Contingency Planning

Introduction

In order to effectively manage risk, organizations must prepare contingency plans to anticipate events that could potentially disrupt their mission. Modern businesses are being required to plan for events that span numerous categories, including terrorism, natural disasters, cybercrime, supply chain disruptions, etc. (Margherita & Heikkilä, 2021). One methodology for managing uncertainty and risk is called “scenario planning.”

Formal scenario planning is said to have started in military contexts and later adapted to the corporate environment (Machiels et al., 2023). Early versions of scenario planning in industry and military settings relied on various forecasting methods (Börjeson et al., 2005). One notable early example of scenario planning is Shell using scenario plans to predict and anticipate an oil crisis in the 1970s (Demneh et al., 2023). This paper will cover the benefits of scenario/events planning, questions one must consider when implementing scenario planning, and the common types of scenario planning.

Benefits of Scenario/Events Planning

At the most basic level, scenario planning serves as a tool to engage stakeholders (Schwarze & Taylor, 2017). The core assumption is that decision-makers will be equipped to make better decisions if they consciously contend with multiple uncertain outcomes (Chakraborty et al., 2011). This assumption, however, does not exist without controversy (Chakraborty et al., 2011).

While some researchers have shown a positive correlation between scenario planning and desired outcomes (Bartholomew & Ewing, 2008), others argue that “the scenario approach, as it is commonly practiced, is not able to deal with complex developments and trends” (Postma & Liebl, 2005, Introduction). Postma and Liebl (2005) argue that the commonly practiced approach to scenario planning relies too heavily on the examination of past events to be able to anticipate true uncertainty. Machiels et al. (2023) suggest that this reliance on prior events can be remedied by selecting scenarios based on predefined uncertainties. This idea is supported by Börjeson et al. (2005), who state that using the past to predict the future is only one type of scenario planning that organizations have used and are currently using.

Questions to Consider

When developing scenarios, planners may find it useful to ask the following three questions: “What will happen?”, “What can happen?”, and “How can a specific target be reached?” (Börjeson et al., 2005, Summary). Börjeson et al. (2005) link the scenarios developed with each of these questions to specific types of scenario planning that will be addressed in the next section.

These three questions function well at a high level but must be broken down into smaller pieces at a practical level. For example, before an organization can ask how a specific target can be reached, it must first establish what that target is, how critical the target is, and how it ranks when compared to other targets. Additionally, some sort of methodology must be established in order to predict what will or can happen. Whether this methodology is based on prior data, subject matter expertise, or another source of data must be established.

Common Types of Scenario Planning

Scenarios can be broadly placed into three categories: Predictive scenarios, Explorative scenarios, and Normative scenarios (Börjeson et al., 2005). Predictive scenarios arise in response to the question “What will happen?” (Börjeson et al., 2005, Summary) and can be further classified into “Forecasts and What-if scenarios” (Börjeson et al., 2005, Summary). Explorative scenarios arise in response to the question “What can happen?” (Börjeson et al., 2005, Summary) and can be further categorized into either External or Strategic scenarios, according to Börjeson et al. (2005). Normative scenarios arise in response to the question “How can a specific target be reached?” (Börjeson et al., 2005, Summary) and can be further categorized into either Preserving scenarios or Transforming scenarios (Börjeson et al., 2005).

Predictive scenarios attempt to manage uncertainty by forecasting possible futures (Börjeson et al., 2005). These scenarios are often informed by events that have occurred and are currently occurring (Postma & Liebl, 2005). While Forecasts plan for the most likely scenario based on available data, What-if scenarios consider what would happen if other likely events occurred (Börjeson et al., 2005).

Explorative scenarios attempt to build more resiliency into scenario plans by considering a broader scope of possible futures, irrespective of the perceived probability that they will occur (Börjeson et al., 2005). As previously mentioned, these scenarios can be considered either external scenarios or strategic scenarios (Börjeson et al., 2005). External scenarios focus on what would happen if conditions beyond the control of the firm in question occurred, while strategic scenarios focus on the outcomes of potential decisions made by stakeholders inside the specified firm (Börjeson et al., 2005).

Normative scenarios consider specified objectives as scenarios (Börjeson et al., 2005). The first type of normative scenario, preserving, aims to reach a specified outcome while remaining under the constraints of the current paradigm (Börjeson et al., 2005). The second type, transforming, seeks to reach the specified outcome in spite of the perceived unreachability (Börjeson et al., 2005).

In their article titled “Using Corporate Foresight to Enhance Strategic Management Practices,” Demneh et al. (2023) suggest the following options as potential alternatives to scenario planning while noting that scenario planning is widely recognized as the primary option: system dynamic modeling, Delphi studies, corporate adaptations of war gaming (known as “business war gaming”), road maps, benchmarking, and business analytics.

However, other researchers include these “alternatives” as part of the larger scenario-planning process. Börjeson et al. (2005), for example, list Delphi studies as a tool to engage with stakeholders, generate ideas, gather expertise, and solicit feedback. Business analytics techniques such as time-series analyses, explanatory modeling, and optimization modeling are also mentioned by Börjeson et al. (2005) as part of the scenario-planning process. One article also suggests that business war games can be used as a tool for organizations to use as a discovery process for their scenario planning efforts (“The Strategic Advantages of Business War Gaming,” 2019).

Conclusion

Scenario planning is an important tool for decision-makers to manage uncertainty, risk, and volatility. When done correctly, organizations will be well-equipped to reach their specified goals despite potential disruptions. While organizations may not be able to accurately predict all possible futures, rigorous scenario planning equips decision-makers with the information they need to make the necessary choices quickly and with confidence. It is also important for organizations to periodically evaluate the effectiveness of their scenario planning efforts in retrospect (Demneh et al., 2023).

References

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Schwarze, M. L., & Taylor, L. J. (2017). Managing uncertainty — harnessing the power of scenario planning. New England Journal of Medicine/˜the œNew England Journal of Medicine, 377(3), 206–208. https://doi.org/10.1056/nejmp1704149

Chakraborty, A., Kaza, N., Knaap, G., & Deal, B. (2011). Robust plans and contingent plans. Journal of the American Planning Association, 77(3), 251–266. https://doi.org/10.1080/01944363.2011.582394

Bartholomew, K., & Ewing, R. (2008). Land Use–Transportation Scenarios and Future Vehicle Travel and Land Consumption: A Meta-Analysis. Journal of the American Planning Association, 75(1), 13–27. https://doi.org/10.1080/01944360802508726

Postma, T. J., & Liebl, F. (2005). How to improve scenario analysis as a strategic management tool? Technological Forecasting & Social Change/Technological Forecasting and Social Change, 72(2), 161–173. https://doi.org/10.1016/j.techfore.2003.11.005

Machiels, T., Goodspeed, R., Compernolle, T., & Coppens, T. (2023). Creating flexible plans for an uncertain future: from exploratory scenarios to adaptive plans with real options. Planning Theory & Practice, 24(3), 366–385. https://doi.org/10.1080/14649357.2023.2220701

Börjeson, L., Höjer, M., Dreborg, K., Ekvall, T., & Finnveden, G. (2005). Towards a user’s guide to scenarios: a report on scenario types and scenario techniques. In U.S. Department of Energy Office of Scientific And Technical Information (ISSN 1652-5442). Retrieved July 14, 2024, from https://www.osti.gov/etdeweb/servlets/purl/20688312

Demneh, M. T., Zackery, A., & Nouraei, A. (2023). Using corporate foresight to enhance strategic management practices. European Journal of Futures Research, 11(1). https://doi.org/10.1186/s40309-023-00217-x

The strategic advantages of Business War Gaming. (2019). Strategic Direction, 35(3), 1–3. https://doi.org/10.1108/sd-12-2018-0243