What are the steps to identify potential risks using scenario planning?

1 Define the scope and objectives

The first step is to define the scope and objectives of your scenario planning exercise. What is the time horizon, geographic scope, and level of detail you want to cover? What are the key questions or issues you want to address? What are the desired outcomes or actions you want to generate from the scenarios? These parameters will help you focus your analysis and communicate your purpose.

2 Identify the key drivers and uncertainties

The next step is to identify the key drivers and uncertainties that shape the future environment. Drivers are the factors that influence or determine the direction and magnitude of change, such as technology, demographics, economics, politics, etc. Uncertainties are the factors that have a high impact but a low predictability, such as disruptive events, consumer preferences, competitor behavior, etc. You can use various sources of information, such as data, trends, expert opinions, and stakeholder inputs, to identify and prioritize the drivers and uncertainties.

3 Develop a scenario matrix and narratives

The third step is to develop a scenario matrix and narratives based on the key drivers and uncertainties. A scenario matrix is a simple framework that plots two or more uncertainties on different axes, creating four or more quadrants that represent distinct scenarios. For example, you can use the axes of high-low economic growth and high-low social cohesion to create four scenarios of prosperity, fragmentation, decline, and solidarity. Each scenario should have a descriptive name, a summary, and a narrative that explains how it emerged, what it looks like, and what it implies for your organization.

5 Identify the signals and indicators

The fifth step is to identify the signals and indicators that can help you monitor the evolution of the scenarios and detect early signs of change. Signals are the events or trends that indicate that a scenario is becoming more or less likely or relevant, such as new regulations, innovations, alliances, crises, etc. Indicators are the quantitative or qualitative measures that track the progress or performance of a scenario, such as market share, customer satisfaction, revenue growth, etc. You should define and collect the signals and indicators that are relevant for your objectives and scenarios.

6 Develop the strategies and actions

The final step is to develop the strategies and actions that can help you adapt to or influence the scenarios. Strategies are the general approaches or directions that guide your decisions and actions, such as diversify, innovate, collaborate, etc. Actions are the specific steps or initiatives that implement your strategies, such as launch a new product, enter a new market, form a partnership, etc. You should develop and prioritize the strategies and actions that are robust, flexible, and responsive to the scenarios, and align them with your vision and values.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?