Most organizations view strategic planning as the development of a single strategy to which they allocate incremental resources. The concern with a single strategy is that if it’s wrong it could cripple the organization through the misallocation of limited resources. Scenario planning arose as a method of mitigating the risks associated with committing resources to a single strategy. Scenario planning is the development of alternative strategies (i.e. scenarios) for an organization within the process of strategic planning. So when an organization develops its strategic plan it would, if doing scenario planning, develop alternate possible strategies as well.

When To Consider Scenario Planning

Every organization’s strategic plan is built upon a set of explicit or implicit assumptions. The concern is that many strategic plans look out three to five years or even more and making assumptions about key factors that far into the future is difficult. To address this issue of trying to “predict the future” strategic plans are now viewed as “living documents” and as such are reviewed periodically and adjusted as needed. While this is true, it is still incumbent for the Board to understand the key assumptions from which their strategic plan is developed, the risks associated with those assumptions and the development of plans to address those risks. So when should you consider using scenario planning? Once the key assumptions within your organization’s strategic plan have been identified they need to be reviewed to determine if:

  1. Any single assumption has a low probability of being realized.
  2. Any single assumption if not realized would have a significant and detrimental impact upon the organization.

If either of these describes the key assumptions within your organization’s strategic plan then you may want to consider scenario planning as a method of managing the risk.

Note: There is generally the risk of a significant detrimental impact upon the organization if multiple assumptions are not realized.

How to include scenario planning

This is actually a lot easier than you might initially think. First of all, go through your normal strategic planning process, then conduct the following steps:

  1. Identify the key assumptions within the strategy you just developed.
  2. Examine each assumption individually and determine the expected impact on the organization if that assumption is not materially realized.
  3. Prioritize the assumptions with the first being the one with the most significant detrimental impact upon the organization.
  4. Starting with your first prioritized assumption develop an alternative strategy (i.e. another scenario).
  5. Continue this process of developing alternative strategies until you have addressed all those assumptions that could have a materially detrimental impact upon your organization if not realized.
  6. Review the various strategies that have been developed and determine the best overall strategy for your organization. This strategy will depend upon your organization’s risk tolerance and specific situation.

Key points to remember

  1. Scenario planning is of real value when any significant change to one or more of the assumptions underlying your strategic plan could have a materially detrimental impact upon your organization.
  2. Limit your scenario planning to the top two or three key assumptions.
  3. The process of working through scenario planning can help the Board understand and better manage strategic risks to the organization.

Ron Robinson is the president of ABARIS Consulting Inc. He can be reached at (519) 472-9788 or rrobinson@abarisconsulting.com. This article is provided free of charge, for information purposes only and is not intended, represented or to be inferred as providing advice. ABARIS Consulting Inc. makes no warranty, express or implied, or assumes any legal liability for accuracy, completeness, or usefulness of any information provided in whole or in part within this article.

ABARIS Consulting Inc. is credited as the source on all copies, reproductions and distributions, and CharityVillage.com is credited as the original publisher.