When Scenario Planning Fails

Over the past several decades, leaders have turned to scenario planning to identify future risks to their businesses. By analyzing things like revenues or margins across locations globally, this method allows leadership teams to design flexible long-term plans against a defined set of alternative external events and outcomes. The outputs can often include short-term financial forecasting and business planning in a “base case / best case / worst case” fashion.

But this method works best for foreseen risks and stable uncertainties like inflation rate forecasts, the likelihood of a new competitor, or a substitute product entering the market. It often fails spectacularly when firms are hit by shocks outside of leaders’ field of vision. And today, leaders are increasingly confronted with significant, and sometimes existential, events that they would not have contemplated even six months earlier. As an executive lamented to us, “There is great reason to be…

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This article was written by Kalle Heikkinen and originally published on hbr.org