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FMI Quarterly/September 2013/September 1, 2013

Scenario Planning: Building Confidence to Deal With an Uncertain Future

getty_piechart_imageHow valuable would it have been to your firm in 2008 to have a plan on the shelf for how your business would operate during a worldwide economic meltdown? How valuable would it be right now if your firm had a plan prepared for how to take advantage of a long period of high uncertainty?

These are exactly the kinds of contingency plans that you can develop when using scenario planning, either as a stand-alone process or as an integral part of strategic planning. Traditional planning processes direct energy into visualizing the ideal future for the firm and the actions that will take the firm there. Scenario planning looks at a range of possible futures, both ideal and otherwise. The problem with planning only for the ideal future comes when unexpected shifts change the marketplace and that ideal future suddenly moves out of reach.

In the past, it was enough to know your clients, keep a weather eye on your competitors and review your strategic plan every few years. Today, the firm leader deals with a business landscape that shifts from day to day.

Scenario planning is the process of looking at how current and projected future trends play out over time, and what happens when some trends play out more strongly than others do. An array of drivers is taken into consideration, and they are not always what we are accustomed to — they must be viewed at many levels from local impacts to international trends:

  • Economic
  • Political
  • Environmental
  • Social
  • Global
  • Technological

There are vastly differing opinions about what is happening in each of these drivers and how the current level of uncertainty will shape them going forward. The major difficulties firms have found with scenario planning are the expense and time investment needed to create future scenarios that are applicable to the organization. For the most part, the skills needed to build usable scenarios are not in the firm’s toolbox.

Some companies have tried to determine what seem like the best-case and worst-case scenarios and plan for both. But, as the forces behind the drivers listed above play out in the world and marketplace, the future will be much subtler than black or white; so plans based on only two alternatives do not offer a sufficiently robust framework for strategic planning.

True scenario planning, based on a variety of possible future situations extrapolated from actual trends, is the tool of choice for forward-thinking firms. However, the same difficulties remain. Companies tend to have deep knowledge about their own markets, clients and local or regional conditions that are key to their current business. However, they are not trained to do either the macro or fine-grained analyses of world and national trends and draw conclusions on the deep impacts these trends carry with them.

To mitigate this situation, in 2009 FMI’s Research Services Group took on the task of bringing together more than 50 leaders from firms in the design and construction industry, academia, clients and industry organizations to develop a set of base scenarios for planning use. The resulting four scenarios (see sidebar) are designed specifically for design and construction firms to use in their planning process. These scenarios were created by in-depth analyses of trends and key drivers, analysis of implications by the entire team and expert projections through 2020. The scenarios explore four different possible directions for how the future will play out, reflecting the complexity and changeable nature of the real world.

HOW SCENARIO PLANNING WORKS

Using the scenarios is a multistage process that draws out particulars for each firm’s unique situation and results in a specific set of strategies for steering the direction of the firm and contingency plans for the less likely, but still possible, scenarios.

The firm’s planning team must gain a strong understanding of the scenarios, the trends that they represent and why the future could play out according to each of the scenarios. The planning team then identifies the implications of the four scenarios on the company’s direct business environment as scenarios play out over time.

The next step uses these implications to adapt the scenarios to be specific to the firm. These enhanced scenarios take into account such things as the firm’s current markets, specific issues for the areas where they practice, the pressures on their clients, etc. Using the scenarios as the foundation, planning groups can quickly build firm-specific scenarios.

With firm-specific scenarios, the planning team brainstorms potential strategies to achieve success for the firm under each scenario. Comparison of the strategies for the four scenarios enables the team to find commonalities in the strategies, which gives the firm the most flexibility and responsiveness in its primary strategic plan.

The next step is to build a more detailed plan based on these common strategies. Using the best practices of strategic planning, the team crafts an implementation plan based on the selected strategies. For firms with multiple offices, business units or practice areas, the final step is to adapt the corporate strategic and implementation plans to fit each unit’s or geography’s specific needs and resources.

By examining how various strategies may play out over time, the firm also gains the ability to analyze how shifting trends could affect performance, enabling leadership to adjust strategies as needed. Flexibility and adaptability are central to future success and an intrinsic part of the scenario planning process. Part of the intent of the scenario planning approach is to develop skills in dealing with ambiguity and uncertainty. This process offers firms new levels of comfort in dealing with the uncertainties of our current environment.

Traditional, deterministic strategic planning that firms have used traditionally does not fulfill the needs of the volatile environment we now face. The belief that we have a crystal ball in which to see the future and can set clear strategies is a 20th century concept. In the 21st century, we must plan for a world where firms are flexible and react appropriately to a variety of significant, continuously evolving drivers. The scenario-planning process offers the opportunity to practice how to act in response to changing drivers. At the same time, it allows organizations the opportunity to build strategies and plans for setting direction, growing confidence in their ability to compete effectively and respond quickly to changes in the world.


FMI’S KEY SCENARIOS

FMI developed these four key scenarios during the A/E/C Futures Research Project in 2009. They can be adapted to an individual firm, offering the opportunity to create contingency plans for handling unexpected changes in market conditions and identifying the most likely future outcomes of current market trends.

Perfect World: In 2020 the world economy has fully recovered from the Great Recession and rebounded beyond expectations. A global, interdependent marketplace flourishes, in which private investment, low-cost capital, expertise, goods and services flow readily across market segments and national borders. Levels of innovation and collaboration are high, with government and private enterprises working to build each nation’s unique brand. Discipline experts of various nationalities work together to design and build projects to the highest degree of sustainability through a set of integrated project delivery practices that leverage technology to both accelerate the speed of design/construction and reduce risk. Our collective best minds attack common design/construction problems and develop leading-edge solutions to both global and local design and construction challenges, sparking worldwide interest in creating better, more sustainable, functional communities and infrastructure.

Struggle for Stability: It took longer than expected to recover from the Great Recession. Globalization stalls as both businesses and governments focus on rebuilding their local economies. Fears of “too big to fail” have led communities and governments to take a somewhat protectionist stance. As a result, companies harbor local jobs, expertise, materials and resources, bracing for the next lean cycle. Through continued government stimulus efforts and resulting public infrastructure investments, local pockets of prosperity emerge and grow, but the overall economy struggles to stabilize. Private capital flows slowly back into the design and construction market as the permitting and approval process is now diverted through both federal bureaucracies and local politicians, raising the risk to financiers. Design and construction firms have become leaner and more competitive; nonetheless, innovative project approaches and partnerships provide some market participants with work firms never would have realized otherwise. Recessions tend to spark new business and innovation, and the Great Recession is no exception.

Building Walls: The weakened economy of the Great Recession established itself as the new norm, with small gains unraveled by repeated monetary crises. Defense and survival become the focus of every country, community, city and corporation. As the walls of protectionism go up, partnerships and alliances within industries and across borders fall apart. Resources of all types are in short supply and competition for them is fierce. Consequently, governments throw themselves into defense spending and secure their borders to protect assets and demonstrate power and authority. Within the design and construction industry, business relationships are tense and litigious, with owners placing tremendous pressure on design and construction firms to come up with low-cost solutions. As a result, many firms have lowered their standards, taken on more risk and developed creative ways to deliver projects with fewer resources. Once unfathomable, unethical business practices are now considered standard.

Controlled Environment: Governance and capitalism were redefined in the new millennium. In response to the fallout from the days of laissez-faire deregulation, national governments across the globe have seized control of pillar industries to reduce national deficits and stabilize local economies. Under these circumstances, the design and construction sector is considered key to influencing economic and developmental policies. The latest 10-year stimulus plan contains directives as to what is planned, designed and built, as well as when, where and by whom. Unfortunately, an inevitable increase in bureaucracy slows production on the majority of design and construction projects, all of which must satisfy stringent government requirements for technology platforms, design specifications, materials, labor and cost. The scale of projects and developments constructed through forced collaboration is impressive to say the least; however, lateral thinking is not appreciated in a world where government knows best.


Steven J. Isaacs is a division manager for Architecture and Engineering Consulting Services at FMI Corporation. He can be reached at 925.934.7200 or via email at isaacs@fminet.com.

 

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