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Create a comprehensive action plan

March 23, 2020

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SCENARIO PLANNING

Why Scenario Planning? In the absence of a scenario to anchor on, most of us will anchor on the most pessimistic doomsday scenario which frankly no business (even JP Morgan) can handle. So, the following exercise will help you gain perspective about how to act as the crisis unfolds in the coming months.

Step 1: Develop 3 scenarios for the business environment in the next 12 months

  • Base Scenario – Virus peaks in next month and it’s business as usual in 4 months
  • Adverse Scenario – Virus peaks in next month and a gradual recession thereafter for the next 8 months
  • Severely Adverse – Virus does not subside over the next 8 months

 Step 2: Do not waste time trying to figure out the probability of each scenario; the details of the scenarios are not as important as the actions to be taken in adversity. The scenario details are only an aid to get to the action steps.

 Step 3: Under each scenario, evaluate what are the most powerful actions you can take under 4 headings

  1. Sources of revenue (partnerships, new products/services etc)
  2. Cost-cutting: Cutting fixed costs, variable costs
  3. Fund Raising – equity, revolving loans, credit lines from traditional and government sources. . Alternative sources of credit eg P2P lending.
  4. Strategic actions – partnerships, ownership dilution, asset sell-off, insurance coverage.

 Step 4: Calibration – Once you have action steps for each scenario, re-assign these action steps as

  • No regret actions – Steps you will take in the baseline, adverse and severely adverse scenarios; no matter what happens
  • Contingent actions– Steps that you will take to limit downside impact, contingent on the scenario
  • Opportunistic actions– Steps that you will take to capitalize on upside opportunities

 Normally an exercise like this would take 6-10 weeks to assemble. We have provided this outline to help you come up with an action plan over a 3-hour brainstorming session.

RESOURCES

Contributors:

Jayanth Krishnan