What is Scenario Planning?

Definition and Core Objective

Scenario Planning is a structured decision-making process that identifies critical events before they occur and uses this knowledge to determine effective alternatives.

It is the analysis of possible future conditions, including options and recommendations for responding to changing events. Unlike traditional forecasting, which seeks to predict the future perfectly, the primary goal of Scenario Planning is to enable agile responses and rapid recovery by modeling the impact of potential changes.

It allows organizations to move from asking, "What is the right number?" to asking, "What should we be concerned about, and what actions should we take?". It is specifically utilized when potential uncertainty exceeds the organization's ability to plan for it using standard buffers (like safety stock), helping leaders navigate "knowable surprises".

The Integrated Scenario Planning Framework

Effective Scenario Planning follows a structured framework consisting of two distinct phases:

Phase 1: Planning (Identify & Analyze)

• Identify Assumptions: Establish base case assumptions and define alternate scenarios.

• Define Drivers: Pinpoint internal and external variables (drivers) that could impact the plan.

• Analyze Impact: Calculate the probability and consequences (business impact) by asking "What-If?" to understand likely outcomes.

Phase 2: Implementation (Respond, Mitigate, & Monitor)

• Develop Responses: Define specific roles, responsibilities, and response plans.

• Define Trigger Points: Establish indicators or events that signal when a response plan must be activated.

• Reach Consensus: Business leaders must agree on the plan and triggers before the event occurs to lessen confusion during a crisis.

• Monitor: Continuously scan the environment for trigger points and implement the response when necessary.

Types of Scenarios

Scenario Planning typically involves creating multiple versions of a plan to test different conditions:

• Baseline, Upside, and Downside: A standard practice establishing a baseline (active) plan alongside high-growth (upside) and contraction (downside) versions to show the impact of demand volatility on supply and revenue.

• Worst-Case: Creating a low-probability "disaster" scenario early so leaders are prepared to answer stakeholders regarding "how bad could this get?".

• Ad-Hoc/Simulation: Creating scenarios on the fly (e.g., a sudden supply constraint or sales order) to perform impact analysis without affecting live data.

Role in the Planning Hierarchy

Scenario Planning is utilized across different horizons to align strategy with execution:

• Integrated Business Planning (IBP) (Long-Term): Used in Demand and Supply Reviews to evaluate risks (e.g., competitor price changes, capacity constraints). The Integrated Reconciliation Review (IRR) is the critical forum for planning "knowable surprises" and developing decision templates for the executive MBR.

• Integrated Tactical Planning (ITP) (Short-Term): Used in the 13-week execution window to manage changes beyond normal variation (e.g., production run rates slowing down). It involves confirming input data, developing analytics, and taking immediate action.

Technical Execution: Versions vs. Scenarios

Modern planning systems support Scenario Planning through specific technical capabilities:

• Versions: A full copy of all planning data (e.g., an "Upside Version") used for extensive, persistent alternative plans.

• Scenarios: Lighter, user-created simulations used to test specific changes (e.g., "What if I increase price by 5%?") without saving data to the live database.

• Promoting: Once a scenario is agreed upon, it can be "promoted" to the baseline plan, instantly updating the active system data.

About SIMCEL

SIMCEL unites your planning processes into one seamless platform. Whether you're optimizing inventory in Supply, refining forecasts in Demand, aligning financial strategy in Finance, or driving sustainability in Carbon—SIMCEL empowers your team to simulate, visualize, and align every decision across the business. Say goodbye to silos and hello to truly integrated, agile planning.