Some companies use scenario planning to analyze possible product or service changes. For instance, ABC company might use scenario planning before accepting foreign currencies in its U.S. restaurants. Scenario planning can allow businesses to anticipate different market constraints or restrictions. Scenario planning will vary based on type of business and long-term goals, but generally should evaluate “what would happen if [fill in the blank] occurs.” The best scenario plans will include thorough analysis to best prepare the business.
Scenario planning requires businesses to consider the impact that decisions will make. The decisions might relate to introducing new products or services, such as a fast-food company’s product extension into specialty coffee drinks. Another example refers to international expansion, such as if a U.S. company wants to begin foreign operations. Some businesses might refer to scenario planning as contingency planning, given that its plan provides resources and alternatives in the event that an emergency arises or something goes wrong.
There are several analytical tools that can be used for scenario planning. A simple method involves a SWOT analysis, which refers to strengths, weaknesses, opportunities and threats. For instance, if a small business wants to expand into a new location, it should assess its strengths, which might include its marketing strategy or brand. Next, it must consider weaknesses, such as low capital to finance a new location or small sales growth. Then, the opportunities behind expansion should be analyzed, including differences in opening at one location versus another (e.g., in the same city or a different one). Lastly, the business should evaluate threats, such as existing competitors.
Scenario planning might include establishing ways to maintain business operations in the event of a disaster or emergency. For instance, if your business were flooded, your scenario plan should describe how data would be retrieved. If your business operates on proprietary software, then your plan should consider restore all programs. The plan might specify procedures to contact employees or authorities, such as if a thief breaks into the office and steals expensive equipment. Contingency planning must be updated continuously; a plan designed in 1995 likely will be ineffective.