Scenario Planning: the right tool for the job

Scenario Planning: the right tool for the job

Hugo Minney recently posted an article entitled “The gentle art (and science) of scenario planning.” In that article he neatly summarizes the theory and practice of scenario planning and offers some useful guidance. He emphasizes the importance of having the right tools and techniques to scenario plan well.

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 expertise input are necessary, but not they are sufficient. It will get you so far but, as Hugo says, ‘At some point you will need to look at the numbers … and do the math.

Planning in the face of a Tsunami of Change

Organizations know only too well that they are facing a tsunami of change, that threatens to sweep them away, and they need to adapt rapidly just to survive - let alone thrive. They need to develop plans 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; from 'as is' to 'to be,' from a current mode of operation (CMO) to a future model of operation (FMO), from a Current Operating Model (COM) towards a Target Operating Model (TOM).

Connecting Benefits and Costs

Typically, organizations 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, and their respective profiles over time, and information about how the two components are connected.

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, you can’t generate additional income from private patients (benefit milestone) until a new hospital is built and fully operational (delivery milestone).

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 any permutation of the 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 to ‘do the math 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 favorite 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. Perhaps the same can be said about management consultants with their expert wizardry in Microsoft Excel!

MS Excel and Google Sheets do include scenario planning features, and they may be sufficient in a simple case. However, the relationships and contributions of an array of initiatives and a list of benefits, and several goals it quickly overwhelms as the links between worksheets and workbooks proliferate, and 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 a one, or several, expensive Excel-jockeys - who may well leave your organization at any time?

Scenario planning - Start with strategy and clear goals

Thankfully, Amplify Strategy Execution software has been designed to tackle this task, and the great thing is that you can start 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, targets, strategic and investment objectives – what will good, or even great, look like, and how will you know that you are on your way to achieving it, let alone have got there?

Once we have nailed our goal, or blend of goals, we can start to plan the initiatives, that are most likely to get us to where we want to be - in this uncertain world.

A Business Transformation example

Take for example a Business Transformation Portfolio where the goals are;

  • 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 that 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 or polarity to shift the focus in a particular direction, e.g. in favor of an increase in the number of customers over reduced OpEx spend, or vice versa, depending on which is most aligned/makes the greatest contribution to corporate strategy.

Activating a ‘balanced scenario’

Scenario planning is more than a simple trade-off between goals. We need to apply constraints such as budget (generally the main one, £30m in this case), available resources (e.g. the number of project managers or other subject matter experts) and take account of risks, assumptions, issues and dependencies (RAID).

Once we have selected, and activated, our ‘balanced scenario’ (and archived those scenarios that were not selected on this occasion) the real planning work begins in earnest. 

Once we have nailed our goal, or blend of goals, we can start to plan the initiatives, that are most likely to get us to where we want to be - in this uncertain world.

Just because we declare a goal a goal, it won’t just happen, achievement will require commitment and hard graft, and a plan! Typically, our business transformation plan will comprise an entire portfolio of coordinated initiatives, such as workstreams and projects.

And don’t expect to achieve your target of 15,000 new customers in April 2022 unless you put in place all the necessary initiatives and business changes required to achieve this goal; and this might include allocating sub-targets to different business units, which they will need to hit, year on year.

Amplify value-delivery lifecycle

We are not done yet, because Amplify supports a value-delivery lifecycle that is ongoing and enables you to monitor and track actual performance against plan, and with variance from planned cost or benefits, automatically adjust forecasts. It’s a dynamic relationship - a dance between costs and benefits over time!

Dashboard views and real-time reporting indicate whether you are on course to achieve the goals you set when you activated your balanced scenario, and if you’re not on track, it can help to pin-point where things are going wrong, and what can be done about it.

Cash-flow forecasting, or time-series planning in Excel (the hammer) is complicated because each 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 is compounded by the fact that benefits, like goals, may be financial or non-financial, and this dynamic relationship 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 ‘get into the numbers’ and do the math, and this means you will need the right tool for the job.

The good news is that a modest investment will quickly pay for itself many times over, as it dramatically simplifies the scenario planning process, and enables you to plan, forecast and manage your portfolio of initiatives with a high degree of confidence.

Amplify Strategy Execution Software

Enable organizations to execute strategies that create value for their stakeholders. [customers/citizens/shareholders/investors/environment]

Our platform equips them to achieve goals, priorities and business impact by optimizing their investment in a portfolio of change initiatives

Use cases:
  • Business Transformation
  • Capital Programs
  • Operational Excellence
  • Post-Merger Integration