What Functional Leaders Should Know About Scenario Planning

The COVID-19 pandemic has triggered a wide range of strategic planning activities. As the focus turns largely to recovery and renewal, functional leaders are increasingly pulled into enterprise conversations about likely outcomes when the way forward is neither clear nor certain. They also have to plan for a range of potential outcomes for their own functions.

Scenarios are compelling descriptions of possible futures — not necessarily the most probable ones, but plausible, coherent and substantially different ones

“Business models are evolving frequently, particularly as executives consider which pandemic-related trends will become permanent. This requires a prompt shift in the strategy that defines how the enterprise will play and win — and requires all functional leaders to be prepared to support a new strategy,” says Caroline Angle, Principal, Advisory, Gartner.

“Those who understand how disruption affects enterprise strategic and operational decisions can make small but powerful changes to prepare their own teams to act on the risk and opportunities that come from volatility.”

Scenarios don’t forecast the future; they explore what’s possible

Many functional leaders already serve as strategic advisors to corporate-level scenario planning exercises, but far fewer have experience in scenario planning for their own function. Even those who work regularly with their CFOs on financial scenario planning — tied more directly to the operating plan — may need to expand their capabilities to apply the discipline of scenario planning to identify and develop their own strategic assumptions.

“Scenarios are compelling descriptions of possible futures, not necessarily the most probable ones, but plausible, coherent and substantially different ones,” says Angle.

As such, scenarios aren’t intended to forecast the future. They are neither predictions nor contingency plans. And they aren’t the same as strategic options, which are things within an organization’s control. Scenarios are external, outside of the organization’s control.

Read more: COVID-19 Makes a Strong Business Case for Enterprise Risk Management

Know the objectives for your function

Ultimately, the objectives of scenario planning for the function are the same as at the corporate level:

• Maintain focus on critical growth and transformation initiatives during disruption.
• Identify “surefire” strategic decisions to pursue, regardless of which future unfolds.
• Perform due diligence on critical short-term decisions, and make strategic course corrections as needed.
• Prepare the team to mitigate potential risks, and provide timely risk-aligned guidance for different scenarios.

Scenario planning can often come across as a “blue-sky exercise,” so make the exercise pragmatic

You can’t, however, simply apply the outputs of enterprisewide planning to finance, assurance or other functions — primarily because the high altitude of organizations’ plans fails to consider the implications for functions’ strategies, risk exposure, demand and supplies.

For example, at the corporate level, responding to a market turn might translate into efforts to attract new customers. But for a function, it might mean renegotiating with suppliers or increasing support for ad hoc workload surges.

Diagnose the implications of scenarios for your function

For each scenario cascaded down from the enterprise level, functional leaders need to diagnose and articulate the implications on two fronts:

1. Supply-demand needs analysis. Review scenarios and understand how each might impact the organization’s demand for the function’s services. Consider how your function may need to increase or decrease its available resources in response.
2. Strategy-risk exposure and opportunity. Determine the risks and opportunities created by a specific scenario. Consider whether those risks and opportunities significantly change the work that your function will do to support the strategy.

Once the implications, risks and opportunities are clear, adjust the function’s strategy, goals and projects or initiatives for a given scenario. Translate these into action plans by deciding which levers (e.g., people, processes, systems, budget) you should pull to meet business needs, manage risks and capitalize on opportunities.

Action plans should match the severity of the implications and tie back to the function’s core strategy.

Bring scenario planning down to earth

Scenario planning can often come across as a “blue-sky exercise,” so make the exercise pragmatic by:

• Leading functional teams to define actions they must either start or stop doing right now to prepare for the future scenario
• Assigning action items (e.g., running a cost optimization pilot project) to specific staff members
• Participant diversity is critical. Typically, managers’ perspectives are based on their experience, and they can provide input on resourcing. Frontline staff can contribute from operational and workload-impact perspectives. The variety of viewpoints helps reveal interdependencies and uncovers a complete set of potential implications.

The outcome is a playbook of scenario-independent strategic actions (i.e., surefire moves) and a set of actions that are contingent on each scenario’s emergence (i.e., scenario-specific moves). This approach can make strategy execution more resilient because it allows functional leaders — in the event of scenario changes — to simply substitute the original actions with scenario-specific actions without the need for a full-blown strategy review.

Read more: A Framework for Executive Decision Making During COVID-19

Prepare to capture opportunities

As teams craft risk response strategies, they should also spend time identifying opportunities to revamp strategy, budget and talent plans.

For example, as functions considered the threats of Brexit-related scenarios, they likely identified risks such as visa changes for non-U.K. staff and supply issues from third-party service providers moving location. But opportunities also surfaced to create new business partnerships and bridge capability gaps by tapping into latent talent pools in areas of the EU.

Focusing on action items that will help the functional team get ahead of uncertainties is more motivational for functional teams than being left to react to negative effects — and is less stressful for those who must execute the action plan.