How to do scenario planning the right way

As we all navigate these confusing times, there’s a lot of talk about scenario planning. However, much of what’s said misses the core point of the practice. Let’s explore what scenario planning really is — and, more importantly, what it isn’t. (Spoiler: It’s not about predicting the future.)

Uncertainty is the real business risk

Nothing upsets businesses (and markets) more than uncertainty. Unwelcome events and trends are manageable if they have a level of predictability. If you know of upcoming negative changes — new regulations, taxes or technologies — you can plan and manage around them. It’s when the uncertainty grows that our abilities to plan and manage are tested.

A common saying, “Hope for the best, plan for the worst,” underlines how many of us approach uncertainty. That simple phrase reveals a depth of insight. We don’t know what will happen, but we can take ownership of our actions and mitigate the adverse effects of the worst-case scenario.

Unfortunately, in business, we need more sophisticated approaches. Why? If we focus purely on mitigation — what some call “red light planning” — we won’t be as efficient or effective in best-case outcomes. You may thrive in the worst cases, but be an also-ran when things are not so bad.

The origins of scenario planning

In the 1950s, Herman Kahn at the RAND Corporation developed a methodology for building a more sophisticated set of possible futures and developing (military) strategies against them. In military terms, it wasn’t about predicting what a hostile power would do but building a comprehensive set of what it might do.

That is scenario planning. In the 1970s, large corporations, most notably the oil giant Royal Dutch Shell, adopted and expanded it to help organizations navigate uncertain business and political environments.

What scenario planning isn’t

Scenario planning re-enters the business imagination in periods of significant uncertainty. It was a popular topic of discussion during the pandemic and is again today because of trade tariffs, AI, social divergence and/or global conflicts. Unfortunately, many people discussing it on social media don’t understand the process and what it truly gives you.

Everyone understands the words “scenario” and “plan” and assumes that means they know scenario planning. Many think it involves determining how the future will play out. They believe a bunch of smart people in a room (or on a video call) for a couple of hours can come up with a scenario for the future on which they can base their business.

On the contrary, scenario planning was developed to counteract this tendency. It is not designed to predict the future. Instead, it avoids committing to a single expected outcome and generates a set of possible, plausible futures.

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Toward multi-future thinking

This approach is sometimes called “multi-future thinking,” in many ways, it captures the essence of the process much better. As a colleague once quipped, “They should have called it scenarios planning.”

At its core, scenario planning is a disciplined way to generate many possible future narratives, together with:

• Complete descriptions and stories about their implications.
• How we would get there.
• How to know if they are playing out. 

The key is developing a small set of possible futures — typically four to six — that span the full range of plausible outcomes, meaning genuinely possible futures, not just theoretical.

Building a robust strategy matrix

Management’s role is to: 

• Identify a shortlist of possible strategies (i.e., actions within the organization’s control).
• Test them against each of the plausible future scenarios. 

That produces a robustness matrix — a table revealing how each strategy performs across various futures. The matrix is where the real insight lies. It shows which strategies are resilient and which are vulnerable. 

Having been through this process many times, the power of that matrix is undeniable. You’re not predicting the future. You are taking control of your organization’s direction, regardless of how the future unfolds.

Getting started with scenario planning

If you want a more disciplined approach to planning, here are recommendations for getting started.

• Avoid any attempt to predict the future: Be especially wary of people with fixed views of “how things will play out” — no matter how loud, senior or experienced they are. They may be proven right, but you should not be betting your business on that
• Research the process: There is a wealth of literature on the process. Start with the accounts of what Royal Dutch Shell did in the 1970s
• Start a culture of “multi-future thinking”: Be explicit that there are multiple outcomes you want to thrive in. Betting all-or-nothing on one future outcome is for gamblers, not business people
• If you decide to go through a complete scenario planning exercise, give it time and effort: It isn’t a one-hour exercise. Two days is typical for most businesses. Having a consultant guide you is highly valuable if you aren’t trained or experienced in the process.

Final thoughts: Stop guessing, start preparing

Whether or not you choose to go down the full scenario planning path, you can start incorporating this thinking into your day-to-day decisions. This approach is liberating — you don’t need to guess the future but can still move forward with a robust strategy.

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