Scenario Planning The Business GPS
Isn’t driving much easier with GPS? If you find yourself in a pesky traffic jam, no problem! Searching for an alternate route is a breeze. Did you become lost on your way to a new place? Shoot. No problem again! Push a few buttons and let this magnificent device guide you.
If only we could consult a business map for the fires encountered throughout the year. While running a business of any size will never be as simple as using a GPS device, we can, as small business owners rather dramatically reduce the tasks complexity through annual scenario planning. The concept of scenario planning shouldn’t be terribly unfamiliar. As individuals, we incessantly assess and plan for potential what-ifs. The same planning should, no, must, be extended to running a business of any size.
In our opinion, the first step in scenario planning involves establishing a baseline scenario that reflects both an understanding and objective analysis of the company’s products and the markets they serve. This baseline scenario should ask: (1) Where are our products today? What are its current competitive advantages, and most importantly, what are our expectations of how these products and the markets they serves will evolve over the next 12-24 months?
The next step is to delineate the key assumptions made in the baseline scenario. For each assumption, determine the events that could invalidate them and assign a probability to the event’s occurrence. Assigning probabilities next to each event helps prioritize and subsequently plan responses for the most likely events. Unfortunately, you can not plan for everything.
Finally, for the assumptions most likely to be invalidated (say the top 10), determine what impact if any its occurrence would have on the company’s profit margin and cash flow. Have the company’s product managers or executive management author a case on the events occurrence, distribute them to the appropriate employees, and collectively decide upon the appropriate course of action.
And rest assured. The next time your business gets caught in traffic or is faced with the unknown, you will have the Business GPS needed to make it through difficult times.
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