Remember the first financial models you created earlier in your career? You generally had three scenarios – best case, worst case, and likely case. In light of the current pandemic, Bruce Reed and Mark Gandy revisit scenario planning and a few strong practices to amp up your models.
- Three tips to better scenario planning
- COVID-19: Implications for Business – a McKinsey debrief
- Three scenarios painted by McKinsey – quick recovery, global slowdown, and global pandemic and recession
- The 7 responses presented in the McKinsey debrief which include ensuring liquidity is sufficient to weather the storm
Book Selection for Scenario Planning
Mark recommends the 1996 classic, The Art of the Long View: Planning for the Future in an Uncertain World.
A few favorite highlights of the book follows –
On predicting the future:
Scenarios are not about predicting the future, rather they are about perceiving futures in the present.Schwartz, Peter. The Art of the Long View (p. 36). The Crown Publishing Group. Kindle Edition.
The reason for scenario planning:
… the point is to make strategic decisions that will be sound for all plausible futures. No matter what future takes place, you are much more likely to be ready for it—and influential in it—if you have thought seriously about scenarios.Schwartz, Peter. The Art of the Long View . The Crown Publishing Group. Kindle Edition.
The impact of scenario planning:
Scenarios are thus the most powerful vehicles I know for challenging our “mental models” about the world, and lifting the “blinders” that limit our creativity and resourcefulness.Schwartz, Peter. The Art of the Long View . The Crown Publishing Group. Kindle Edition.
A solid definition:
Scenario planning is about making choices today with an understanding of how they might turn out. In this context the precise definition of “scenario” is: a tool for ordering one’s perceptions about alternative future environments in which one’s decisions might be played out.Schwartz, Peter. The Art of the Long View (p. 4). The Crown Publishing Group. Kindle Edition.