What’s Next? Managing Your Business’s Future
December 23, 2021
At a glance
- The main takeaway: Scenario planning can be a powerful tool owners can use to better manage their business’s future and protect the bottom line from uncertainties.
- Impact on your business: Not only can scenario planning help you foresee probable future events, but it can also help you edge out competitors and prepare for any major external forces that can have an impact on your business.
- Next steps: Aprio’s professionals have extensive experience in scenario planning for both businesses and individuals and can help you get started.
The full story:
Nobody could have imagined the unbelievable two years we just had — first, the fires, smoke and power outages here in California, and of course the global pandemic that followed.
What if you had the power to foresee future events like these? What plans would you have in place to help your business survive and thrive, in the face of both opportunities and upheavals? Would you know how to innovate and gain advantage over your competitors? Would you anticipate the price fluctuations associated with your key products? Would you take risks with confidence and leadership?
Luckily, you don’t have to wish for superhuman abilities to prepare for the future. For decades, companies large and small across every imaginable industry have employed a forward-thinking, strategic planning process known as scenario planning to achieve the same results.
What is scenario planning?
Initially developed as a tool in military planning, and later applied to business by Royal Dutch/Shell (Shell), scenario planning has proven to be a powerful forecasting tool.
Put simply, scenario planning is the process of imagining different variations of the future based on information that is readily available or that you can easily obtain. This tool is uniquely compelling because it allows businesses to expand their thinking, imagine possibilities and develop creative solutions in a timely cost-effective manner.
For instance, Shell, which has employed scenario planning since the early 1970s, was able to forecast the 1975 oil embargo, something none of its competitors had seen coming. This foresight advanced Shell in its industry, as the company had already developed solutions to tackle these types of events.
The process of scenario planning involves a few steps, which require some time and thought at each point:
- Determine the focal issue: What do you hope to achieve? How far into the future do you plan to look? Who will play a key role in your future (e.g., your customers, changing technology, regulations)?
- Determine external factors and uncertainties: Perhaps one of your competitors is gaining market share, you’re dealing with changing minimum wage laws that affect your bottom line or your key products are becoming obsolete — these types of situations are out of your control, but they can greatly affect the success of your business.
- Develop scenarios: Now it’s time to imagine the future. Most experts recommend constructing three to four future scenarios to plan for. One simple method is to develop one scenario with every negative possibility, a second scenario with all positive possibilities and a third scenario that falls somewhere in between. Ultimately, the goal is to think outside of the box and imagine the range of possibilities you should plan for.
- Research: After developing your scenarios, you may need to do additional research to prepare properly. Gather all the information needed to help determine a likely outcome and the course of action that is best to pursue for each individual case.
- Design solutions: Once you have all the information you need, you can design plans of action for each scenario. Again, remember to be creative as you’re still working within an imagined reality.
The bottom line
Through the use of scenario planning, you can determine what the probable future might be. You can be proactive to edge out your competitors and be prepared for any major external forces that can have an impact on your business. With a bit of time, research, creativity and collaboration, scenario planning can be the next best tool in your business planning repertoire.
To learn more about scenario planning and gain assistance with getting started, schedule a consultation with an Aprio advisor today.