Risk Management through Scenario Planning

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Risk Management through Scenario Planning

Rahul Bhargava shares an article on the benefits of scenario planning to mitigate risk and combat uncertainties.

Scenario Planning has almost become a prerequisite for companies to combat any or all future uncertainties— or more conveniently; a risk mitigating device to be precise which is by and large used by organisations to avoid perilous situations as a result of sloppy underpinnings. With a correct analysis of basic trends and uncertainties your business can ascend impediments and steer clear on the path to success. 

Around a hundred years ago, it was off the pages for the U.S. Navy to even envisage the role of airplanes in naval warfare. In 1910, the Scientific American blazed that “to affirm that the aeroplane is going to ‘revolutionize’ naval warfare of the future is to be guilty of the wildest exaggeration.” History of mankind is replete with such examples. The global financial crisis or the Great Recession of 2007-09 counts as another reminder where the Federal Reserve and the Bush administration remained overly optimistic and persistently denied signs of an impending crisis; quintessential of how humans have an unbridled ambition to inordinately underestimate scenarios at hand. But can we succeed where trained world leaders and politicians failed?

Scenario planning can actually make a difference when it comes to myopic errors resulting from wrong assumptions people tend to make almost unknowingly. Scenario based planning encompasses all sorts of uncertainties/alternate futures in which today’s decisions might play out. Think in terms of a pilot ready to take off his plane; a detailed plan will be put in place using up-to-date data from air traffic controllers, meteorological department, aerospace safety, etc. whilst being combined with geographical mapping to curtail the possibility of human fallibility to almost null. 

Similarly, scenario planning and analysis attempts to capture the richness and variety of possibilities facilitating decision makers to consider those caveats that might go unnoticed. Scenario planning matrices come in handy for organizations especially when:

There is a high level of uncertainty regarding the organization’s future prospects. 

To keep itself apace with new trends in the market.

The industry has undergone a significant change or is about to.

The organization is facing stagnation in terms of generating new opportunities.

 

Key points include:

  • Identifying the focal issue
  • Developing a range of possible scenarios
  • Identifying external forces

Read the full article, Scenario Planning Matrix And Strategic Thinking, on PurpleCrest.co.