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The Importance of Scenario Analysis
And Scenario Planning
Why are scenario analysis planning tactics important in business today? Because using survival scenarios will help you recover from business or physical disaster. It's also necessary to understand what is disaster recovery's impact on situation planning?
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Scenario planning and scenario analysis can help you strengthen your business decision making abilities; it can also help to sharpen your corporate strategic thinking.
While scenario planning in business is becoming more popular; it has been used in military organizations or operations for a number of years.
What is scenario planning? It is a method of preparing for unplanned events.
What is scenario analysis? It is the analysis of the scenarios you plan and execute. Out of scenario analysis needs to come lessons learned and action plans for your business.
What is disaster recovery planning?
It is pre-planning a recovery from disasters. These could include physical disasters such as earthquake, fire, hurricane or man-made disasters such as terrorist attacks, embezzlement and more.
As a small business owner, you will (hopefully) have prepared your strategic business plan for the next year; maybe even for the next three, four, or five years. You will also have planned your business strategy, built your strategic plan, and considered your future business exit strategy.
Make sure you include scenario planning and analysis as part of that plan. What scenario planning can do for you is help you understand and prepare (as best as possible) for unplanned events, such as:
- Your largest customer closes its doors. How do you manage the impact on your business?
- The price of oil quadruples. How do you manage the impact on your costs, and on prices?
- A power failure in your building results in two days offline for your online business. How do you manage that event?
- You suspect an employee is stealing or embezzling a significant amount of money from your business? How do you manage the impact on your business, and how do you manage survival scenarios and ethical scenarios?
- And so on.
What Role Does Scenario Analysis and Planning Play in Recovering from a Disaster?
Scenario planning includes building ethical scenarios for the potential embezzlement issue.
Or an emergency scenario for the impact of an earthquake. Or building disaster scenarios for terrorism impacts.
Scenario thinking and planning will help you to create strategies to be prepared when real life situations impact your business.
The power of scenario planning is that it enables you to look at your business from a variety of perspectives.
While it is unlikely that you will be able to accurately predict the future (of what scenario might actually occur), by planning and preparing for a variety of scenarios, your scenario analysis will help you learn how managing (and how to manage) is necessary during unplanned events: who you need, what you need, why you need it, when you need it, and where you need it.
Use Scenario Thinking to Develop
Solutions to Problems
Here is an example of an unexpected business crisis that affected a number of businesses in different ways; if those businesses had practiced some scenario planning - the impact on their business would likely have been minimized.
I live in Vancouver, British Columbia (in Canada). In the Summer of 2008, the city's business center power grid failed due to an underground fire. The power failure affected approximately 2000 city customers; the business cost to those organizations has been estimated at $36 million.
One of the businesses affected was a website hosting company - they did have a back up plan (a business continuity plan in case of disaster) and pulled out a generator that was water cooled. Unfortunately 20 minutes after it started up, it shut down. The Vancouver fire fighters were drawing water to fight the fire ... the lack of water pressure available for the generator resulted in it overheating and shutting down.
Could scenario planning have helped this issue? The likely answer is yes; it could have, and should have predicted that in the case of fire there might not be enough water supply.
Could scenario planning and scenario analysis have helped the hydro/electric company? Yes, if it would have taken the lessons learned from the plan and invested in backup power supplies.
Could scenario planning have helped the small businesses affected? Yes, for some of them.
For example, some of the effected businesses were restaurants. Their fresh and frozen foods ended up being thrown away because they could not keep the food frozen or chilled. In the analysis of their scenario plan, they might have predicted a similar scenario and built an alliance with a grocery or restaurant business outside of their power grid reach. Then trucked the frozen (not fresh - too late) products to the other business for storage.
Hotels were also affected. Guests had no heat, air conditioning, usable toilets, elevators, food, and lights.
Should the hotels have generators onsite for emergency situations? A number of companies were affected by data centers and servers going down. Should there have been an emergency backup plan for another location to take over (this could be a reciprocal agreement)?
Scenario planning and scenario analysis will better prepare you to deal with the unexpected. Being better prepared, having run through a number of scenarios and your business' possible responses to each scenario, strengthens your organization and makes it better able to survive and better able to deal with managing change.
Remember that it isn't enough to plan; you must execute your plan.
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Additional Reading:
How to build an effective Small Business Plan.
Ensure your Business Financial Plan includes a provision for emergencies.
Return from Scenario Analysis to Business Continuity Resources.
Include continuity strategies in your Business Operations Plan.
Or return to More For Small Business Home Page.
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Implement Your Plan: for Results
Once you've built your plan, you need to implement it.
Developing your strategy (in the plan) is the first, necessary, step. You need to know the direction you want to go, and you need the strategy and the plan to help you get there.
But once you've built the plan, you must execute it.
There is no value in building a plan that just gathers dust.
When building your business plan, make sure that you include an action plan for the strategies, techniques and tactics.
The actions need to include who's responsible for doing what; measurements for success (such as deadlines and timelines, targets and goals, costs, etc.); and why you need to take the action (in some cases, one action needs to be accomplished before subsequent ones can be launched).
As you work through the plan, make sure that you build reporting periods into the implementation: you need to know what's going on and why something is working, or not.
Make sure to communicate progress, or lack of it, throughout the organization. And re-visit the plan when and where necessary.
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Focus on Your Plan
Plan for the future: lots of business owners want to get, or keep, moving forward. Planning seems to be more of a passive activity.
However, to ensure that your business goes in the right direction and that it optimizes all its opportunities, and manages its challenges, it is important to plan.
Balance your activities against the plan: make sure that you are investing your time, and money, on the elements of your business that will help you succeed.
Measure what works, and what doesn't work, and keep your focus: use your business plan as a map to guide you in the direction you want to go.
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