How strong is your scenario planning?

If success is about small margins, isn’t it logical to ensure that there is an internal team in place which will inform and challenge the board?

Scenario planning is not a new concept. However, it has taken on a new importance post pandemic with all the crisis faced during 2022. It was late last year when a number of senior industry CFOs noted how difficult it was to prepare a budget for this year. In fact, a number had prepared three budgets.

Many leaders believe that their business planning is becoming more important and that, for the first time in many years, business planning teams are being developed to ensure that they constant watch trends, performance and market developments. If success is about small margins, isn’t it logical to ensure that there is an internal team in place which will inform and challenge the board?

The argument is that this is even more important today as so many feel environments can be too vollatile, uncertain, complex and ambiguius (‘VUCA’). This was certainly the case between 2020-23. The term ‘VUCA’ is often used in leadership thinking. It is often cited that it came from the U.S. Army War College in 1986.

VUCA became a focus for the military as they argued that success would come through the 7Ps “Proper Planning and Preparation Prevents Pretty [amended] Poor Performance.” In the planning stage scenario planning all eventualities and walking through contingency measures is important.

It seems very logical. Preparation can only reveal the strengths and weaknesses of a plan and this logic has been taken on by many companies as they do scenario plan far more today, and are very conscious just how vulnerable most companies are in this market.

It also reflects on the growing theme of strong collaboration between companies and their partners and between leadership teams and their teams. It is no surprise that one finds that the British Army’s Leadership Guides suggest ‘Cooperative Planning’ may be most effective: “The cooperative style of leadership is exemplified by planning with subordinates, seeking their opinions, listening to them, and involving them in the decision-making process. This generally creates better plans”

This is very similar to the growing voice for greater freedom in new voices being heard in business, greater inclusivity and safe environments. It is all part of the evolution taking place post pandemic.

It is interesting that VUCA as a concept was formed in the 1980s and that scenario/business planning was viewed to be far stronger as a discipline in the 1980s. The logic was that scenario planning becomes more important in difficult markets and the 1990s and 00s saw its decline with the long boom period as companies felt themselves far safer. This has now changed.