3 Strategic Approaches to Scenario Planning in Crisis Situations
Wars, recessions, catastrophes, pandemics, and other disasters place firms in precarious conditions characterized by poor turnover, stalled growth, unemployment, and even insolvency.
Frequently, these situations arise uninformed. It is tricky to steer organizations through difficult situations and to anticipate the effects and severity of crises.
Financial planners and CFOs attempt to face these circumstances, but they are often unsure of what would work in the short term and what should represent their long-term Strategic Planning.
Uncertainties created by recessions and disasters need rapid Business Strategy measures and changes. Financial planners should assess the impact of the crisis and reconsider corporate objectives, but they typically lack the skills and data necessary to model a crisis effectively, offer tactics, and plan quick actions. In addition, modifying their preparation in reaction to a crisis requires a considerable amount of effort, changes, and permissions.
Frequently, the initial response to a painful situation is an unanticipated one. Before leaping to conclusions and blindly implementing measures that could backfire, a crisis or upsetting situation demands answering a few essential questions.
• Is it feasible to alleviate tension at times of crisis?
• Are our teams able to utilize improvised Scenario Analysis instruments?
• Would correcting assumptions and analysis be of some assistance?
• Can uncertainty be measured quantitatively?
• Should we have sufficient evidence to quantify uncertainty and formulate hypotheses?
• Do we have the foresight to forecast events and offer measures for course correction?
To answer these questions and assess the probability of a crisis, its potential impact, and the viability of potential scenarios, top executives often employ three strategic options:
- Do nothing.
- Plan for the worst, hope for the best.
- Consider all possibilities.
Before choosing a crisis planning and management strategy, senior executives must assess the advantages and disadvantages of various strategic alternatives. Let’s investigate these strategic possibilities in greater depth.
Do Nothing.
In times of uncertainty, downturns, and disasters, leaders frequently adopt the riskier strategy of doing nothing but observing how events develop. This strategy carries a tremendous degree of danger, and the anticipated short-, medium-, and long-term implications during a crisis are too devastating not to be addressed as soon as possible.
A strategy of inaction prohibits possible, important liquidity operations and other near-term measures that may provide long-term benefits. A wait-and-see attitude to crisis management may result in events that significantly impact and transform a corporation.
Plan for the worst, hope for the best.
The next strategic option entails expecting a single unfavorable circumstance without considering any other repercussions. Several organizations plan for a single worst-case scenario in the assumption that it will safeguard them against any crisis situation that is unprecedented. Such a method may result in catastrophes.
The majority of executives choose the Worst-Case Scenario Planning approach to risk management. However, this strategy is ineffective under normal conditions or once the crisis has subsided. In fact, such a strategy may render businesses uncompetitive if the market improves. The only answer to a crisis should not be to create a single worst-case scenario, evaluate banks and asset portfolios to see how they might react in various situations, and evaluate strategic KPIs against multiple situations. In actuality, assuring preparedness for a single catastrophic event is a myopic approach that may result in monetary losses.
Consider all possibilities.
In order to deal with a crisis, executives should be able to forecast all probable occurrences and assess their impact, which is typically not completely understood until the tragedy occurs.
Interested in learning more about Scenario Planning in times of crisis and uncertainty? You can download an editable PowerPoint presentation on Scenario Planning in Crisis here on the Flevy documents marketplace.
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