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Deal with uncertainty with scenario thinking

February 27, 2016

The worst and best case scenarios map variability        

 

 

In today's world of volatility, uncertainty, complexity and ambiguity (VUCA), one cannot simply plan for something and expect it to happen. In fact, you will find your budgets, which are plans that are suitable in a steady environment, becoming outdated within a month of being approved. While we cannot run a business without a budget, we must also be able to manage one where the budget was no longer valid. What we need is scenario thinking.

 

In scenario thinking, we create three different scenarios based on the assumptions that drove our business plans. After articulating all our assumptions, we create the best-case, worst-case and most-likely case scenarios. 

 

Best-Case Scenario

The best case scenario is one where ALL your assumptions are correct. After describing what this scenario looks like, you should create two things: (1) the indicators that tell us that we are in the best-case scenario, and (2) what we will do when we are in it. As the name implies, the  best case is really the upper end of uncertainty; what we can look forward to if we were actually rather fortunate. It provides us with the upside of the business environment.

 

Worst Case Scenario

If the best case scenario is one where all our assumptions were right, then the worst case would be one where they were all WRONG. Again, you should describe what this scenario looks like and then, identify the indicators that tell us we are in it, and what we will do if indeed we were there. But the worst-case scenario is also very instructive because it paints the downside of the business environment, and asks us whether it was something we could accept. If yes, then we have nothing to fear, and we can go boldly where angels fear to tread. But if we cannot accept the worst case, then we need to start building barriers, basically plans that we need to implement now to mitigate the downside. 

 

Most-Likely Case Scenario

The most-likely case scenario is not one that is in between the two, but a realistic assessment of each assumption and then stating what the most probable outcome would be for that assumption. When you pull all those together, you will essentially have the description of your most likely scenario, following which you will still identify the indicators and the actions you would take within it. That should come very close to your budget.

 

Limits of variability

In a sense, the worst-case and best-case scenarios define the limits of variability of your business situation. It defines how uncertain your situation can be, and asks you to plan your resources accordingly. Although one does not like variability, one must be ready for it. More importantly, it affords you the time to put plans in place to reduce that variability. 

 

Uncertainty is a way of life

We cannot simply plan uncertainty out of our life because one cannot predict what will happen in the future. But that does not absolve us from doing nothing about it. We should work to put plans into action so that we can have a semblence of normalcy. That is the most responsible thing to do in the face of constant uncertainty.

 

 

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