Business resilience starts with data-driven scenario planning
Editor's note: This article originally appeared in Forbes.
Even in the best of times, business planning is a complex exercise.
At a minimum, planning requires inputs from across the organization, resulting in a roadmap that articulates how an organization intends to achieve its goals and objectives. The plan itself is both a strategic document and a financial snapshot, a moment-in-time manifesto that is based on keen insights and essential intelligence about the business, including past performance, sales forecasts, marketing goals and other key metrics. Business planning is both art and science, and is foundational for organizations from the smallest startups to global enterprises.
The future is not linear
But all it takes is a global pandemic to make business leaders realize that even the most detailed plans are insufficient to address the disruptions that this crisis has precipitated. Covid-19 is challenging the most seasoned leaders to rethink their notions of “business planning as usual” and acknowledge the many uncertainties that are an intrinsic part of our new normal. Without definitive answers to basic questions—how long will the pandemic last? how many waves or resurgences will occur? will mitigation strategies be effective? what institutional changes and shifts in behavior might be permanent?—it’s difficult to forecast the future.
The pandemic has made it clear that the future is not linear, and that “one-and-done” decision making, based on a singular perspective, is inadequate given the scope of the crisis. Shifting realities are the norm, and decisions are being stress-tested like never before. In a new world that’s characterized by volatility and ambiguity, leaders need a broad, multidimensional understanding of the potential impacts of disruptive events on their businesses.
Yet, despite lacking clear answers, it is possible to create a framework for effective planning and decision making that, at the same time, can help overcome the risks of relying too heavily on forecasts and biased thinking. For more comprehensive insight, organizations in both the public and private sectors are turning to scenario planning.
Apply scenario thinking
Preparing for an unknowable future requires the ability to envision the future from a number of plausible—not necessarily probable—scenarios. Think of scenarios as nuanced what-if stories that can be used to explore questions about the most critical uncertainties impacting the business. For example:
- Human capital—Should we ramp up hiring? Should we scale back?
- Supply chain—Where can we tighten our supply chain to avoid potential disruption?
- Finance—What might happen if customers delay buying decisions?
- Sales and marketing—Are we positioned to meet the needs of a changing marketplace?
At the macro level, strategic planning experts are advising business leaders to plan with a scenario mindset. In their report “Scenarios for Resilient Leaders”, Andrew Blau, Managing Director, U.S. Leader of Signature Issues at Deloitte Consulting, and Peter Schwartz, SVP Strategic Planning at Salesforce, name five fundamental uncertainties (along with additional trends in technology, environment, politics and more) that will shape our post-Covid-19 world:
- Overall severity of the pandemic and pattern of disease progression
- Level of collaboration within and among countries
- Healthcare system response
- Economic consequences
- Level of social cohesion
Based on these uncertainties and trends, the authors model four scenarios, each with distinctive characteristics and implications for the future. These kinds of models are valuable in times of crisis, as business leaders need to consider a range of possible futures and respond with their own, organization-specific scenarios.
Scenario planning looks different for every business, but regardless of what area of operations you’re focused on, it’s important to identify and evaluate the actions to be taken should a particular scenario occur—and to know how to recognize potential triggers and trends that signal a scenario is imminent. Decision makers also need to look at scenarios from different time horizons. The true power of scenario-based planning is being prepared for multiple possibilities, and recognizing new opportunities within those scenarios.
Actionable insights powered by data
In an era of digital transformation, business resiliency is more synonymous with data analytics than ever before—and during this pandemic, data analytics is helping communicate key information that makes scenario modeling possible. But as PwC points out, “Scenario modeling is only as good as the data that is fed into it.”
Relative to Covid-19, there are many kinds of data that can be used for scenario models—everything from public health indicators, enterprise financial forecasts, customer sentiment and geo-spatial data to foot traffic data from smartphones. And using machine learning models and AI, it’s possible to analyze open-source data from the media, government, financial markets and other sources to augment scenarios with more granular detail.
The visualizations below, show the types of data that can be used to inform scenario models and how businesses might consume this data within a dashboard format.
Experian created a Covid-19 U.S. Business Risk Index to help businesses visualize the impact Covid-19 may have from various impact scenarios. With this information, it’s possible to understand how the crisis could unfold across geographies, by industry sector.
Experian’s “Risk Index Dashboard.” Explore the full visualization.
Every state and county in the United States has unique policies and regulations regarding reopening. This visualization on Tableau Public shows how businesses can use business intelligence platforms to track specific details related to reopening, including case counts by country, travel restrictions and other economic factors.
“States Reopening” by Santiago Sanchez. Explore the full visualization on Tableau Public.
Retail Supply Chain Management
These dashboards are examples of how a retailer might model potential revenue impacts, looking at in-store and online sales, store type and customer demographic data. By exploring revenue impacts with a scenario approach, it’s possible to gain a more holistic view into revenue expectations for the rest of the year.
Forging new paths forward with data
It’s been said that resilient organizations don’t bounce back, they bounce forward.
As businesses regroup and readjust their plans to face the future with more confidence, it’s clear that priorities have shifted to embrace a more agile, data-centric approach to decision making. The “bounce forward” includes adopting flexible methodologies, like scenario planning, powered by data insights, to improve organizational resiliency in the face of high uncertainty.
The pandemic has taught us that the future is not what it used to be, but the crisis also provides a unique opportunity to focus on core strengths, find new opportunities and build a stronger, more intelligent organization with data.