In Uncertain Times, Embrace Scenario Planning

Have you found yourself needing to forecast a new product’s adoption potential? Sales volume by region for the next 3 years? How about the potential upside of a new distribution strategy?

Forecasting these days is harder than ever. There are simply too many factors that are uncertain. National and world economies. Energy costs. Shifts in basic consumer values. On and on.

What’s a forecast-needy professional to do?

Embrace scenario planning.

Scenario planning is not about creating your best estimate forecast. In structured scenario planning, you create 3 or 4—each based on variations of core assumptions.

Depending on time and budget, the amount of prep work can vary significantly. I confess, there have been cases when due to time constraints I created scenarios based solely on existing, readily available knowledge. In other cases, I have worked with teams that had the luxury of collecting relevant data for a few weeks ahead of time (using a mix of primary and secondary sources).

Building scenarios is like baking cakes.

The basic ingredients are all the same: they all start with flour, eggs and sugar (goals, hypotheses, and assumptions). But you can modify the elements or change their quality. You can end up with a nice, basic pound cake.

Or a 7-layer black forest cake with cherries on top.

Here’s my recipe:

First, I gather a team of folks who will be the ultimate “clients” for the scenarios. And we start by getting agreement on exactly what we are forecasting. It isn’t as easy as it sounds. When the exercise is done, what will the scenarios capture? Good example, “We want scenarios that will profile our top 3 customer segments in 5 years.” It’s precise and has a timeframe.

Next, I help the team do some creative hypothesis generation to identify the underlying assumptions that we will want to vary. A set of 5 to 10 hypotheses is perfect. Example: “We hypothesize that our small business telephony customers will want to see more intelligence in the carrier network and off of their premises.” Now we can vary that based on what percent of our small business customer base we think that could be true for in the scenario’s timeframe.

Third, we create the first scenario. I like to do this in Excel, but use whatever tool you prefer.

  In my spreadsheet, I label a column for each assumption’s value, with the last column being the “end result.” The rows are the scenarios. Being an optimist by nature, I often start with the best case scenario, but that is fairly arbitrary.

Fourth, we create at least 2 more versions: I want to end up with at least a worst case, a best case and a mid-point scenario. The team will often do this as a group, with the spreadsheet projected on a wall. If you have a large group (8 or more people), I recommend dividing into two teams and doing your scenarios separately. The process will be more efficient, and comparing the end results can be very productive. Did the teams come up with similar scenarios? Or were any radically different?

After this, we usually take a break.

Then I recruit a group of 3 to 5 fresh minds to review our assumptions and scenarios. The team members do their individual assessments while one of us gathers the fresh feedback.

Sixth, the team reconvenes and we review the process from the beginning. In all, I usually go through 2 to 4 iterations before I feel the exercise is done.

One warning: As you go through this exercise, appoint one member of the team as a facilitator or “protocol cop.” This person needs to enforce some basic guidelines.  Most important: stay on point.

It is harder than it sounds. But if your team is working on, perhaps, scenarios to predict a new product’s adoption potential, you can easily veer off track. A second item for your cop to watch for: excessive “devil’s advocate” syndrome. That’s when someone on the team feels compelled to basically challenge any ideas that are particularly new or creative. They may feel they are contributing by playing the devil’s advocate, but in my experience, it just ends up squelching creativity.

Why bother enforcing these policies? If you don’t watch out for those behaviors, you can easily end up in an unproductive meeting that produces no fresh or meaningful insights.  Or, as Bill Bryant is attributed, “We were arguing over the color of the frosting and we don’t even have a cake.” Get the scenarios down first; there is time to add icing later.

The Icing

BTW, the exercise is not only useful because of the resulting scenarios; it’s useful as a team-building experience. When you get a group of people engaged in discussing factors that will effect something they all care about—a sales forecast, a product adoption forecast—it creates energy around a common goal. And sometimes icing is the best part of the cake!