Posted on: December 1st, 2020
One likely major driver of your company’s success is your ability and that of your team to anticipate likely future events and develop plans for dealing with them.
Of course, as recent history has demonstrated all too well, the future can be highly uncertain. There is rarely, if ever, perfect clarity as to how different factors and events will play out—or how they’ll impact your company’s future.
That doesn’t mean you should be frozen. To the contrary, you need to develop a strategic vision and then plan with guaranteed uncertainty in mind.
Recognizing the obstacles and limitations of predicting the future, many successful business owners we work with turn to scenario planning to help them make better choices in both the short and long terms.
Scenarios are simply alternative futures. Scenario planning is a process in which you make different sets of assumptions about the future and how those different sets of assumptions are most likely to affect your company and industry. This type of planning can help you develop strategies to take advantage of opportunities that may possibly arise, as well as avoid significant possible future risks.
The process of developing scenarios is in itself very useful for many business owners. Developing scenarios can accomplish the following:
You and your team can determine highly likely scenarios and devise strategic moves and initiatives to excel in those environments. The aim is to conceptualize multiple ways a current situation might evolve. Then, by monitoring the key factors in different scenarios, you can potentially have an early warning as to how the future will progress—and thus, what actions you need to take.
Important: Scenario analysis is not about predicting the future as much as it is about considering possible alternatives. Based on these alternatives, you can prepare yourself well by developing various strategic options to implement if needed.
We think the concept and logic of scenario planning is fairly straightforward. However, the difficult aspect is developing powerful scenarios. Basically, good scenarios are narratives—stories that begin, advance and end. Generally, more complicated and extended scenario planning will incorporate twists and turns and adjustments that detail how a business environment changes in erratic ways over a period of time.
Because the economic, political and social environments are becoming increasingly complex, we see scenario analysis getting more attention among companies (including a growing number of smaller businesses).
There are various different approaches to scenario planning, but they all tend to involve many of the same steps. Some approaches are modest and provide basic insights and certain directions; others are incredibly complex.
Simple scenario planning is easy to implement and is useful for gaining perspective. The following steps are often used to develop simple scenarios:
These steps reflect the basic approach to scenario analysis. However, they can be upgraded. More advanced scenario planning usually involves multiple people from the company and often uses outside experts (such as a facilitator). There is also a greater focus on details, from the construction of timelines to extensively fleshed-out narratives. Additionally, more than just three scenarios are usually developed and evaluated.
A more sophisticated scenario planning process often involves these steps:
Scenario planning is a very subjective process. It fosters dialogue within a company and focuses attention on strategic considerations. However, it does not necessarily produce definitive results.
As such, there are potential problems to keep in mind when conducting scenario analyses, such as:
Ultimately, scenario planning is a way for you to better deal with possible changes in the business environment. Your scenario analysis efforts can potentially make you better able to see changes coming so you can start figuring out how to address them as effectively as possible for your business.
Keep in mind that scenarios in and of themselves do not make your company more successful. That can occur only if you use the insights gathered from your scenario planning to develop strategic initiatives. You can use scenario planning to think through an event and “test” those strategic initiatives.
So start with this crucial first step—then be sure you follow it through in order to best prepare your business for whatever might be headed its way.
This report was prepared by, and is reprinted with permission from, VFO Inner Circle. AES Nation, LLC is the creator and publisher of VFO Inner Circle reports.
Disclosure: The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS.
Fusion Wealth Management is not affiliated with Kestra IS or Kestra AS. https://www.kestrafinancial.com/disclosures
VFO Inner Circle Special Report
By Russ Alan Prince and John J. Bowen Jr.
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