Plans express our expectations about the future. Companies operating on a calendar basis will be in the final stages of the annual operating and capital planning process for next year.
Most plans are expressed as numbers with three significant digits. This year let your plans be expressed in three significant options.
At a CEO roundtable, a president remarked that his board wanted to know the “plan B”.
They were presented and approved a recommended plan of action for the year. But, recent waves of uncertainties in consumer demand, interest rates, currencies, taxes, employment, environmental regulations, etc. had lowered their expectations that the assumptions of this plan would hold for a whole twelve months.
So, their request: “what’s your plan B?”.
This year, consider “stress testing” your company’s annual plan. What happens if demand falls by half? … demand doubles? Will you have access to key components, workers, channels, financing? Stressing each assumption of the plan can reveal vulnerabilities to consider.
A better step would be to ask “what can cause … (demand to fall in half, double, etc.)?”. These causal factors provide guidance to the “key risk indicators” that BI should be monitoring continuously.
The list of causal factors can also feed a scenario planning exercise which allows management to understand the boundary conditions where the organization does fail. Knowing where the failure edges are allows management to be well aware when they are moving toward one or more of those boundaries.
This innovative text offers companies and their decision makers a chance to learn from the future before it happens. This new technique of forecasting future economic, political and other possible developments within an organization, is called scenario planning. Shows how to create, develop, and explore different types of scenarios and how to link them to future decision making.