Tag Archives: Forecast

Scenario Analysis: Basic tool helps generate great insight

Nothing in this world is certain not even the sunlight. There could be a patch of cloud on the sky that will make your day a gloomy one. There are two things you can do about it hiding away from it or consider it as a reality and plan around it. Any single projection of the future is clearly vulnerable to disruption by a range of different factors. Scenario analysis is the father of all strategy that helps you to understand and get prepared for all possible outcomes. It is not always true that bad things always come from bad places. Even a favorable environment can create unforeseen trouble for you.

Sometimes Bad comes from good places

Suppose, you are the second largest provider of movie entertainment provider in your community. Suddenly, the largest and your only competitor goes bankrupt or stops serving. What will happen? you will start facing more consumers demanding entertainment from you. This is a good thing right that you have more consumers, more profit etc. But think twice are you really ready to serve the increased demand. If you focus more on your newly developed consumer base you might lose your older, tried and true ones as there is a capacity issue deal with. So, if you fail to manage all your consumers properly you might even hurt your overall brand perception because frustrated consumers might create a bad word of mouth and make your loyal consumers doubt your service quality. If you are not ready a favorable situation can turn extremely bad.

Scenario Analysis helps you bring these uncertainties into the open and gives you a rational and professional framework to prepare strategic decisions and action plans to face those uncertainties.

The Best of This Tool

Scenario Analysis facilitates you to make decisions in the context of the different futures outcomes that may come to pass. What i love about this tool is it can be used any time as you will develop different future stories about you, your business, your profession, your market or the world. How things could turn out or change if certain trends continue/discontinue and if certain conditions are met/fail.

Start Writing Your Story

It is as simple as writing your story. If you already have a habit of keeping a diary you are half way there. Now start listing all about your business and key trends like a story. Like,
“My name is Fitz. I am an ice cream parlour owner. I have 5 people working for me. My competitor is a witch who always try to find new magics to hypnotize my customer with the promise of new flavors.”
Though this is an awfully short story it has some insights already. Like you have a small ice cream parlour which is getting trouble due to continuous innovation from the competitor side. Now here you developed your problem. This is only the beginning.

Developing Scenarios

We now know the story, lets start develop some simple scenarios. But this time try act as a third person who is analyzing the story rather yourself. Why? if you try to analyze the story as yourself you might try to look good and make some false pretentious assumption what will ruin the whole idea. Rather if  you take a bird’s-eye view as a third person you will understand your business better and avoid the chance of misjudging the situation.

Scenarios

  • Fitz introduce several new flavors and start getting his customers back.
  • Fitz keep indifferent about introduction of new flavors by his competitor
  • Fitz try something new and die (joking I just saw The Croods)
  • Fitz introduced something new as a value added service (like a karaoke or 8 ball pool)

Pains and Gains

  • Cost of introducing new flavors vs. value generated by new customers
  • Cost of remaining indifferent vs. loss of customer lifetime value (the total revenue generated from a customer’s lifetime expected purchases)
  • Cost of introducing a value added service vs. revenue addition generated by old and new consumers

The Result

Now start quantifying all the factors based on your confident judgement and if possible try to take help from other businesses in your community which tried to follow the same path. Don’t make a judgement just because you think so. I always try a different approach that is to discuss my decision with a person who has no idea about my business and another person who has reasonably good idea about my line of work. Well you are thinking why should I discuss it with someone who doesn’t have a clue about what I do. The answer is simple, most of your consumer are like that person who just comes to your place to consume the service and don’t know anything about your business. The ignorant person sometimes give you some great insight as they can think outside your business whereas you and your educated friend could not think differently as you are bound to think structurally considering all odds of the industry.

I hope you can now make great use of this tool and soar you business through troubling days. Don’t forget to come back. See ya and thank you for reading this strategy blog written for dummy’s by a dummy. Ha ha ha!