effective planning risk management in an uncertain business environment l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Effective Planning & Risk Management in an Uncertain Business Environment PowerPoint Presentation
Download Presentation
Effective Planning & Risk Management in an Uncertain Business Environment

Loading in 2 Seconds...

play fullscreen
1 / 55

Effective Planning & Risk Management in an Uncertain Business Environment - PowerPoint PPT Presentation


  • 323 Views
  • Uploaded on

Effective Planning & Risk Management in an Uncertain Business Environment. Risk Management & Scenario Planning Terry Harbottle University of Lethbridge. Key Objectives of the Evening. Understand the purpose and role of scenarios in strategic planning and risk management

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Effective Planning & Risk Management in an Uncertain Business Environment' - leal


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
effective planning risk management in an uncertain business environment
Effective Planning & Risk Management in an Uncertain Business Environment

Risk Management & Scenario Planning

Terry Harbottle

University of Lethbridge

Harbottle Consulting

key objectives of the evening
Key Objectives of the Evening
  • Understand the purpose and role of scenarios in strategic planning and risk management
  • Understand the types of issues and problems for which scenarios are most valuable
  • Understand the basic methodology / process in developing scenarios

Harbottle Consulting

slide3

A Framework for Integrated Risk Management

Organization wide

Strategic

-technology & information

- knowledge management

-industry value chain transformation

-business model

Environmental Risk

-environmental disasters

-changing environmental regulations

Operating Risks

-distribution networks

-manufacturing –gas processing

Commercial Risks

- new competitor(s)

- customer service expectations

- new pricing models

- supply chain management

Market & Credit Risk

-price - interest & fx. rate

-commodity price

Risk

Identification Impact Response

Connectivity

Harbottle Consulting

strategic management context
Strategic Management - Context

Internal

Resources, capabilities &

competencies

Forces

(Little or no

Influence )

The World

Financial

The Industry

Communities

Social

Customers

Organization

Economic

Suppliers

Competitors

Political

Politicians

Regulators

Technological

Factors

& Actors

(Some Influence)

Environmental

Harbottle Consulting

scenarios planning a history
Scenarios & Planning … A History

Do we need a strategic plan?

Denial Acceptance Frustration Solution Integration

Integration

with strategic

change

management

Leave it to

the Kremlin

The importance

of looking

ahead

The rise of

scenario

planning

The impossibility

of predicting

1950 1960 1970 1980 1990 2000

Harbottle Consulting

strategic planning process
Strategic Planning Process

Goals &

Objectives

Mission &

Values

Strategic

Options

Strategy

Development

Implementation &

Evaluation

Vision

Feedback & Learning

Harbottle Consulting

scenarios in strategic planning
Scenarios In Strategic Planning

Future

Business

Environment

(Scenarios)

Vision

Mission

Goals

Learning

& Change

Competencies

Competition

Harbottle Consulting

scenarios in strategic management process
Scenarios in Strategic Management Process

5 Year Business

Plans/Budgets

Scenarios

Business

Environment

Analysis

Strategy

Formulation

Strategy

Implementation

Performance

Evaluation

Learning

Management

of Business

Management

of Change

Harbottle Consulting

why plan
Why Plan?
  • Is the future predictable?
  • How do you think about the future?
  • How do you plan for an uncertain future?

But plan you must …

“Failure to plan is planning to fail”

Harbottle Consulting

the illusion of certainty
The Illusion of Certainty
  • “The phonograph is of no commercial value” Thomas Edison, 1880
  • “There is no reason for any individual to have a computer in their home.” - Ken Olsen, President of DEC, 1977
  • Internal sales forecasts for PCs for the 1980s: 295,000. Actual sales for PCs in the 1980s: over 25,000,000 - IBM, 1979
  • “Anyone who thinks the ANC is going to run South Africa is living in cloud cuckoo land.” - Margaret Thatcher, 1987
  • “They couldn’t hit an elephant at that dist…” - Last words of General Sedgewick, 1864

Harbottle Consulting

the challenge of uncertainty
The Challenge of Uncertainty
  • Who would have guessed?
  • The rise of the Internet?
  • That long distance telephone calls would cost 5c per minute?
  • That electricity would be deregulated and unbundled?
  • That the “Standard Oil Trust” would be reunited?
  • That a WTO meeting would lead to passionate riots?
  • That Nortel faces de-listing from the NYSE?
  • That Enron would vanish in 6 months?
  • Recent Geo- political events

The future is not predictable, yet we must make decisions & act.

Harbottle Consulting

decisions and consequences
Decisions and Consequences

“…Strategic planning does not deal with future

decisions but with the futurity of present

decisions…”

—Peter Drucker

Harbottle Consulting

expectations and decisions
1970s Oil a declining resource

$100 / bbl inevitable

1980s Electricity demand growth

1990s Mexican growth expected

Japan recovery

Asian growth inevitable

Internet business

2000s Electricity & gas prices

Technology “bubble”

Ethics & Leadership

Shale Oil

Barents Sea

Nuclear

’94 Crash

Barings demise

Thailand

AOL/ Time Warner

California / Alberta

Dot.com Collapse

Enron / World Com

Expectations and Decisions

Harbottle Consulting

two perspectives on the future
Future Uncertain

Range of Futures

Insight

Robust Strategies

Two Perspectives on the Future

Decisions based on Expectations

Future Predictable

Consensus Future

Accuracy

Optimal Strategy

Harbottle Consulting

predictability uncertainty
Predictability & Uncertainty

Uncertainty

Degree

Scenario

Planning

Forecasting

Predictability

Time

Harbottle Consulting

scenarios examine alternatives
Scenarios… Examine Alternatives

Wildcard Scenario X

Today

Scenario A

Area of

Plausible

Futures

Scenario B

Scenario C

Wildcard Scenario Y

Area of

Implausible

Futures

Today

Tomorrow

Harbottle Consulting

scenario planning
Scenario Planning

‘Risk Management and Opportunity Identification

at the Strategic Level’

Harbottle Consulting

a scenario is
A Scenario Is...

A story, an image, or a map of the future

and

An interpretation of the present

projected into the future

and

An internally consistent story about the path

from the present to a future horizon

Harbottle Consulting

scenarios alternative futures
Scenarios = Alternative Futures
  • Multiple
    • views with different logics
  • Qualitative
    • dealing with complex structural change
  • Objective
    • plausible and internally consistent descriptions
  • Focused
    • key issues and uncertainties
  • Open-ended
    • outlines, not precise details

Harbottle Consulting

scenarios involve outside in thinking
Scenarios Involve Outside-In Thinking

Resources, capabilities &

competencies

Forces

(Little or no

Influence )

The World

Financial

The Industry

Communities

Social

Customers

Organization

Economic

Suppliers

Competitors

Political

Politicians

Regulators

Technological

Factors

& Actors

(Some Influence)

Environmental

Harbottle Consulting

scenarios and systems thinking
Scenarios and Systems Thinking

Systems

Scenarios

The Story

Visible Manifestations

Events

Characteristics

& Storylines

Trends and

Combinations

Patterns

Causal

Relationships

Scenario Logic

Structure

Harbottle Consulting

scenarios part of a strategic process
Scenarios - Part of a Strategic Process

Key Strategic Issues

Focal Question

Scenario Development

Implications

Strategy Development

Harbottle Consulting

value of scenarios
Value of Scenarios
  • Shared articulation of alternative futures
  • Coherent “mental maps” of the future
  • Analysis of current environment
  • Context for developing and evaluating strategy
  • Encourage adaptation to change
  • Emphasize uncertainty and the need for flexibility

Harbottle Consulting

features of a good scenario
Features of a Good Scenario
  • Plausible
  • Recognizable from the signals of the present
  • Creative in exploring new ground and ideas
  • Relevant and significant to the organization
  • Internally consistent
  • Challenging

Harbottle Consulting

developing scenarios
Developing Scenarios

1. Focal Issue

2. Key Factors

3. Environmental

Forces

8. Early Indicators

5. Scenario Logics

4. Critical

Uncertainties

7. Implications

6. Scenarios

Harbottle Consulting

scenario process in pictures
Scenario Process in Pictures

Forces

Uncertainties

Characteristics

Paths

Harbottle Consulting

scenarios ask the right question
Scenarios Ask the Right Question...

“The only relevant discussions about the future are where we succeed in shifting the question from whether something will happen to what we would do if it did happen.”

Arie de Geus

Shell Group Planning

Harbottle Consulting

key points
Key Points
  • Scenarios are descriptions of alternative futures
  • Scenarios are focused on key issues and uncertainties facing the organization
  • Scenarios are the output of an interactive and creative process designed to gain insight not prediction
  • Scenarios are part of a larger strategic process contributing to enhanced strategic thinking, learning, and decision making
  • Scenarios planning is particularly valuable in turbulent environments facing structural change

Harbottle Consulting

future of the railway industry a case study
Future of the Railway Industry – A Case Study

The purpose of this case study is to provide an example based on a real scenario project. It is not a model case. Timing and logistics force modifications in the 8-step process. Some worked, some didn’t. All were valuable in learning more about the challenge and reward of developing and applying scenarios to organizations. The viewgraphs to follow trace through each step in the process.

Harbottle Consulting

is a railway example relevant
Is a Railway Example Relevant?
  • The railway industry has a number of distinctive characteristics. Do these have any relevance to other industries?
    • The industry is very capital intensive
    • The industry is concentrated into a small number of major companies and independents
    • The industry is driven by the economy and subject to political intervention
    • The industry competes across RR’s and with other “modes” (e.g. truck vs. rail) both domestically and internationally
    • The industry is increasingly impacted by technological change and lack of skilled workers
    • The industry has much to learn from the experience of others

Harbottle Consulting

scenario interview questions
Scenario Interview Questions

What are the issues on the minds of managers? What are the strategic issues the scenarios should address? Try some of these questions in your company.

  • Past Changes – What has changed over the past 10 years that has had a significant impact on the industry / company?
  • Lessons from the Past – What has made the company successful in the past?What lessons do we need to remember? What do we need to forget?
  • Current Constraints – What things need to be changed for the company to be successful in the future? What are the barriers to innovation and change?
  • Critical Decisions – What important decisions are on the immediate horizon? What important decisions are being ignored that should be addressed?
  • Dark Spot – There is a dark spot on the horizon. It is not here and now but could have a major impact on the company / industry in the future. What is it?
  • Good Future – If you looked back 10 years hence and the company had been very successful, what went right? What does a good future look like and what needs to happen for that good future to occur?
  • Oracle – If you could spend time with an oracle or clairvoyant who knew the future, what question would you ask? What would you really like to know?

Harbottle Consulting

developing the focal question
Developing the “Focal Question”

The focal question identifies:

  • The key strategic issue facing the company / organization.
  • The key decision facing the company.
  • The key question you would like to answer.

The focal question should:

  • Focus on the company specifically (not the future of the world).
  • Highlight the key strategic question (e.g. growth, profitability, industry structure, competitive position, customer relations, etc.).
  • Focus on a single concern (not compound issues).

Examples

  • How can ABC penetrate and gain dominance in market W?
  • How can LMN maximize growth opportunities?
  • How can XYZ strengthen customer relationships?
  • How can increase long-term profitability?

Harbottle Consulting

interviews focal question rr example
Interviews & Focal Question - RR Example
  • Issues Emerging from Interviews
    • Railroad mergers
    • New transport regulation
    • New trade flows
    • Truck competition
    • Agricultural policies
    • Customer industries (coal, paper, grain, steel, autos)
    • Union power
  • Focal Question
    • Can Railco improve its competitive position and capture growth?

Dilemma: Short term cost or long term growth? Unable to resolve.

Harbottle Consulting

factors and forces
Factors and Forces

All organizations are embedded in a larger context. The accompanying chart distinguishes the contextual environment (forces & factors) from the transaction space (actors). A key step in scenario development is to identify the forces driving change in the external environment. One approach in identifying major driving forces / factors in a workshop involves 3 steps.

  • “Take 4 or 5 minutes by yourself and identify 4 or 5 factors or forces (no real distinction is needed) which could impact the focal question.”
  • Go around the room and have each person describe the forces / factors they identified. Summarize to 4 or 5 words and write them on large post-it notes.
  • Using volunteers, sort the post-it notes into clusters around common themes. Do not use a pre-defined framework. Select notes randomly and look for another with a common connection, etc. Build up between 7 and 10 clusters. There should be no more than 10 post-it note ideas per cluster. Name the clusters reflecting the underlying theme.

The cluster themes may be interpreted as the “forces” driving future change. They also represent a framework for describing the future. Each “force” must be included in all of your scenario descriptions although with varying interpretations and importance.

Harbottle Consulting

context of the firm
Context of the Firm

Forces

(Little or no

Influence )

Contextual Environment

Financial

Transaction Space

Social

Suppliers

Customers

“Firm”

Economic

Competitors

Communities

Political

Regulators

Politicians

Technological

Factors

& Actors

(Some Influence)

Environmental

Harbottle Consulting

key factors forces rr example
Process

Brainstormed factors and forces

Grouped into clusters

Clusters labeled to reflect major theme / force

Factors & Forces(from clusters)

Macro-economics

Global / Asian growth

Rail performance & competition

Customer industries

Rail industry restructuring

Truck competition

Labour

Regulation & Politics

Ports & Water

Environment

Key Factors & Forces - RR Example

Harbottle Consulting

importance and uncertainty
Importance and Uncertainty

Forces Importance Uncertainty

______________________

______________________

______________________

____________________________________________

______________________

______________________

______________________

____________________________________________

______________________

______________________

______________________

____________________________________________

This chart shows one approach to identifying “critical uncertainties”. These are forces which are both important and uncertain. Uncertainty means either that they have a wide range of possible outcomes, and hence are uncertain, or the impact of the driving force has a number of different possible impacts (e.g., technological change may be uncertain because there is a range of possible new technologies OR because the impacts on society are highly uncertain)

The task is to rank (or rate) the forces on importance and uncertainty. This can be done in a group by allocating votes among participants (e.g., 3 votes for each participant) or by rating each force (1 – 5 scale) to identify the two which are most important and uncertain. The vote should narrow the choice but you should leave room for discussion before selecting 2 forces as the critical uncertainties.

Harbottle Consulting

critical uncertainties rating importance uncertainty
Critical Uncertainties - Rating Importance & Uncertainty

Participants allocated 5 votes each for importance & uncertainty

Importance Uncertainty

Macro-economics 6 14

Global / Asian Growth 3 2

Rail Performance & Competition 8 0

Customer Industries 11 6

Rail Industry Restructuring 5 4

Truck Competition 3 1

Labour 4 6

Regulation & Politics 2 9

Ports & Water 2 1

Environment 1 2

Harbottle Consulting

critical uncertainties refining the definitions
Critical Uncertainties - Refining the Definitions
  • Macro-economics (rate and structure of growth) was immediately identified as a critical uncertainty; Global / Asian growth could be incorporated into this dimension.
  • Customer industries was a second candidate, but this appeared to be closely linked to macro-economics / growth
  • Was rail performance and competition predetermined (I.e. zero uncertainty)? When we unpacked this cluster it became evident that performance pressures were “inevitable” but not so clear.
  • A second critical uncertainty emerged around competition and industry structure, which appeared interesting and challenging.

Harbottle Consulting

example of a cluster
Example of a Cluster

Rail Competition and Performance

  • Improving asset utilization
  • Railroad reliability
  • Seamless intermodal service
  • Ability to handle information
  • Rail track / operation separation
  • Seasonal operating difficulties
  • Rising customer expectations
  • Increasing rail to rail competition
  • Move to schedule services
  • Info systems in railroads

A wide array of

factors grouped

into a single cluster

Clusters help focus the process but can suppress critical factors

Harbottle Consulting

scenario logics
Scenario Logics

The dimensions are the critical uncertainties: label the 2 axes. Then describe the ends of the spectrum (2 – 3 words or phrases)

Harbottle Consulting

scenario logic framework rr example
Scenario Logic Framework - RR Example

Restrained Competition

Market Power

Scale & Consolidation

High Growth

Global

Technology

Productivity

Low Growth

Volatile

Nationalistic

Interventionist

Economic Growth & Structure

Ind. Structure Competition

Open Competition

Customer Driven

Market Share & Open Access

Harbottle Consulting

scenario logics railway industry
Scenario Logics - Railway Industry

Restrained Competition

Dinosaur Park

Riding the Momentum

  • Global Trade
  • Consolidation
  • Bulk commodities
  • Contraction
  • Stable Regulation
  • Excess Capacity

Economic Growth & Structure

High Growth

Low Growth

Industry Structure Competition

Technology Forced

Stagnant Growth

  • Customer Demands
  • Seamless Service
  • Internal Pressure
  • Desperate Customers
  • Nationalistic
  • Interventionist

Open Competition

Harbottle Consulting

other examples na mining
Other Examples – NA Mining

High Growth

Prices & Productivity

New

Horizons

Money

Divides

Open

Inclusive

Holistic

Trust

Respect

Closed

Divisive

Conflict

Distrust

Self-Interests

Societal Values

Economic Performance

Perfect

Storm

Phoenix

Rising

Low Growth

Prices & Productivity

Harbottle Consulting

other examples future of nait
Other Examples - Future of NAIT

Open Competition

PROZACTIVITY

COMPETITIVE EDGE

  • Political conflict
  • Government directed
  • Public driven
  • Education controlled
  • Open markets
  • Consumer driven
  • Expanded training
  • Leading edge technology

Public

Private

  • Government driven
  • Social Responsibility
  • Stability
  • Education Integration
  • Corporatist
  • Business driven
  • Partnerships
  • Structured Learning

CONTROLLED

GROWTH

DALLAS

Limited Competition

Harbottle Consulting

developing storylines
Developing Storylines

Scenarios are stories, engaging, logical and challenging. Stories need a plot through time. One way of developing the story through time is to have participants describe events consistent with the scenario logics in 3 time frames: near term, medium term and long term. Writing these as newspaper headlines is one approach which can add fun and creativity to the exercise (but can become trivial if you are not careful).

The descriptions should reinforce the overall logic of the scenario. They provide useful material in writing the stories and in developing material. A useful tool in developing the logic and story of a scenario is to map out the logic. An example of a “logic map” for the railroad scenario “Riding the Momentum” is shown in the next viewgraph.

Harbottle Consulting

logic map for riding the momentum
Logic Map for “Riding the Momentum”

Rail

Consolidation

Global

Growth

Restrained

Competition

Lower Costs

& Market Power

Rising

Transport

Demand

Increased

Profitability

Increased Investment

Ship / Rail Technology

Mapping the

logic helps in

developing the

story through

time

Growth in

Truck Traffic

& Profits

Long Haul Focus

Constrained Competition

Harbottle Consulting

writing communicating scenarios
Writing & Communicating Scenarios

Scenario writing is an art. The written scenarios are intended to engage the mind of the reader. To draw them into the future. To encourage them to explore new ideas. To think differently. The stories must be logical, internally consistent and believable. The writer does not need to think through every detail. Indeed, this is counterproductive. The scenarios are necessarily incomplete to let the reader add ideas and examples from his / her experience.

There is tremendous opportunity to be creative in writing scenarios. Experiment. Try new things. Some have used dialogue; some have used “newspapers”; some prefer “bullets” to written prose; some have written in the future tense, present tense and past tense. (I prefer the past tense because stories seem more real and believable when written as if they have already occurred. )

Some include the logic leading up to the critical uncertainties in their reports; some include an overview before the stories (my preference); and others plunge right in. Some include both stories and “bullets” using a “summary comparison table” to encourage comparison across the scenarios (see next viewgraph). Scenarios should be grounded in recent events. The same event(s) may appear in all scenarios but with different interpretations leading to distinctly different futures. This links the future to alternative interpretations of the present and anchors the stories in reality that readers are currently experiencing.

Written documents are only one form of communication. Presentations are another form. Others have developed videos; and others have used actors to bring the scenarios alive – literally. The only limit is writing and communication is your imagination (and budget).

Harbottle Consulting

summary comparison table
Summary Comparison Table

Characteristics

Scenario B

Scenario C

Scenario A

Scenario D

Tech Impact

+++ + - - 0

Rapid Protection Slowing Stable

Globalization

Growth

Prices

Volatile Flat Rising Falling

Regulated Free Mkt Reregulated Regulated

Policy

Authoritarian Liberal Tolerant Intolerant

Values

Harbottle Consulting

scenarios to strategies
Scenarios to Strategies

Scenarios

Windtunnelling

Windtunnelling

New

Strategies

Existing

Strategies

Implications

Strategic

Objectives

Strategic

Plans

Harbottle Consulting

scenarios as a tool implications
Scenarios as a Tool - Implications

Questions

  • What are the threats and opportunities in each scenario?
  • What factors are critical for success in each scenario?

 Deepen understanding of the scenarios

 Provide a broad context for more specific questions

Harbottle Consulting

scenarios as a tool competitors suppliers customers
Scenarios as a Tool – Competitors, Suppliers & Customers
  • Who will be the major competitors in each scenario?
  • How will these competitors respond to our new strategy?
  • Could completely new competitors emerge in our business?
  • What will be the impact on our relationship with suppliers?
  • How will our customers change? What new needs will they have in each scenario?

 Explicit consideration of key actors

Harbottle Consulting

scenarios as a tool existing strategies
Scenarios as a Tool – Existing Strategies

“Windtunnelling” – How will our current strategies fly in the future?

How would our existing strategies perform in each of the scenarios?

What are the pros and cons?

What are the risks? Where are we vulnerable?

Will our current strategies meet our strategic objectives?

 Ensures articulation of existing strategies and objectives

 Forces managers to think through the consequences of current strategies

 Encourages discussion of risks and rewards

Harbottle Consulting

scenarios as a tool generating new strategies
Scenarios as a Tool – Generating New Strategies

If scenario A (B, C, ..) occurred, what should we do?

What strategies should we pursue?

Generate

New

Strategies

Scenarios

Evaluate

(Windtunnel)

Review

Objectives

  • Forced generation of different strategies (lateral thinking)
  • Active discussion of the consequences of specific choices

Harbottle Consulting