Adopt Scenario Planning to address uncertainties of the future

Adopt Scenario Planning to address uncertainties of the future

Developing long-term strategy for an organization requires establishing views about the future and charting out coordinated actions and implementation plan to achieve desired goals. We are all, in general, heavily influenced by conditions in the present and our belief systems predisposed with what we have seen or read about in the past; so while articulating our views about future, majority of us as forecasters extrapolate from the past.

Most planners/forecasters while preparing their future plan develop three types of views – reference (business as usual) view, optimistic view and pessimistic view in extending present to the future. Our culturally conditioned mindset limits the extent to which we can envisage a broader set of futures. But those that rely merely on forecasting in their outlooks about the future can find the consequences very expensive.

As the saying goes, ‘The trend is your friend until the end when it bends’; the Brent crude oil price was steadily increasing from 2009 till June 2014 when it reached $112 per barrel, and then the impact of ‘unconventional oil & gas’ supply came in and crude price nosedived to $28 per barrel by January 2016.  With the massive drop in revenue, the price collapse triggered cost reduction among upstream oil & gas companies. Global oil & gas companies slashed CAPEX by more than $ 1 trillion, some 400,000 workers were let go.

Not only in the oil industry, the uncertainties are abound and affecting us deeply in most of our present day businesses. We live in a world of increasingly complex interconnections of geopolitics, fast-changing technology, societal & market forces and changing regulations. It is crucial that today’s strategy development exercises adopt new approach, new thinking, and new processes to take care of the uncertainties and of challenging our assumptions about what the future holds.

The new approach should build in process of developing scenarios, which are plausible, pertinent, coherent and credible alternative stories. Scenarios are powerful tools for addressing what is both fundamentally significant and highly inexplicable – the future. Scenarios help us to understand and appreciate the risk exposure that organizations face and those forces that shape large-scale investment and major strategic initiatives. Good scenarios help us to improve the quality of corporate conversation on strategy, leading to a better quality of investment and reduced corporate liabilities.

Blending scenario-based planning with econometric analyses, ValuEndow with its rich strategy development experience can help & guide you in enhancing your sustainable competitive advantage. To discuss how you can incorporate scenario planning in your strategy development exercise, please reach out to us at info@valuendow.com.

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