The Butterfly Effect

How Scenario Planning Protects Businesses from National Events

by Erica Olsen of M3 Planning

We’ve all seen and heard the unsettling headlines pointing to a business slow down in this newspaper and in national news - "Home Foreclosures Skyrocket;" "Housing Market Continues Slump;" "Disappearing Sales Tax Revenue;" and "Credit-market Contagion From US Subprime Crisis Affects Global Economy."

Most of us consider such trends to be too national to have local impact. However, the chatter in our local business community would indicate otherwise as people are citing slower decisions with contracts, capital expenditures, and other big commitments. It is human nature to ignore the bad news than pay attention to  it. Whether you think you are immune to this slow down or not, consider the ramifications of disregarding such an economic change. Would you sleep better if you had a clear idea how to mitigate real risks in your business operations? One way to mitigate the uncertainty of the present is to plan for the future.

You may be familiar with the Butterfly Effect which theorizes that something seemingly innocuous, such as a butterfly's wings, may be the catalyst for something larger, such as a tornado. It is well worth your time to have a simple action plan for a couple of potential scenarios that could impact you. So if the impossible happens, all you need to do is implement the plan rather than scrambling to figure out what to do.  A scenario plan will help you do just that.

Scenario Planning: What If . . . ?

Scenario planning is a way of simplifying a complex future by providing you the opportunity to ask the "what if" questions and to rehearse how you may respond should a certain event or trend happen in the future.

Scenario planning was first developed and used by the U.S. Air Force during World War II. It gained acknowledgement in the business world when Shell Oil utilized scenario planning techniques to predict the oil crisis of the 1970s. For organizations, scenario planning provides an invaluable opportunity to have a strategic discussion around key drivers and critical uncertainties in your operating environment.

You may not always have time to do scenario planning, but consider doing a scenario analysis to push the bounds of your thinking. You never know what you might come up with!

With scenario planning, you’re imagining not just one, but a variety of future possibilities. All the great opportunities in the world aren’t enough unless you have contingencies in place. And remember, you’re not only preparing for unexpected threats but also trying to foresee unanticipated opportunities. That butterfly’s wings may be a catalyst for a bright clear day that drives an unexpected increase in business for you.

Erica Olsen (Erica@m3planning.com) is a principal of M3 Planning, making strategy a reality for entrepreneurial-spirited organizations. Her company runs MyStrategicPlan.com, a web-based strategic planning site for small and medium businesses. She is also the author of Strategic Planning For Dummies.