Envisioning best- and worst-case scenarios (and everything in between) is critical to Integrated Business Planning, improving risk management, decision-making, cross-functional collaboration and more.
Integrated Scenario Planning – Driving a Strategic Scenario Planning Approach
Change is an inevitable and expected part of running a company today. No one can predict the future, of course, but creating a plan to be ready for what the future holds is important. It is essential to be prepared to pivot at a moment’s notice to deal with the here and now as well as part of a long-term strategy. Integrated Scenario Planning (ISP) plays a considerable role in ensuring that an organization remains agile, an attribute that is sure to save it in the long run.
Some changes may be made on the heels of a challenge, while others may be a response to growth opportunities. Regardless of the nature of the change, preparedness is crucial. Mastering strategic planning and foresight relies on teamwork, integration, and scenario planning. Keep in mind that these skills are developed over time with experience, expertise, and education.
The value of Integrated Scenario Planning
Effective Scenario Planning can act as a buffer to mitigate the risks associated with change. When leaders understand the possible effects of various events, whether positive or negative, the organization can adjust, create robust response plans, and prepare for a variety of possibilities. From finance to operations and supply chain, leaders across your business can leverage ISP to implement solutions and response plans in preparation for future events.
An effective plan will require time and resources to construct, which may seem overwhelming at first. However, education from Oliver Wight can help you save time and resources in the long run. Invest in providing your team with the necessary information to get them where they need to be. With a little extra energy spent now, your organization will reap the benefits in the future.
Every business is different, and your ISP process and possible scenarios will reflect that as well. Several factors, including current market conditions, strategic insights, and future goals, influence the design of scenario analysis. Leadership is key to implementing ISP, especially when it comes to driving decision making. Make sure you have designated a Scenario Management Leader and that the team is aligned when it comes to specific goals and objectives.
Defining Integrated Scenario Planning
Leaders of your organization should anticipate change and do their best to plan for the future based on reliable information. While it is not possible to predict the future with 100% certainty, it is possible to create plans based on potential future events. This involves planning and replanning. This is where Integrated Business Planning (IBP) works in tandem with Integrated Scenario Planning techniques to provide solutions.
Integrated Business Planning (IBP) is a formal monthly decision-making process led by senior management that evaluates and revises time-phased projections for demand, supply, portfolio, strategic projects, and the resulting financial plans over a 24+ month horizon. One of the key differences between IBP and traditional Sales & Operations Planning (S&OP) is the integration of scenario planning with improved simulations and modeling. Mature IBP processes utilize scenario planning to evaluate alternatives to achieving the business strategy.
Integrated Scenario Planning is strategic. ISP provides a structured framework for organizations to think about the future and manage change. The ISP Framework outlines the Planning and Implementation stages of scenario planning.
ISP answers the question “What If?” and enables leadership teams to consider what future events are probable and significant, what the business impact would be, how to respond to or benefit from a given situation and how to plan the actions initiated by trigger points.
In the Planning Phase, ISP identifies alternate scenarios with clear assumptions, modeling of potential outcomes, providing clarity on roles & responsibilities, and defines trigger points to develop and implement proactive and agile response plans. In the Implementation Phase, ISP monitors trigger points to mitigate risks, maximize opportunities and adapt as conditions change internally and externally.
A primary objective of ISP is to provide executives with timely, credible information upon which to make decisions in times of uncertainty or over longer planning horizons. Over longer planning horizons ISP provides executives insights to the credibility of long-term strategies by evaluating alternatives.
Business impacts
Executives need credible information to make decisions that will make an impact on business performance. A Scenario Management Leader is pivotal in establishing credible scenario analysis, decision making and action plans. This role will work with the business team to evaluate the potential impacts and the likelihood of a given event in terms of risks and opportunities. This allows the business to evaluate the urgency of the situation. Is it a situation that demands immediate attention? Or is it a situation that will develop overtime and may impact the long-term business strategy?
The risks and opportunities associated with multiple scenarios must also be defined in terms of their consequences. These consequences may impact customer service, financial performance, inventory positions or may have an impact on the environment, social and governance (ESG) issues.
Developing scenario responses
An organization should not be strictly reactionary; preparation is crucial when possible. A team should be in a position to actively respond to a given situation in a timely and effective manner. The scenario planning process enables the business to think through different possible future events. Developing scenario responses requires the team to evaluate several elements. Here are three questions to consider:
- What are the driving factors for the given scenario?
- What are the responses needed to mitigate the risk or maximize an opportunity?
- What are the potential triggers for the scenarios that will require action?
This foundation is valuable, but it’s important to note that the ISP process is not over at this point and will be constantly shifting with new information as it is received. The plan will be dynamic, and the scenario management leader and the business team must constantly observe the environment for changes and the effectiveness of the process. The team will adjust based on new data and feedback to keep improving integrated scenario plans.
Sustaining Integrated Scenario Planning
By adjusting your approach based on new information and the ever-changing industry, your organization’s IBP and ISP processes will be more useful as a flexible business strategy. With this, leaders and business teams will be able to bounce back from an unexpected shift in trajectory.
When Oliver Wight is tasked with improving a business, we strive for results through elements like improved processes aimed to increase revenue. In addition, we work to ensure that you and your team will have a greater overall understanding of how to implement your new strategies, maintain them and adjust them as needed.
To learn more about IBP and how ISP plays a part, an expert from Oliver Wight can guide you through the process. The video below will give you and your team members additional context that will build on the information already established. To get started on your pathway to success, contact Oliver Wight today.