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Scenario Planning


Gosh that sounds a bit dull until you think

about it for a bit. If you are as old as me, you will have lived through many recessions, inflation, very high interest rates, several wars, negative equity, house prices going backwards etc. Sadly, I can now add a global pandemic to the list.


The challenge many managers face today is that we have lived through a long period of relative political stability, strong economic growth, low interest rates and rising asset prices. Wage growth remained low and the world was awash with money looking for investment opportunities.


I consider that most risk scenario planning is woefully inadequate. Take the pandemic, the response response from telcos, banks insurers and utilities providers was found wanting. Contingency plans were inadequate on many levels, people, tech, business forecasts and cash!

Over the last couple of decades we have seen the inexorable rise of the risk teams, often watching from the sidelines whilst managers excused away the need for robust plans because ‘it’s not likely to happen’. Then it did!

A wonderful old adage is to ‘hope for the best but plan for the worst’.

Never more apposite than now.


Q1 2022 has seen multiple disruptions, war, inflation, oil prices, interest rate rises, Brexit impacting, supply chains broken, and another Covid spike. A ‘great resignation’ has also compounded the ability of business to hire great talent.

So, get planning, get your leadership away with some wet towels for the heads and out of the comfort of the office/zoom.


Be robust and imagine the worst case, demand reduces, interest rates hit 6%, wages go up by 3%, supply chain cost increase and there is still a skill shortage. Energy prices rises need to be factored in.

Now imagine how you will cope. The cost reduction plans you have been avoiding don’t look so silly now, the investment in people you have delayed might just keep the talent you need, the contingency borrowing facility you haven’t asked for might be a good precaution. And the oft talked about move to be more green, cars, energy, paper usage etc might just help.

Above all, remember your customers! They are suffering as well. They won’t come back if you pass it all on now, they have long memories.

When the going gets tough, the tough get going!



Richard

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