Imagine that a decision is very important to encounter that can fundamentally affect your personal life or your business could in the future be decisive.
How to analyze different scenarios in 5 steps.
Maybe you’re thinking about spending more money to buy a bigger house. Or maybe you’re thinking of launching a new product that will boost your current sales.
You may have achieved the results you want, but this fear is deeply rooted in you that something bad will happen and you will not get what you want. After all, no one can have a clear and accurate view of the future. You may have a strong sixth sense and be able to guess what the future holds, but any perception of the future is quite fragile, and a wide variety of factors can change it.
Scenario analysis helps you to overcome the fear of the future and to be able to examine future events with the help of a logical framework.
Using this analysis, you can make decisions about predicting the future and various events that may occur in the future. Creating a scenario helps you to challenge your assumptions about the future. By planning and making decisions based on the most likely scenario, you can be sure that you have made the right decisions, even if circumstances change.
How to use this tool.
Scenarios are stories about how the world might change as a result of ongoing trends and circumstances. To create a scenario, we will introduce you to the 5 steps of scenario analysis, the steps of which are as follows.
1. Determine and define the problem.
First, decide what you want to achieve and think about what time horizon you want to look at. This time will determine the scale of the plans and scenarios you want to try.
Behnam is planning a new business. This business helps the companies that are its customers to implement a financial management software package in their company. He wants his business to grow significantly over the next five years. With this in mind, he decides to use a scenario to think about what might happen in the future.
2. Data collection.
All in all, Once the problem is defined, identify key factors, instances of uncertainty, and trends that may affect your plan. If your plan is large-scale, using PEST analysis can help you identify the political, economic, socio-cultural, and technological factors that may affect your plan. Then, identify the assumptions on which your plan is based.
Among various factors, Behnam recognized these factors as important:
- Economic situation (People in an economic crisis situation are not very interested in buying new software.)
- The importance of new software is that it leads to increased customer information productivity.
- Can the software package maintain its position in the market?
- Can it hire enough highly skilled professionals to implement the software?
- 3. Separation of instances of uncertainty conditions from conditions of existence of confidence.
- You may be sure of some of your assumptions and be sure that certain trends will occur in certain ways.
- When you have appropriately challenged these assumptions, consider these trends as examples of the existence of uncertainty and consider them as examples of uncertainty situations (trends that may be important, may not be important, or factors that may change). Or do not change); Separate. Prioritize these instances of uncertainty and place larger, more significant examples at the top of your list.
In addition, Based on the analysis of the current unemployment rate, Behnam is confident that he can provide the right and desired workforce, and given the new technologies used in the software package he wants to sell to companies, he is confident that his customers can Achieve significant effectiveness with the new version of this software.
However, Behnam is worried that the global software industry giant will enter the market and take away the company from which he buys the software. In addition.
Finally, He knows many software implementation companies that could not survive and be destroyed in the previous economic crisis, and it is possible that this will happen to companies operating in this field during the coming economic crisis.
4. Scenario development.
Now start with the uncertainty conditions at the top of the list you have prepared. Identify the relatively good results and the relatively bad results and makeup stories about the future around these two types of results.
Then do the same for the second option in your list. Do not write too many scenarios at this stage as it may reduce your productivity.
Behnam decides to prepare the following scenarios:
- Everything will go well”: Over the next 5 years, the economy will grow steadily and will experience only a few minor recessions, and he has made the right choice. The software vendor he uses has established itself in the market and is moving towards market leadership.
- ” Economic recession “: At the end of the period in question, the commodity price shock has plunged the economy into a serious crisis. While some software companies have continued to operate, many customers have decided to postpone the implementation of new software until the economic situation improves.
- “Intensifying competition”: The global software industry giant has entered the market. Although it will take time for the product to launch, it will push the current software vendor by the end of the target period.
- 5. Use your scenarios in your planning
- Now you can use the scenarios you have prepared in your plans.
Looking at the scenarios he has prepared, Behnam realizes that risks and dangers in the medium term threaten the business in question.
He decides to plan his business, using a combination of full-time employees and concluding short-term and part-time contracts so that he can quickly make the necessary changes to the size of his company depending on the circumstances.
It will also consider monitoring the activities of software companies that are entering the market so that it can make an appropriate decision if a new company threatens the existing supplier.
In identifying trends, be careful to base your assessment on objective evidence, not assumptions, and make sure that the trends you are reviewing have a sound and reliable basis. Also, keep in mind that trends change gradually under the influence of other factors; Major changes do not happen suddenly and are therefore traceable.
Tip 2 :
Peter Schwartz, one of the founders of scenario-based thinking, outlines the following common
evolution scenarios: Evolution: All trends continue as expected and will move toward a predictable endpoint.
Fundamental change: A new factor can fundamentally change the existing situation.
Cycle: What happens will happen again. After every boom, there will be a recession and after every recession, there will be a boom.
Unlimited development: Exciting and amazing trends will continue. For example, imagine the computer industry in the fifties and compare it with the current situation!
Rider: A fighter who wins alone against opposing forces. My generation: The current situation will be affected by cultural and demographic changes.