What are the best practices for using scenario analysis to inform strategic decision-making?

1 Define your focal question

The first step of scenario analysis is to define your focal question, which is the main issue or challenge that you want to address with your decision. Your focal question should be clear, specific, and relevant to your goals and context. It should also be open-ended, meaning that it does not have a predetermined or obvious answer. For example, a focal question could be: How will the global pandemic affect our customer segments and value proposition in the next five years?

2 Identify the key drivers of change

The next step is to identify the key drivers of change, which are the factors or forces that influence the outcome of your focal question. These drivers can be internal or external, positive or negative, certain or uncertain, and qualitative or quantitative. They can also be classified into STEEP categories: social, technological, economic, environmental, and political. You should select the most relevant and impactful drivers for your focal question, and avoid including too many or too few. For example, some key drivers of change for the focal question above could be: consumer behavior, digital transformation, economic recovery, health regulations, and geopolitical tensions.

3 Generate and refine scenarios

The third step is to generate and refine scenarios, which are coherent and consistent stories or narratives about possible futures based on different combinations of drivers of change. You can use various methods to create scenarios, such as brainstorming, clustering, cross-impact analysis, or morphological analysis. You should aim to produce a set of scenarios that covers a wide range of possibilities, from optimistic to pessimistic, from probable to improbable, and from incremental to disruptive. You should also give each scenario a catchy name and a brief description that summarizes its main features and implications. For example, some scenarios for the focal question above could be: Resilient Recovery, Digital Dominance, Fragmented Fallout, and Green Growth.

4 Evaluate and compare scenarios

The fourth step is to evaluate and compare scenarios, which involves assessing the strengths and weaknesses of each scenario, and how they differ from each other. You can use various criteria to evaluate scenarios, such as plausibility, relevance, consistency, diversity, and richness. You can also use various tools to compare scenarios, such as matrices, diagrams, maps, or graphs. You should highlight the key similarities and differences among scenarios, and how they affect your focal question and your decision options. For example, you can compare scenarios based on their impact on your customer segments, value proposition, competitive advantage, and financial performance.

5 Identify and prioritize actions

The fifth step is to identify and prioritize actions, which involves deriving the implications and recommendations from the scenarios, and deciding what to do next. You can use various techniques to identify actions, such as backcasting, wind-tunneling, robustness analysis, or option generation. You should consider the actions that are common or specific to each scenario, and that are proactive or reactive to the drivers of change. You should also prioritize the actions based on their urgency, feasibility, desirability, and adaptability. For example, you can identify actions such as: diversify your customer segments, invest in digital capabilities, monitor the economic indicators, or partner with green initiatives.

6 Communicate and update scenarios

The final step is to communicate and update scenarios, which involves sharing your findings and insights with your stakeholders, and revising your scenarios as new information and feedback become available. You can use various formats and channels to communicate scenarios, such as reports, presentations, videos, or workshops. You should tailor your communication to your audience, and use clear language, compelling visuals, and engaging stories. You should also update your scenarios regularly, and check their validity, relevance, and usefulness. For example, you can communicate scenarios to your team, customers, partners, or investors, and update them based on the latest data, trends, or events.

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?