Wednesday, December 11, 2013

My Semi-Big Bang Theory of Scenario Planning

Most of us in healthcare strategy recognize that scenario planning is a critical step in developing strategies and plans. While we are very good now at quantifiably projecting detailed volume data into a five, or even a ten year, horizon it seems when you look beyond even two years these days uncertainty grows exponentially. And it grows fast. When you’re making big, long term capital bets on facilities and IT systems reducing uncertainty and building options and flexibility into your investments as much as possible is critical. I believe we need a better way to illustrate these uncertainties, the scenarios and pathways through them, and the options available to us so we can be smarter about the decisions we make.

Scenario planning was developed to deal with projected long term trends and the uncertainties created by them.  Most credit Shell with originating the discipline. Here are links to two articles that do an excellent job in describing scenario planning: http://www.economist.com/node/12000755; http://www.mckinsey.com/insights/strategy/the_use_and_abuse_of_scenarios
Typically with scenario planning you identify the forces and trends that will affect you in the future and then determine the uncertainties associated with them. With that knowledge you develop some fairly distinct scenarios and outline the various pathways to and through them that will help to mitigate the uncertainty. We’ve all seen the results of this analysis illustrated with some sort of graphic image. Most of us are familiar with the 2X2 grid resulting in four scenario blocks usually arranged according to some sort of timeline and/or risk assessment.

For me this is when scenario planning loses its value. I’ve never understood why we tend to limit ourselves to only four scenarios each seemingly equally weighted. I did a Google image search on scenario planning and got the following results: https://www.google.com/search?q=scenario+planning&tbm=isch&tbo=u&source=univ&sa=X&ei=5TmaUojVKOjJsAThr4CoAg&ved=0CGUQsAQ&biw=1093&bih=514
Notice that many of the images are of the 2X2 grid.

In today’s environment that’s not good enough. We live and work in a four dimensional world that moves forward at a brisk pace and most scenario illustrations are based on length and width and lack depth. Depth is important because it enables us to size the scenario and place it in proper perspective to other scenarios in time and space. Time is the fourth dimension and should always be part of the scenario illustration.
The other thing that bugs me is the nature of the grids themselves: They create solid boundaries between the scenarios and it forces us to think about them as distinct views that never seem to interact. Venn diagrams are much better at blending these distinctions but still suffer from the 2D limitation. What I’ve seen with the 2X2 grid is that folks tend to average out the scenarios and try to include a little bit of each one. They are hedging their bets and that will get you nowhere.

Life is mutable: Things are happening all the time that shape and mold what becomes of us. Human beings are very well equipped internally to navigate and adapt to the changes that life throws at us. And while outcomes are not pre-determined they are certainly determinable over time by the decisions we make every day. Scenario planning needs to be better equipped to reflect how we live and work and break us out of the limited scenario boxes we have created for ourselves. This may sound complicated to many of you in the C-suite but our brains are amazingly wired to understand complexity and make it simple. We just a need a better way to see.
I’ve been trying to imagine a better way to illustrate scenarios that would be much more useful to strategists and planners and here is what I came up with. Call it the Semi-Big Bang Theory of Scenario Planning (my apologies to Sheldon and Leonard and the real cosmologists out there).

Imagine a cone that grows significantly longer and wider over time from a fixed point much like the Big Bang is theorized to have occurred except I limit mine to an expanding cone.  Within that cone are bubbles that represent all the scenarios and variations thereof given the trends and uncertainties we have identified. The scenario bubbles are much more fine-tuned then you would find in a typical scenario grid and many are variations on the same scenario. These scenario bubbles then interact with other similar scenario bubbles like a Venn diagram. They also interact based on the timeline. The scenario bubbles can be bigger or smaller depending on what we think the importance of each one is. Others do not interact at all.
In the early part of the cone there are not that many scenario bubbles because we can reasonably predict what will happen in the next one, two, or perhaps three years. As the time line lengthens more scenario bubbles appear because uncertainty increases with time. However, some of the scenarios tend to coalesce and we begin to see specific pathways develop much like we see the dots in a scatter diagram gather around a trend line. Some of the scenarios will veer far away from others and some pathways might eventually join other pathways over time.

My graphic illustration skills are wanting so I am deliberately avoiding providing an image of this. It can only best be shown in architectural, or similar, software that provides multiple 3D views although a good graphic artist could render this nicely. You can move the cone around, which is transparent, and get different perspectives, adjust the timeline, and change assumptions all the while you are tracking the pathways.  You can now visualize pathways to success, the options you will need as time progresses, and the interrelationship of the scenarios to each other. This is how you take complexity and make it simple.
What have we accomplished here? First of all we have placed much more fine-tuned, actionable scenarios into four dimensions allowing the various scenarios to interact more robustly with each other. Second, we recognized that uncertainty increases with time but increased the number and variety of scenarios from the usual four box grid approach to provide some mitigation to the uncertainty. Finally, we have managed to create pathways through the scenarios that enable us to make choices, exercise options, and determine what we want to do. In other words we have introduced options and a flexibility we never had before over a much longer time frame then we are used to having matching the investments we make for the long term.

Now your investment becomes a very valuable asset over the course of its life because you have designed in some options and flexibility to your plans over the long term using this method. This is much better than having a single purpose fixed asset depreciate over time. And in The StratEx Crossroad asset appreciation, whether physical or intellectual, is always preferred over asset depreciation.  

 

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