Where forecasting fails, scenario planning succeeds

Where forecasting fails, scenario planning succeeds

Most of us carry a flat tire in our car. Not because we forecast having a flat tire, but because it’s a potential scenario. While we use scenario planning to avoid being stuck on the road, we often fail to do so when planning our business’s future.

Most startups have yet to find a scalable business model. So in the face of changing customer needs and new competitors, we are prone to change our business processes, organizational structures, and product offerings much more frequently than established businesses do.

Under this constant need to adapt, I’ve often found myself lacking the time to plan and vet a decision. The only question I resort to asking my team is: “What’s the best solution to this problem and what do we foresee happening?”

With time, I’ve discovered that my question is limiting in two aspects: 1) It inadvertently forces people to only think about one choice, one “best” option, rather than many; and 2) It misleads people into thinking that there is only one possible outcome as result of our choice.

In reality, there are always multiple options, each with a multitude of potential outcomes.

Why is this important to recognize? Because I’ve often realized that there’s a better solution, but only after a decision has been made, after a change has been implemented. When it’s too late.  I also find that we could have identified that better option beforehand, if we simply took a minute to consider all our choices.

My team and I once faced with the common problem of having too much work, too many clients to support (a good thing), and not enough time. And as we just landed a series B investment, leadership had even faster growth in mind.

So I sat everyone down and asked “What’s the best solution to our large queue of work and what do we foresee happening?”

Immediately, everyone jumped right to the solution of hiring additional team members that could focus on a specific type of request. In other words, increase staffing and specialize. In the moment, it sounded like a good plan, so I advocated for additional team members. And we got them.

A few months following the hire of two additional team members, the same problem resurfaced. The number of clients didn’t proportionally grow, but we had more requests from the same pool of clients. Since we weren’t making additional revenue from these clients, hiring additional people was not a great solution. We all agreed that we couldn’t just throw money at the problem. So we sat down and asked ourselves: “What options do we have?” Everyone got surprisingly creative thought of ideas such as:

  • Set a quota to how much service time each client can access per month;
  • Stop doing certain type of work for clients and train them on doing it instead; and
  • Charge extra for access to our service team.

We then proceeded to plan around contingencies, asking ourselves what could happen if we implemented these solutions. For example, if we were to set a quota to how much time each client could use per month, our team foresaw that:

  • High demand clients could complain;
  • Low demand clients that don’t hit the quota could file requests just to fill their quota; and
  • Client could be frustrated if they exceeded their quota, and yet needed a critical service necessary to the functioning of their account.

The exercise was successful all around. People were creative, open-minded, and honest in their assessment of potential outcomes.

Fact is, all options identified were possible and better than hiring additional team members, both in terms of efficiency and scalability. And the fact that we analyzed potential outcomes, we were in a position to plan ahead or readily react with counter-measures. For example, we could have reached out to high demand clients and set new Service Level Agreements during a renewal conversation, and gradually roll out the concept of quotas.

Yet we only identified these solutions once we faced the same problem again, without an easy way out. The question thus begs: Could we have identified them in the first place? I think so. If we stopped and analyzed all our options.

It goes without saying that I’m now a huge fan of scenario planning. So for the rest of this blog post, I’m going to share my take on this crucial decision making tool.

What is scenario planning?

In the context of tactical decision making, scenario planning involves a process by which we first identify a series of potential solutions to our problem, including doing nothing. Next, we identify and analyze all plausibles outcomes of each solution identified, our scenarios, and plan around contingencies.

Based on an analysis or even experimentation of how effective each solution can be, we can then take our decision. From there, we’ll have our contingency plans available should any of the plausible outcomes identified during scenario planning materialize. We effectively stand ready to react.

Success translates into no surprises and readiness to respond.

What’s the difference between scenario planning and forecasting?

Technically, forecasts envision a probable future (how likely is it to occur?), whereas a scenario planning identifies plausible futures (can the event occur?). The relevancy of the two methods thus depends on how we want to plan for the future and what resources we have available. For example…

  • A prominent application for forecasting is weather. If we forecast rain today, we’re likely to plan on having an umbrella when commuting. If we were to perform scenario planning for weather, where rain is always a plausible future, we’d be walking around with an umbrella independent of the probability of rain – it’s simply a plausible outcome.
  • Scenario planning on the other hand is often used for trip planning. We can’t always forecast exactly what we will do, what we will visit, or what the weather will be like when traveling, so we plan for all plausible scenarios. We bring all kinds of clothes for comfort, medications for health, and even books for potentially boring moments.

Scenario planning is thus very much linked to contingency planning. Again, our goal is to simply stand ready to react.

For a more strategic application of scenario planning, I highly recommend Idealized Design by Dr. Ackoff.

When should I use scenario planning?

In my opinion, scenario planning needs to be applied anytime a decision is needed. This allows us to fully acknowledge the potential impacts of our decision, and plan around plausible risks and threats.

For further reading, I highly recommend HBR’s article on how Shell performs strategic scenario planning and what they gain from it.


Recommended exercise

Let’s pick a decision that we’re actively assessing right now and pull the team together to brainstorm on: “What do you think would happen if we decided to go ahead with___?” Is the team ready to face these consequences?


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