Introduction
Scenario planning is one of the most common approaches to planning for the future. This is an exercise organisation undertake to envision different possible scenarios to understand what might happen in the future and how they should adjust their plans based on those outcomes. The problem is that this approach can be limited: it typically looks at only a single possibility rather than considering all potential consequences. But researchers have devised a new way to investigate how organisations plan for the future.
A scenario-planning approach is better than just looking at a single possibility because you can see the range of options that might unfold.
You’re probably familiar with the terms “what-if scenarios” and “business continuity.” What you might not know is that they are essentially the same thing.
What-if scenario planning is a way of thinking through a range of possible futures, from the best-case scenario to the worst-case scenario (and all those in between). In doing so, you can see the range of possibilities that might unfold — and determine what actions your organisation needs to take to prepare for them.
The essential advantage of this approach is that it helps organisations think about more than just one possibility — even though most companies tend to focus on only one aspect of their business at any given time. For example: if you’re expecting interest rates to rise over time but aren’t planning around it right now, what happens if interest rates fall? You will be caught off guard when money becomes expensive again because no one has been thinking about how they’ll deal with lower interest rates while they are available (and thus cheaper). With a broad range of possible scenarios laid out before us, we can plan accordingly—including considering whether or not our current strategies will work under different conditions (called “alternative future states”).
But scenario planning as it is typically practised has its shortcomings. So researchers devised a new way to investigate how organisations plan for the future.
Scenario planning is a more comprehensive approach considering multiple possibilities rather than one specific scenario. More importantly, it can be used to identify opportunities and threats and different test scenarios. Scenario planning can also help organisations develop contingency plans if their assumptions about the future do not pan out as expected (or at all).
Haejin Kim, associate professor of business administration in the Business, Government, and International Economy unit at Harvard Business School, and Katherine Klein, vice dean at Wharton and the Edward H. Bowman Professor of Management, developed a process called What-If scenario planning to overcome these limitations.
Hae jin Kim and Katherine Klein, professors at Harvard Business School, developed the What-If method. In a paper published in the February 2018 issue of the Journal of Applied Corporate Finance, they explain how their process works and why it provides a better way to plan for potential risks.
Their method focuses on identifying threats that could compromise your business continuity by asking, “what if?” For example:
What if a fire in the building houses our production equipment?
What if there’s an earthquake while we’re working on this new product?
By coming up with possible answers to these questions, you can get a clearer picture of all the different ways things could go wrong so you can plan for them.
They began by using qualitative data—interviews with business leaders—and then added quantitative data—surveys that they could analyse statistically.
To begin the process, they used qualitative data—interviews with business leaders—and then added quantitative data—surveys that they could analyse statistically.
The researchers started with interviews with six business leaders. They found these discussions helpful in understanding what would make an effective continuity plan for their companies. Next, the interviewees were asked how they would react to specific hypothetical scenarios, such as a cyberattack or pandemic that affected their businesses. Finally, finally, the answers were transcribed and analysed to identify trends in thinking about business continuity planning.
Learn more about the research on what-if scenario planning
In a recent case study, Hae jin Kim and Katherine Klein from Harvard Business School interviewed 27 business leaders who used what-if scenario planning to plan for the future of their organisations. They found that this new way of thinking about planning can help groups work together more effectively.
What If Scenario Planning Helps Groups Collaborate
The What If scenario planning process provides a new way for businesses to consider multiple scenarios. The process creates a framework that allows groups to collaborate through different methods to develop better plans. When you use What If questions during your next meeting, it becomes easier for everyone on your team to share ideas and think creatively about how different situations might play out in the future if certain things change or stay constant (e.g., “What if our company moved into another industry?”).
What if scenario planning helps groups collaborate because it gives them a new communication method? When you ask people to think about multiple scenarios, they start to see how their ideas are connected to their colleagues. This makes it easier for everyone on your team to share ideas and develop creative solutions.
Bottom-Line
The What-If scenario planning process can help you better prepare for what might come next. As we’ve seen, it has its limitations, but it is a powerful tool that can be adapted to any business situation. Using this process as an organisational method, you can anticipate challenges before they happen and plan accordingly.
Who am I?
I am Dotun Adeoye, a Business Growth Strategist & Author of the 5 Pillars of Business Growth.
I’ve built up my experience via serial entrepreneurship, consulting leadership roles in business growth, business development and product innovation in large companies worldwide in the last 29 years.
Today, I consult with large businesses on how to sustainably grow their businesses, sustain infinite growth, ensure business continuity and achieve a legacy.
Hire Dotun Adeoye to Speak Virtually or In – Person at your company’s event to cover this or other topics. You can also get in touch via +44 203 097 1718
