SCENARIO PLANNING: THE RIGHT TOOL FOR THE JOB
SCENARIO PLANNING – ART OR SCIENCE?
Hugo Minney recently posted an article entitled “The gentle art (and science) of scenario planning in which he summarizes the theory and practice of scenario planning, emphasizing the importance of having the right tools and techniques for the job.
Scenario planning relies on harnessing the collective wisdom of groups – preferably diverse ones. Good practice is to use a top-notch facilitator and follow a carefully crafted process, to elicit and synthesize a wide range of views. Professional judgement and expert input are necessary, but of themselves, they are not they are sufficient. They will get you so far but ‘at some point you will need to ‘look at the numbers and do the maths!’
PLANNING IN THE FACE OF A TSUNAMI OF CHANGE
Organisations know only too well that they are facing a tsunami of change, that threatens to sweep them away. They will need to adapt rapidly if they are to survive – let alone thrive. Plans will be required for an uncertain future; a future where any one of a whole range of scenarios might play out.
Plans are about making measurable improvements, moving from one state to another, e.g. a current mode of operation (CMO) to a future model of operation (FMO).
CONNECTING BENEFITS AND COSTS
Typically, organisations who are looking to make the move from one state to another, are looking for reliable data about the costs (estimates) and about the benefits (forecasts) of particular initiatives over time, and information about the relationship between the two.
At its most basic level this is likely to be through an integrated schedule. There might be a clear finish-start dependency between a benefit and a delivery milestone, e.g. you can only generate additional income from private patients (benefit milestone) when a new hospital is built and fully operational (delivery milestone).
Screenshot showing the relationship between cost and benefit (net present value) of a Hospital Care Enhancement Programme
Once you have this information to hand, you can do a cost-benefit analysis to calculate the value for money implications of different scenarios. Should I build a new hospital, upgrade existing facilities, or improve efficiency of hospital care through IT, or a permutation of all 3? Popular techniques include the use of a Benefit-cost ratio (BCR), Net Present Value (NPV) and ROI (Return on Investment).
It’s rare that a ‘business case’ is so overwhelming that you don’t need to ‘do the maths’ to support a planning decision, and even rarer, with commercial decisions, such as whether to start a project, or develop a new product or service.
THE RIGHT TOOL FOR THE JOB – IS NOT EXCEL!
So, what is the right tool for the job? Here’s one of my favourite quotes, and it’s so true, ‘If all you have is a hammer, everything looks like a nail.’ (Maslow, 1966). As every parent knows if you give a young boy a hammer, he will go around pounding everything he encounters. Could the same be said about management consultants with their expert wizardry in Microsoft Excel!
Microsoft Excel and Google Sheets do include scenario planning features, and they may be sufficient in a simple case. However, the relationships between a collection of initiatives and a long list of benefits and several goals, can quickly becoming overwhelming, as the links between sheets and workbooks proliferate, errors creep in and version control goes out the window!
OK, so that might be a slight exaggeration, but do you really want to leave your multi-million-pound investments decisions, at the mercy of one or more expensive Excel-jockeys, who may leave your organisation at any time?
SCENARIO PLANNING – START WITH STRATEGY AND CLEAR GOALS
Thankfully, Amplify™ Strategy Execution Management software tackle this task, with style, and you can even kick-off in Excel and import into Amplify™ when Excel can’t handle it any more.
In Amplify™ scenario planning starts with strategy, and strategy means being clear about what it is that you are looking to achieve and why (goals). Goals and targets articulate what good, or even great, will look like, and whether you are on track to achieve them.
Screenshot showing goal of reduced OpEx spend, with a target of ($20m per year by 2022) for a Business Transformation Portfolio
A BUSINESS TRANSFORMATION EXAMPLE
Consider for a moment a Business Transformation Portfolio with 3 goals, namely:
- To increase the number of customers (15,000 by April 2022)
- To reduce OpEx spend ($20m per annum by April 2022)
- To improve Operational Resilience
Note: SMART time-bound goals are an essential part of scenario planning, but not every goal needs to be financial or even measurable!
Goals can be weighted for relative importance, shifting the emphasis in a particular direction, e.g. in favour of number of customers over reduced OpEx spend, or vice versa, depending on which goal makes the greatest contribution to corporate strategy.
ACTIVATING A ‘BALANCED SCENARIO’
Scenario planning involves much more than a simple trade-off between your goals (at any cost). To arrive at a balanced scenario, you will need to carry out multi-criteria analysis, factoring in criteria such as; planned benefits and budgetary constraints (generally the most important), available resources, such as the number of project managers or subject matter experts available, having regard to associated risks, assumptions, issues and dependencies (RAID).
Screenshot showing recommended ‘Balanced Scenario’ compared with other scenarios with variance against targets for goals and total budget
Once you have selected, and activated, a ‘balanced scenario’ (archiving those scenarios that were not selected) the detailed planning process can begin, in which you will determine the means, resources and actions necessary to achieve your goals.
After all, it stands to reason that you wouldn’t expect to achieve your target of 15,000 new customers per year by April 2022, unless you put in place all the necessary initiatives and business changes required to achieve this goal. For example, this might include assigning sub-targets to different business units, which they will need to achieve, year on year.
THE CHALLENGE OF PLANNING AND FORECASTING
Time-series planning and cash-flow forecasting, in Excel, (the hammer) can be tricky as each initiative cost has a profile of when the money will be spent, and each benefit has a profile of when, and at what rate, the benefit will eventuate.
This situation may be further complicated by the fact that benefits, like goals, may be financial or non-financial, and the dynamic relationship between cost and benefit, is likely to extend over many months and years, during which the scenario planning process is likely to be repeated.
So, if you are serious about Scenario Planning, you will need to ‘look at the numbers and do the maths,’ and this is where you will need the right tool for the job.
The good news is that a modest investment, in a specialist portfolio management tool such as Amplify™ will quickly pay for itself many times over. With its integrated scenario planning process, Amplify™ will enable you to prioritise, select and plan your balanced portfolio of initiatives, to achieve your goals and targets, with a high degree of confidence.