First, what is scenario planning and scenario analysis? Scenario planning has been used for many years within the military to plan strategy and create preparation for the unexpected. The importance of planning and scenario analysis in our business environment is that it allows us to develop competencies in strategic planning and decision making. It also allows us to build a plan to be prepared for any eventuality or occurrence.

After building and enacting the planned scenarios, the key output is to analyze those scenarios and how your company handled them and document the lessons learned. Then you need to create an action plan that will help you minimize the weaknesses you’ve discovered and maximize the strengths.

Many business owners have not yet accepted the importance of scenario planning. But if your business develops a series of scenario plans, analyzes the results, and creates an action plan, you’ll be better prepared to handle any number of events that occur with increasing frequency. Such as, the impact of a massive power outage, the impact of a hurricane or tornado; the impact of fire; the impact of significant embezzlement of your business funds; the impact of a major economic failure (ie, bankruptcy) of one or more of your major customers; the impact of your bank failing or closing its doors; the impact of a severe shortage of skilled labor; etc. If you pick up a national newspaper, listen to the news on the radio or TV, or go online, you can read, watch, or hear about at least one (and on a bad day, many) of these events on a daily basis; recognize that these events can have a serious impact on your business.

Is your business ready and prepared to handle such an event? If you commit to scenario planning and analysis, you won’t escape these events, but you will be much better prepared to handle them.

Actions to take:

1. build some specific scenarios. Do this every year. Maybe two or three scenarios a year.
2. For each scenario, consider political, environmental, social and technological (PEST) driving forces. For example, if your scenario is the impact of your bank closing its doors: Are there any driving political forces that can help your business (will the legislation protect you)? What about technology (for example, if you do a lot of business with credit cards instead of cash, you can contact your credit card company to see if they can redirect payments to a new bank account at very short notice, i.e., with a phone call)?
3. Detail your preparations for managing a specific scenario. What did you do? Because? Who was important to the problem and the management of the problem? Did you have the necessary contact information? Create a timeline of events during the scenario simulation. When did the stage peak? What was the most effective and least effective of the actions you planned?
4. Can define the indicators of that scenario? For example, in the bank closure scenario, what were the early warning signs? If you can’t think of this yourself, look into ‘real’ world analysis of these events (check online and offline).
5. Once you’ve done some research, prepare a list of indicators for every scenario you might face. What can you infer from the scenario? For example, in the bank closure scenario, you might infer that other banks might also be in trouble before choosing a backup bank (which might be one of the results of your scenario analysis); you need to check the health of the bank. You can also infer that legislation, insurance, or other changes could arise from that scenario. How will you handle those results?
6. Analyze the response of your business to the scenarios you have created. What have you learned? Find your weaknesses and your strengths. Create a plan that allows you to minimize the impact of a serious event that you cannot control.

Don’t wait for bad things to happen to your business; Participate in scenario planning and analysis so your business is prepared and in control of how it meets challenges.