Scenario Planning and its Role in Risk and Crisis Management

The contemporary business environment is characterized by changes. Survival purely depends on the extent to which organizations are able to adapt to the changes. The traditional strategic planning has elements of rigidity where an organization is unable to respond to environmental changes. As a result, business performance declines when environmental changes make it difficult to realize set goals (Enzmann, Beauchamp & Norbash 2011, p.178). Scenario planning is the solution to environmental uncertainties.  This approach to planning emphasizes on visualizing the future instead of forecasting. Strategic plans emphasize on forecasting implying that a strategic plan is based on the assumption that the past trends determine the future environment (Amer, Daim & Jetter 2013, p.24). Visualizing the future means that the past trends are not used as a basis for predicting the future environment.  It leads to the identification of the possible future events and conditions that are relevant to the business. After identifying the future events, an assessment is carried out to identify the implications of the events on the organization. Diverse ideas are invited to help identify the possible impacts of the events on organizational performance. Identifying the consequences provides a basis for making decisions concerning responding to these conditions to maximize organizational benefits. Scenario planning, therefore, enables an organization to make appropriate decisions when responding to changes in the environment.

It is clear an organization that seeks to be successful in today’s business environment must be ready to exploit the capacities of scenario planning. It creates specific benefits that enable organizations to take appropriate decisions in line with scenarios in the environment.  It is due to these benefits that managers strive to implement the planning despite facing many challenges. Organizations that have in the past implemented scenario planning realized specific benefits.

Scenario planning encourages questioning the assumptions about the future environment. Plans are created for the future implying that they should be relevant to the future drivers and forces. Scenario planning requires managers to closely examine the assumption that was used as a basis for formulating the existing plans with an aim of ascertains their validity. Appropriate decisions are only made when there are accurate assumptions about the future drivers and forces. The fact that certain assumptions were appropriate when making current decisions does not imply that the same is relevant to future decisions.

It fosters creative thinking since managers are required to think beyond the normal plans (Coates 2000,p.115). In other words, the managers are required to examine the variables in the environment critically with an aim of identifying how an organization performs favorably in the future environment. Creativity is the basis of making sound decisions meaning that scenario planning enables the managers to make quality decisions that enable an organization to react to the realities of the environment.  Creativity influences the usefulness of opportunities to an organization. Organizations that are characterized by a creative workforce are able to make maximum use of an opportunity. Creativity also enables an organization to take appropriate covers against threats. Scenario planning, therefore, promotes creativity that in turn improves reaction to opportunities and threats.

Scenario planning supports evaluation and improvement of strategic planning. Strategic planning involves making of key decisions that determine the direction of an organization. Forecasting is an important engagement in strategic planning since the plans formulated are future oriented. Scenario planning makes the future environment more vivid since it is concerned with visualization of future scenarios. As a result, it helps the managers to identify whether a current strategic plan is applicable in the future environment.  It, therefore, enables managers to make informed decisions regarding customizing the strategic plans to fit the future environment. Strategic planning introduces inflexibility in operations that makes it hard to respond to changes in the environment.

It promotes teamwork in decision making that improves the quality of decisions. Scenario planning involves inviting stakeholders to facilitate prediction of possible future events (Chermack 2005, p.59). Such an engagement promotes cooperation among the participants since they freely exchange views.  The internal stakeholders involved are of different levels enabling managers and their subordinates to interact without restrictions.  Many studies show that reduction of the social distance between the managers and employees is one of the most effective perspectives of motivation.  Subordinates are able to freely interact with their bosses allowing them to air their views when making critical decisions. Decisions made through consultations like in scenario planning are of high quality since they incorporate diverse opinions. They are also embraced at all levels since employees are adequately represented during scenario planning. The team spirit that is created by scenario planning enables an organization to realize synergy in its operations.

Obstacles of Scenario Planning

Managers may fail to reap the benefits of scenario planning due to some obstacles. It is essential for managers to identify these obstacles and come up with ways of overcoming them. Familiarity threat is a major impediment to effective implementation of scenario planning. Managers who are used to it may be misled by assumptions generated by sensitivity analysis (Glick et al. 2012, p.488). They fail to make an adequate evaluation to ascertain whether the uncertainties they are focusing on are the most important. As a result, they end up giving undue emphasis to uncertainties that are not important in the organization’s future. Such a mistake can emanate from engaging in scenario planning in the past where the emphasis was put on a specific variable that positioned the organization favorably in the environment. The manager may assume that the same variable is always relevant to organization failing to consider that the environment is dynamic. Familiarity can also tempt managers to delegate scenario planning to junior managers who lack the adequate experience to handle complex managerial issues. This obstacle is overcome by failing to rely on sensitivity analysis. Managers should also not delegate planning to junior staff since the engagement is crucial in determining the success of an organization.

Another obstacle is giving weight to unlikely events. Scenario planning emphasizes on identifying future events and implementing measures to align the organization with the future event. These events vary regarding their impacts on the organization. Some matter more than others making it necessary to only focus on events that have a substantial impact on the organization.  Failure to set the right priorities makes the organization to waste a lot of time on activities that do not add value. Managers who fail to set the right priorities cannot reap the benefits of scenario planning.  They should, therefore, focus on classifying events based on importance to ensure the right priorities are set.

Stability is also an obstacle to scenario planning. Managers that are familiar with a stable environment lack the capacity to predict out of ordinary events(Coates 2000,p.117). Their participation in scenario planning is based on the assumption that the future will resemble the past. Such a biased opinion makes the managers lose objectivity when engaging in scenario planning.  The environment is dynamic and the future environment may be substantially different from the past trends. The success of a business operating in a dynamic environment depends on the ability to respond to changes in the environment. Swift response to the environment enables an organization to exploit opportunities and at the same time implementing measures to   minimize the impacts of threats. It is, therefore, necessary to face scenario planning with an open mind not expecting the environment to be stable over time.

Overconfidence impedes effective scenario planning.  Scenario planning starts by identifying specific scenarios after which threats and opportunities in every scenario are identified. Some managers have a good understanding of the threats and opportunities related to each scenario. As a result, they move straight to implementing a course of action. Over confidence has ruined many businesses due to failure to appreciate that future scenario are quite different from the current conditions. It is, therefore, necessary for managers to treat each scenario differently having in mind that the opportunities and threats presented by each scenario keep changing.

Failure to incorporate diverse opinions in plans is also an obstacle to effective scenario planning. A single manager cannot be effective in scenario planning. Brainstorming is a crucial step in scenario planning that requires the managers to invite the opinions of different stakeholders. The quality of scenario planning depends on the diversity of ideas.  More ideas lead the creation of a clear thought of the possible shape of events in the future environment. Managers should embrace democracy in scenario planning to enable different stakeholders to give their views on scenario planning. Teams are therefore needed to make scenario planning successful in any organization.

Risk and Crisis Management Plans

Risk and crisis management are important in an organization due to uncertainties that confront organization. Crisis management is the process of dealing with an emergency situation facing an organization. It is the application of strategies that helps an organization to deal with a major negative event(Coombs 2007, p.3-7).  The management provides a framework of how an organization deals with a crisis after it hits an organization. On the other hand, risk management is concerned with identification, evaluation, and reacting to risks. Reacting to risk may involve controlling, acceptance, minimization, or elimination of the risk (Akintoye  & MacLeod 1997,p.31-33). A risk management plan details how an organization responds to different types of risks.

Importance of Plans in Risk and Crisis Management

Risk and crisis management   plans create specific benefits to an organization.  The plans provide a sound direction during a crisis. They detail the specific actions needed whenever an adverse event hits an organization. The management goals are clearly stated that guides the efforts of different stakeholders. They, therefore, ensure that no effort is wasted pursuing goals that are not in line with interests of an organization during a crisis.  Crisis and risk management plan promotes innovation. A plan is formulated in advance that enables the stakeholders to exercise creativity and innovation when creating solutions to possible risks. Research is a core element of planning that requires the stakeholders to investigate broad dimension factors that influence the organization’s exposures. The research broadens the participants’ perspectives regarding organizational problems. The plans reduce uncertainties in risk and crisis management. The planning process relating to the crisis and risk management involves visualizing the possibilities of specific misfortunes hitting an organization (Olson & Wu 2010, p.3-6).  Identifying the probability of the occurrence of specific risks helps in clearing uncertainties in management.   A plan supports control in crisis and risk management.  Goals that are clearly specified in plans are used as yardsticks of evaluating performance in risk management.   Risk and crisis management involves the implementation of specific measures to save the organization from the negative ramifications of misfortunes. The plan is used to measure the effectiveness of these measures that facilitates implementation of corrective measures. The effectiveness of risk and crisis management is only realized when negative deviations are identified on a timely basis thus supporting prompt implementation of corrective actions. The plan supports decision making as it clearly identifies the purpose of risk management. The goals specified in plans guide decision makers when selecting alternatives since they are able to visualize how each alternative can support the realization of specific goals.  Finally,   a crisis or risk management plan helps in elimination of non-value adding activities (Olson & Wu 2010, p.). It clearly states management goals that enable the stakeholders to understand the specific actions that support the realization of these goals.

Elements of Crisis and Risk Management Plans

Risk and crisis management plans vary due to the substantial differences between organizations regarding risk exposures. However, the plans have some basic elements. These elements include   methodology, timing, budget, controls, responsibilities, communication, risk categories, and stakeholders (Pearson & Clair 2012, p.59).  An ideal plan should contain these elements and absence of any of them compromises the plan’s quality.

The methodology is an important element of the plan since it shows the data and tools used in risk management. The effectiveness of risk management depends on the availability of relevant data(Pearson & Clair 2012, p.59). The data supports decision making that in turn promote objectivity in risk management.  Managing risk and crisis requires different tools and techniques and the plan specifies the usefulness of these tools.

The plan should detail the timeframe for implementing different interventions. It should clearly state the protocol of implementing interventions in line with the goals of crisis and risk management. A plan can only be effective if there are specifications of how and when to implement interventions. Failure to make such specifications causes confusion in the implementation.

The plan should include the budget for implement the various risk mitigation interventions. The budget should clearly indicate the resources requirements and the allocation of such resources. Risk and crisis management   in an organization is costly. The highest costs are incurred when implementing specific interventions. The budget breaks down risk management into specific cost centers clearly identifying the cost implication of each activity. The budget helps the stakeholders involved in risk management in decision making. It, therefore, helps in the allocation of scarce resources.

Quality control is a critical element of the plan. There is a clear illustration of how specific controls are implemented during risk management to facilitate the realization of specific goals. Control mechanisms are detailed in the plan showing how deviations are addressed to ensure the implementation of mitigation strategies remains on course.

The plan provides the details about the application of human resources in the management. Different people are involved in the management that makes it necessary to specify the roles and responsibilities of each person. Breaking down the responsibility mechanisms provides a basis for evaluating the performance of each participant. In other words, the human resource details in the plan are used as a performance evaluation tool.

Details about the risk are provided in the plan. Risks are put into categories helping the stakeholders to clearly understand the relevant risks facing an organization. The probability of each risk is also provided to help the stakeholders make priorities(Pearson & Clair 2012, p.61) . Alongside the probabilities, details about the impact of each risk are provided. Lastly, the plan has a section providing the details of key stakeholders. The roles and risk tolerances of each stakeholder are identified.

Scenario Planning in Risk and Crisis Management Plans

Scenario planning provides a basis for developing crisis and risk management plans. The fact that scenario planning involves visualizing the future makes it provide a valuable insight   when creating the plans. These plans are created to address future misfortunes that are likely to face an organization. Scenario planning helps the planners have a more accurate understanding of the future scenarios in an organization.  The fitness of a plan is evaluated based on the extent to which it reflects the future conditions. It means that scenario planning makes the risk and crisis plans more relevant to the future environment.

In conclusion, scenario planning enables organizations to take appropriate decisions by putting into consideration the future conditions. This approach to planning creates many benefits to organizations but there are hindrances to its implementation. Risk and crisis management are important and scenario management supports the creation of sound plans regarding the two engagements.

References

Akintoye, A.S. & MacLeod, M.J., 1997. Risk analysis and management in construction. International Journal of Project Management, 15(1), p.31-38.

Amer, M., Daim, T.U. & Jetter, A., 2013. A review of scenario planning. Futures, 46, p.23-40.

Chermack, T.J., 2005. Studying scenario planning: Theory, research suggestions, and hypotheses. Technological Forecasting and Social Change, 72(1), p.59-73.

Coates, J.F., 2000. Scenario Planning. Technological Forecasting and Social Change, 65(1), p.115-123.

Coombs, W.T., 2007. Crisis Management and Communications. Institute for public relations, (1), p.1-14.

Enzmann, D.R., Beauchamp, N.J. & Norbash, A., 2011. Scenario planning.Journal of the American College of Radiology : JACR, 8(3), p.175-179.

Glick, M.B. et al., 2012. Effects of scenario planning on participant mental models. European Journal of Training and Development, 36(5), p.488-507.

Olson, D.L. & Wu, D., 2010. Enterprise Risk Management. Risk Management, 12, p.1-13.

Pearson, C.M. & Clair, J. a, 2012. Crisis Management Reframing.Management, 23, p.59-76.

 

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