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Scenario Planning

What is a scenario?

  • A scenario is a story of what might happen.
  • The story should be in terms of the key factors of the business. (e.g. commodity prices, political/economic stability, world trade, productivity)
  • The story includes signposts that indicate what would be necessary for each scenario to come true.
  • Scenarios can be grouped together to describe a wide spectrum of possible futures.
  • BES's scenarios also provide quantitative industry sales predictions based upon GDP predictions.

Why use scenarios?

  • Get away from point forecasts, we know they are wrong anyway; the future cannot be accurately predicted.
  • Scenarios can be used in assisting decision makers to consider a wide range of possibilities.
  • Present a common vocabulary and and an effective basis for communicating planning ideas and the context in which they apply.
  • By exposing the assumptions and signposts of scenarios, managers will have more confidence in how their decision could play out in uncertain future. This could be helpful in creating a consensus for decisions.
  • State of practice: 2 years lag in recognizing change in conditions, another year or more to react. Scenario signposts help reduce recognition time, and thinking about each scenario ahead of time reduces reaction time.
  • Real value of scenarios is from learning what could occur and how to adapt.

What will the scenario planning application do?

  • Distribute BES's scenarios with signposts, textual descriptions, and graphs
  • Allow managers to adjust scenarios
  • Allow "what-if?" games for each scenario. Can either play out a decision over each scenario, or see how several decisions fare in a particular scenario.
  • Provide templates for typical managerial decisions. These would let the manager model "real-world" decisions.
  • Display ROA, factory inventory, sales, and production v. demand.

It will be flexible to take advantage of current and future benefits of the financial model. In fact, it will be built on the business model infrastructure so a scenario and decision's projected values will be reasonable and accurate. While the Business Model becomes more complete, the scenario planning application can easily scale to take advantage of the detail and accuracy.

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