Expertise and Experience in Scenario Planning - PowerPoint PPT Presentation

Introducing Analysys Mason

Expertise and Experience in Scenario Planning

Amrish Kacker

Q3 2007

• Reliance on market predictions is risky. The pace and complexity of telecoms development make long-term forecasts very uncertain
• Analysys Mason offers scenario planning as a means of tackling the diversity of future possibilities, in order to:
• gain a fundamental understanding of the forces that are shaping the future
• assess the risks and rewards of different business options
• develop flexibility in responses to unforeseen change
• We combine in-depth knowledge of the telecoms sector with process consulting skills, working with clients to reach practical business decisions
• The following slides present:
• the benefits of our approach
• the principles of scenario planning
• the scenario-planning process
• checklist for success

• Scenario planning helps you to develop the agility required to gain business advantage from changes in the telecoms environment. The benefits include:
• early warning of business risks and opportunities
• objective decision support which balances the risks and returns of business options
• innovative business ideas
• challenge to any assumptions of business-as-usual
• common language for strategic debate which helps to capture divergent views across the business

• We go beyond descriptive scenarios to explore the details of business options
• We help our clients by:
• designing an efficient planning process that is tailored to meet each client’s needs
• facilitating workshops to engage, stimulate and challenge the client team
• analysing the risks and rewards of options in order to support decisions
• managing the process to deliver results on time
• The aim should be to embed scenario planning in the everyday business management process
• We therefore like to work closely with our clients in a single integrated team, to encourage skills transfer and total transparency
• We encourage the client team to take ownership of the process and the results

“Too many forces work against the possibility of getting the right forecast … accept uncertainty, try to understand it, and make it part of our reasoning.” Pierre Wack (Harvard Business Review 1985)

fixed–mobile convergence

merger activity

growth in emerging markets

broadcast–telecoms integration

fast growth in data traffic

new value chains for the Internet

development of regulation

impact of satellite

new technologies

development in competition

These drivers interact not only with each other but with any number of macro-economic, technological, regulatory, political and social issues. The interactions generate yet more complexity. The telecoms business environment could evolve along a myriad of different paths

There is a danger, however, that this forecast will become a straitjacket for strategic thinking. Significant business risks could be ignored

It broadens, rather than narrows, the vision of the business planning team

It endeavours to:

capture all the uncertainties faced by the business

highlight the issues that may have a significant impact on the business

study the relationships between these critical issues

On the other hand, forecasting and mathematical modelling are necessary for developing a detailed understanding of specific issues over shorter timescales. They can be used to:

underpin the scenarios with detailed information on specific issues

explore the value of specific options

test the performance of the business plan in each scenario

understand which parameters have a critical effect on the business

The two techniques work together for business planning

Scope

Scenarioplanning

Forecasting

Timescale

“An outline of future development which shows the operation of causes.” Chambers English Dictionary

• Describes a possible future business environment, but is not a prediction
• Explores the extremes which challenge the existing business model
• Engaging, interesting, challenging and credible
• Logically consistent with the known facts
• A set of scenarios is mutually exclusive and collectively exhaustive
• A set of scenarios describes a range of possible futures
• Ideally, develop no more than four scenarios, or it becomes difficult to manage them
• Scenarios can be presented in many different forms, such as in a script or a timeline, or within a discussion

test the credibility of each scenario

explore the magnitude of changes in the environment

evaluate the impact of those changes

Main

assumptions

______

______

______

______

______

Drivers of change

Scenario

scripts

Impact

____

____

____

Risk versus reward

____

_____

____

_____

____

Uncertainty

New business

Risk

Critical

proposal

Systems

parameters

_______

dynamics model

____

____

_______

____

_______

$ value

____

_______

_____

____

_______

_____

____

Cashflow

by scenario

Business plan

cashflow

$

Time

Scenario planning creates a flexible plan for the business which is composed of a variety of options. The business moves forward by shifting its weight between these options. This enables the business to adapt its plans to the evolving environment. The aim is to maintain a balance between risks and rewards

Scenario 1

Option C

Option A

Scenario 2

Present

Option E

Option B

Option D

Scenario 3

• This diagram shows our basic process for scenario planning. We work within this framework to tailor solutions to suit our clients’ needs

Set objectives

Build scenarios

Create options

Refine options

Maintain learning

Identify key issues

• Setting the objectives is the essential starting point for scenario planning, in order to define boundaries and establish focus
• A client-side strategy manager should be appointed at this earliest stage of the process. This manager will provide the point of communication between Analysys Mason and the stakeholders
• The objectives for the scenario planning project must be clearly stated and agreed with the key stakeholders. They should include the following:
• time horizon for the scenarios
• geographical scope of the scenarios
• business units or product areas to be addressed by the project
• unavoidable constraints on future plans
• definition and deadline for deliverables

• The main threats and opportunities facing the company need to be explored in preparation for the scenario-building activities
• This is best achieved through interviews with the key stakeholders, either individually or in small groups. These interviews provide an opportunity to:
• secure the stakeholders’ acceptance of the scenario-planning process
• gain the stakeholders’ trust
• listen to their views and concerns
• locate important sources of information for later analysis
• choose participants for workshops
• The interviews follow a simple process:
• prepare an interview script containing a provocative survey of markets, technologies, competitors, etc, expressed in terms of dilemmas and choices
• use this script to gently guide interviews with the stakeholders
• collate the information and analyse the results to identify the key issues
• feed the analysis back to the stakeholders for review and agreement

business factors

technology factors

socio-economic factors

Agree upon the impact and likelihood of each driver

Establish what is inevitable and, therefore, must occur in all scenarios

Inevitable

Significant

Impact

Insignificant

Uncertainty

Check:

the inter-relationships between the drivers with simple causal networks

that the scenarios are mutually exclusive and collectively exhaustive

that each scenario constitutes a challenging view of the future

Develop engaging descriptions of the scenarios supported by research and analysis

Uncertain change

Inevitable change

Additional workshops are held to examine each scenario in turn and generate many possible business solutions

From these we derive one simple plan for each scenario. The set of plans for each scenario are then compared:

the common elements form the core business plan

those differentiated by scenario become options for the future

Establish core plan for all scenarios

Brainstorm solutions for each scenario

Outline simple plans for each scenario

Compile series of options

There is a choice of attitude to take towards the options:

focused drive for one future?

cautious experimentation?

low-risk contingency planning?

The approach chosen will depend upon the balance between risk and reward that the stakeholders wish to maintain

The various business options are tested in the different scenarios to evaluate their performance. Tests can involve script-writing, war-gaming or mathematical modelling

The options are synthesised in one plan and the decision points defined, in order to achieve the business objectives

Check core plan in all scenarios

Establish parameters for each scenario

Synthesise and test complete plan

Check options in relevant scenarios

Refine decision points

Long-term, scenario planning will capture ongoing business learning as it evolves

In the short term, an effective early-warning system can be created by establishing processes such as:

short-listing critical parameters

summarising significant scenario events

defining how to track critical parameters and significant scenario events

agreeing management process for tracking

maintaining a strict schedule of reviews

allocating clear responsibilities for tracking

establishing processes for rapidly assessing consequences of events

keeping the stakeholders up-to-date with regular bulletins

adjusting business plans to keep pace with change in the business environment

Adjust plans

Track critical factors

Review scenarios

• Set a clear objective for the scenario-planning project in close consultation with the stakeholders in the business
• Build a creative and diverse team integrating client personnel with Analysys Mason team members
• Appoint a champion for scenario planning within the business, to lead the project with support from the Analysys Mason team
• Gain the commitment of key stakeholders, including board-level sponsorship
• Agree and follow a sound process, based on our experience but tailored to the client needs