SCENARIO PLANNING IN UNCERTAINTY

The ability to navigate through the increasing and unprecedented volatilities, uncertainties, complexities, and ambiguities (VUCA) in the domestic and global economy today has become crucial for most organization. As the country contends debilitating economic and social challenges as well as global shocks, the business landscape will not be without some variants of turbulence thereby making scenario planning necessary. The outcome of upcoming elections in several countries globally, especially USA, Russia, UK, and Taiwan may shape the dynamics of trade and capital flows around the world in 2024. Effective scenario planning helps organizations perceive risks and opportunities more broadly to imagine potential futures and different scenarios that might challenge assumptions. It is a method of testing the impact of various strategic options being considered. It helps to look at a situation and discover any leverage that can be used to turn uncertain situations into favourable ones.

“Long-range planning does not deal with future decisions, but with the future of present decisions.” ????- ?Peter Drucker???

By employing scenario planning, the robustness of current plans can be gauged against the possibility and effects of several scenarios. Recall that the economic outlook will likely reflect high operating expenses and interest rate hike, supply chain disruptions, exchange rate volatility, political uncertainty, dwindling purchasing power of consumers, staggering insecurity, and its impact on logistic operations. This crucial process is an accurate way of creating a best and worst-case scenario, while planning for both outcomes. In any situation, there is the state in which an organization would like to end up and the state which it would like to stay away from as far as practicable. Part of the importance of scenario planning comes from identifying these two states and creating conditions that will help organization reach one while avoiding the other.

BENEFITS OF SCENARIO PLANNING

1.It serves as an early warning system: Cash flow crisis can be as a result of decrease in sales, late payments, the loss of a project or client or even an interruption in the supply chain. Effective scenario planning can act as an early warning system for avoiding potential pitfalls such as these. It is a way of evaluating these situations and creating contingency plans.

2. It creates business agility: It helps to create business agility and adaptability to multiple eventualities. It reveals the outcomes of key business variables. Both internal and external changes such as supply chain issues, company restructuring, or raw material cost increases can be?responded to in a rapid and accurate manner.

3. It opens up efficiency options: Assessing how to achieve cost reduction can be evaluated to determine the best approach and likelihood of success.

4. It develops business growth: Scenario planning helps to identify the risks that come with opportunities for growth. Effective forecasting of different scenarios helps you to build a broader and more accurate picture of your business’ future which will maximize enterprise value.

5. Increasing investor trust: Scenario planning can be used to explain business strategy and show how prepared the business is for every eventuality. This can be presented to investors and stakeholders, showing them the path, the business is on, possible potential risks and their solutions and probable benefits.

What are the categories of scenario planning?

1. Predictive Scenarios (What will happen if the most likely development unfolds?): examine likely impacts and outcomes of future events in the short to midterm. Scenarios can use modelling and trend analysis and describe how a future can emerge from the present.

2. Explorative Scenarios (What can happen?): explore future situations characterized by uncertainties and drivers of change and their possible implications for decision making and strategy development.

3. Normative Scenarios (How can a specific target be reached?): assist the development of plans and strategies to meet pre-specific goals / targets through controllable adjustments to the current situation.

Possible Areas Open for Scenario Planning

1. Material resource planning

2. Logistics operations

3. Vendor engagement and relationship management

4. Plant production capacity

5. Backward integration for material inputs

6. Inventory management.

7. FOREX sourcing windows

8. Project management and fund availability

The social, technical, economic, environmental, and political ("STEEP") trends ahead are likely to be susceptible to wide variations and swings which might throw business projections out of joint. Therefore, identifying the driving forces that can impact organizations through PESTLE analysis and setting out scenario planning to proactively prepare to deal with uncertainty will assist to build resilience and reposition organizations. Having this corporate foresight is a major requirement for establishing the groundwork for competitive advantage in identifying ranges of potential outcomes and impacts as well as risks and opportunities, evaluate responses and manage for both positive and negative possibilities. This will assist to create company-wide visibility to capacity and mitigate VUCA-induced shocks to the business.

Lead Risk

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