, KPIs, and goals.

How QuickBooks can help

Scenario planning is a valuable tool for charting a course through uncertainty and achieving long-term growth. For this process to be truly effective, it's essential to have efficient systems in place.

Leveraging a comprehensive business management solution like QuickBooks can significantly streamline your scenario planning by automating financial tracking, reporting, and analysis.

This allows you to focus on strategic discussions, adapt quickly to changing circumstances reflected in your financial data, and ultimately make more informed decisions. Discover how QuickBooks Online Advanced offers right-sized tools for growing businesses to manage their finances, team, and long-term vision in one easy-to-use platform.

Get in touch with QuickBooks for more information.

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