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Value Creation Blog

Want To Create Better Business Value? Use Scenario Planning

Posted by Josh Patrick

scenario planning resized 600I’m a big fan of scenario planning.  I’ve found that over the years building a scenario, or better yet a series of scenarios, is an effective way of testing an idea to see if it makes any sense. 

The simplest form of scenario planning is doing an annual budget.  Your company might do a probable case, worst-case, and best-case budget.  When you do this you are testing three scenarios that could happen so they can see the range of results that would come from each situation.

Scenarios can be tested for new ideas, megatrends, or disasters.  When I had my vending business we developed a series of scenarios around different things that could happen that would be really bad.  I’m glad we did this as one of this scenarios (a food bourn illness) actually happened.

My favorite scenario test is one of what I call megatrends.  These are things that are likely to happen which will be game changers in society as well as providing opportunities for some companies.  Some game changers might be changes that are happening in biotechnology, or alternative energy, or changes in demographics.  If you’re in the right business these megatrends could either destroy your business or provide you with opportunities that could put your company’s growth on steroids.

Scenario planning forces you to think about different ways of doing things.  If you’re working on disaster or megatrend scenario planning you will be forced to think about your business and the business environment in a different way.  The issues that you’re facing will likely make you think about re-purposing how your business services your customers.

Make sure that as you go through a scenario planning process you go past the numbers.  Having an idea what new costs and sales will occur or disappear is something you will definitely want to test.  More importantly you’ll want to look at how you think about what your business environment.  You’ll want to look at changes you’ll have to make with your customers and different ways you might end up operating your business.

If you believe a new scenario can dramatically change your business for better or worse you’ll want to plan for what those changes might look like.  I suggest that you include key managers in your company in this discussion.  If your company has to deal with a negative event or you can take advantage of a megatrend to move your company forward have discussions about them with your key people.

I believe the next twenty years in business will be one of great change.  By some accounts 30% of what we do today will disappear and 30% of what we’re going to do has not been invented yet.  This amount of turmoil will benefit you if you’ve thought about tomorrow and planned with your key people on how to take advantage of changes ahead.

As I mentioned above, the simplest form of scenario planning is budgeting.  We’ve put together a special report on a simplified budgeting and strategic planning format.  We all it four tiered budgeting.  Click on the button below and you can get a copy of this report.

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Securities and Investment Advisory Services offered through NFP Securities, Inc. (NFPSI), Member FINRA/SIPC. Stage 2 Planning Partners and NFPSI are not affiliated.

This article is published for residents of the United States only.  Registered Representatives and Investment Adviser Representatives of NFP Securities, Inc. may only conduct business with residents of the states and jurisdictions in which they are properly registered.  Therefore, a response to a request for information may be delayed.  Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed.

Topics: value creation, scenario planning, megatrends

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