Talking about scenario planning is tricky as it means so many different things in different companies. In many cases, the need for strategic scenario planning is prompted by big changes or potential future changes in the economic environment within which an organization operates. These changes may be due to new competitors and technologies, regulatory constraints, fluctuating commodity prices or funding priorities in the public sector.
In such periods of major change, when the final outcome and effect of the changes are uncertain, the more common methods of forecasting and planning break down, because:
a. historical trends and rates are much less reliable as the basis of forecasting
b. there is so much uncertainty that no one set of assumptions is going to be a certain enough basis on which to plan
c. The organization’s plans need to anticipate a wide range of alternative feasible future circumstances, to ensure that it is not blind-sided by events and can survive and prosper, irrespective of the final circumstances
For some organizations and industries, such conditions only occur at certain times in their lives, so much of the time they may not really need scenario planning and can plan on historic trends and rates and use a bit of “what-iffing” in their budgets and 3 year plans. In other industries, for example in Oil&Gas and Telecomms, the huge impact and unpredictability of oil price in one case and competitors’ technological innovations in the other, mean that these companies should probably benefit from doing full scenario-based planning routinely.
The value of Quantrix Modeler within scenario-based planning is due to its ability to easily vary driver/assumption values, but also because structural changes, that may be anticipated by different scenarios, are also so much easier to make than with spreadsheet models.
John Taylor
Founder
Planning Models Ltd.
http://www.planningmodels.co.uk/
