The Importance of Scenario Planning to Businesses

The Wall Street Journal ran a story yesterday titled, “Pendulum is Swinging Back on ‘Scenario Planning.'”  Perhaps most interesting is the history of scenario planning.  Here is the link:

As I have written about previously on this blog:

those who own or manage a business will likely continue to find themselves in a very challenging economic and business environment.  As I’ve discussed in the following article:

there are quite a few things that businesses can do to mitigate and/or avoid the potential damage this economic weakness can cause.

Of course, it is unwise to generalize advice for all businesses, especially in an economic environment like that we currently have.  However, scenario planning (and the associated modeling) can be a very valuable tool in helping businesses understand their specific situation (options, vulnerabilities, opportunities, etc) over a range of economic scenarios.  It is paramount in effective business planning.

At this point, based upon the statistics I have seen, it would appear as if businesses in general are underutilizing scenario planning.  I think this is very unfortunate, as it exposes businesses to risks and uncertainty that may be avoidable.

Should this economy continue to deteriorate, as I have discussed extensively on this blog, businesses could face a very difficult and tricky environment that may well be unpredictable.  In such an unpredictable environment, scenario planning increases in value.

SPX at 892.56 as this post is written  


Copyright 2009 by Ted Kavadas


1 thought on “The Importance of Scenario Planning to Businesses”

  1. I share your enthusiasm for using scenarios to help manage uncertainties spawned by volatilities in the economy. You should, however, consider slightly less emphasis on the modeling aspects often ascribed to scenario planning. Scenarios are best used to manage uncertainty and modeling is an inherently predictive exercise. It is usually more productive to create a set of scenarios that is inclusive of the broadest possible set of future conditions and to use the set of scenarios to dichotomize responses between robust and contingent strategies. Too much reliance on modelling to create the set of scenarios will usually limit the parameters of uncertainty that need to be considered. Once the scenarios are defined, quantitative descriptions can by added to elucidate the effects of the qualititative assumptions.

    You might also be interested in a set of recession/recovery scenarios that have been created byt the Futures Strategy Group and are described on their web site at

Comments are closed.