How would your business adapt to another financial crisis? Anyone who has owned or operated a business through the past decade knows the economic climate can be unpredictable and constantly changing. Does your small business have the plans in place to prepare you for different scenarios?
Scenario planning is a forecasting tool that helps businesses accommodate for events and trends affecting their industry. Scenario planning is not like having a crystal ball predicting the future; rather it is a process of creating plausible narratives for how different factors may combine to create different outcomes. In scenario planning you create narratives for the good, the bad, the probable and the improbable. Knowing how to proceed in the face of various scenarios allows you to have confidence and control in your business.
How many scenarios should I plan for?
An article published in Forbes earlier this year prescribed that two to five scenarios is ideal for organisations, as more than five scenarios tends to get confusing. The article suggested that with three scenarios, organisations often choose the most moderate, or most plausible, of the bunch. Four scenarios were identified as the optimum number for most businesses.
What should the scope of my scenarios be?
Your scenarios should deviate from the normal state of play for your business, as there is no point planning for business as usual. This isn’t to say that you should scenario plan for something as far-fetched as the end of the world. Instead, try to plan for scenarios projected from existing data and information that would change the nature of your business if they occurred.
Common questions that inspire small business scenario plans include:
- What if new technology emerges that changes our internal processes and/or customer expectations?
- What if a competitor enters the market who undercuts our price or delivers a superior service?
- What if we opened a new store or franchise?
- What if we lost a key staff member?
How should I plan scenarios?
In a recent article about risk and compliance, global professional services company KPMG identified five key phases to execute in scenario planning.
- Scan internal and external environments. Scan the internal and external environments of your organisation for emerging trends and issues.
- Build possible scenarios. Build future scenarios using one or more quantitative, multi-dimensional, event-driven or strategic scenarios.
- Plan response. Identify impacts to your business and establish a strategic response to each scenario.
- Identify realistic futures. Select the five most realistic futures and develop detailed responses.
- Capitalise on those futures. Implement responses to scenarios when they seem most likely to happen.
KPMG suggest that scenario planning shouldn’t happen as a one-off and should instead be a continuous process of re-evaluation and change. It’s important to ensure at all stages of the scenario planning process that the scenarios have roots in real data and trends, are plausible in the real world, and are differentiated from one another enough that they are memorable to all involved parties.
Scenario plans for small business
Scenario planning can be a make or break for your small business, as you don’t have the size of large businesses to withstand unforeseen blows. Yet, unlike in large companies, your small business won’t have an employee or department dedicated to strategy and planning. Luckily, there are timesaving scenario planning tools designed specifically for small business that are inexpensive and easy to use.
Why not try out Reep? Our cloud-based software gives you the ability to plan for any “what-if” scenario.