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Value Creation Blog

7 Ways To Create Value Through Scenario Planning

Posted by Josh Patrick

Scenario Planning   For Business Owners resized 600Scenario planning allows you to test how different events can influence your business.  Sometimes you should test scenarios that could cause you real problems and sometimes you should test scenarios that can provide great opportunities.

When you test various scenarios you want to only change one thing at a time.  You won’t be able to tell what effect changes might make if you don’t know which change has which result.

Scenario planning for downside planning is very different from scenario planning for upside events.  When you run various scenarios for downside planning you want to have large events that might happen every 100 years be tested.  This is because you need to be interested in preservation in downside testing.  If negative events are not as bad as we tested, there will be no harm to your company. 

On the other hand, when you test for upside events you want to make sure that you test for relatively small improvements.  When planning for good things to happen your mantra needs to be fail fast, fail cheap.  You want to make lots of small tests to make sure you’re going in the right direction.

 When you make smaller tests you can calibrate the changes, keep ones that work and get rid of the ones that don’t.  Only when you’ve made enough calibrations will you go after the “big win.”

Here are some things scenario planning can do for you:

  • Scenario planning can help you rehearse how you’ll react if a negative thing happens in your company.
  • You will have thought about and made plans for the really big things that could cause you problems in your business.
  • You will have a process in place for how to plan for bad things that can happen.  This is especially useful when something happens that you hadn’t planned, nor could you have planned for.  Having the ability to plan for unforeseen circumstances is an important skill.
  • You will know how to experiment with one variable at a time.  This will allow you to see what small changes can make to your business.
  • You’ll know when to put the brakes on for growth.  Growing too fast is sometimes just as bad as having declining sales.
  • You’ll have instilled the skill of thinking about and handling change as a normal part of your business.  Too many business owners believe that things will be as they’ve always been.  If you don’t know how to handle change you might have real problems when you’re forced to change.
  • You’ll learn how to handle things that you didn’t expect.  These unexpected issues could be bad or they could be good.   Businesses that know how to react to negative and positive changes in their environment often perform better over the long-term than those who don’t.

Scenario planning helps you think about change.  It helps you make change normal and not something that inconveniences your life.

The point in testing various scenarios is to find out what happens when life or your world changes.  Change is a constant and to not try to be prepared can cost your independence in life and in your business.

We’ve put together a special report on what we call four tiered budgeting.  You could use this format for testing various scenarios in your company.  Four tiered budgeting is simple and only takes four pages.  Changing variables is easy with this format.  To get this report, click on the button below and we’ll have your report on its way.

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: for business owners, Change, scenario planning

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